By Nick Toscano
Energy giant ExxonMobil is warning millions of Victorians who rely on gas for heating, cooking and hot water face the threat of price spikes and possible supply shortages if the Andrews government proceeds with a proposal to halve gas use by the end of the decade.
United States-based ExxonMobil – operator of the Bass Strait oil and gas fields off Victoria’s coast – is growing increasingly concerned about the prospect of aggressive targets to slash gas consumption as the government builds a strategy to reduce the state’s high reliance on the fossil fuel.
Victoria is the state’s biggest user of natural gas in heating, hot water and cooking.Credit: John Woudstra
While the targets have not yet been formalised, government officials at a meeting that included gas industry representatives and environmental groups in February cited modelling for multiple scenarios that indicated a 25 per cent cut by mid-decade and a 50 per cent cut by 2030, two sources familiar with the presentation have confirmed.
The Andrews government is conducting public consultations for a Gas Substitution Roadmap that will outline plans to achieve Victoria’s emissions reduction targets including using electrical appliances for heating rather than gas, improving energy efficiency and focusing on alternative fuels such as hydrogen or biogas. Although natural gas remains widely used in Australia and across the world, efforts are under way globally to cut the use of all fossil fuels as part of an accelerating push to avoid catastrophic global warming.
In a speech to be delivered at the Australian Domestic Gas Outlook conference on Tuesday, Exxon Australia commercial director David Berman says the policy threatens to deter companies from investing in enough new sources of supply to avoid what authorities warn is a looming shortage of the fuel in south-eastern states in coming years.
“The magnitude and timing of these demand reductions means the Victorian Gas Substitution Roadmap is a significant risk to the gas investments that will be needed in the state, and is the single largest threat to near-term gas supply for the 80 per cent of Victorian households that rely on gas for heating, hot water and cooking,” Mr Berman says.
“To keep market prices down and ensure supply over the next several years to the millions of homes and businesses that rely on gas, more investment is required.”
Although Australia is one of the world’s top shippers of liquefied natural gas (LNG), most of it is produced in the nation’s north, far away from demand centres in the south, and is sold on long-term contracts to overseas buyers. The Australian Energy Market Operator (AEMO) has issued a warning about winter gas-supply “scarcity risks” emerging in Victoria, New South Wales and South Australia from as early as the winter of 2023, as output from existing fields dries up.
Victoria is Australia’s largest consumer of residential gas, with more than 2 million households and businesses using the fossil fuel for heating, cooking or hot water. The prospect of an impending shortage has also been intensifying concerns among manufacturers that depend on gas for energy or as a raw material. In 2019, Dow Chemical cited rising gas prices as one of the reasons for closing its plant in Altona in Melbourne’s west. Last year, fertiliser manufacturer Incitec Pivot openly blamed gas prices when it announced it would shut down its 50-year-old Gibson Island plant in Brisbane.
Conservation groups, however, say authorities’ predicted gas shortfalls are far enough away for the government to focus on reducing gas demand – such as by encouraging a switch from gas to electric appliances or banning new residential gas connections – without needing to boost supply to avoid price shocks.
Environment Victoria campaigns manager Greg Foyster said ExxonMobil appeared to be launching a “pre-emptive attack” on a Victorian government policy that had not yet been released.
“What’s really going on here is that the gas industry is scared of losing customers because people are realising it’s now cheaper to heat their homes with electricity than gas,” he said. “So they’re trying to spook the government with a scare campaign before that policy is released.”
Victorian Energy Minister Lily D’Ambrosio said consultations were under way on “gradual transition pathways” to substitute gas and achieve Victoria’s emissions-reduction targets, while also ensuring gas was still available to those who need it most.
“Gas is no longer the cheap fuel it once was – to help address this we’re assisting Victorians to shift to cheaper clean energy alternatives as we transition to net zero emissions by 2050,” she said.
“We are not considering penalties or requirements for those who want to continue using gas.”
ExxonMobil and BHP’s jointly owned Bass Strait oil and gas fields have traditionally supplied up to half of Australia’s east-coast gas demand, but have recently been in rapid decline.
Last week, ExxonMobil announced it had given the financial go-ahead to expand gas development from the Kipper field and was approaching another decision to boost production from the Turrum field, two projects the company said would amount to a $400 million investment.
However, Mr Berman says that “supportive government policy” would be crucial to determining whether the Turrum investment proceeded. “We will carefully evaluate whether to proceed with or discontinue those additional investments considering any policy decisions related to the Victorian Gas Substitution Roadmap,” he says.
A landmark report by the International Energy Agency (IEA) last year warned investors must avoid funding any new oil and gas fields for the world to achieve the Paris Agreement’s goal of limiting global temperature rises to 1.5 degrees. United Nations secretary-general Antonio Guterres said scientific warnings about the dramatic effect of human-induced climate change “must sound a death knell” for all fossil fuels “before they destroy our planet”.
Mr Foyster said the Victorian government was taking the right approach by working on gas substitution plans, and using efficient electric appliances for heating instead of gas would “save households money and reduce emissions”.
“The only loser is the gas industry so they’re making speeches like this to defend their interests,” he said.
The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.