By Mike Foley
You won’t hear politicians admit it, but the nation’s south-eastern states need to import gas and moves are afoot to quietly make it happen.
The reason they won’t admit it? Because of twin failures and decades of inaction.
NSW and Victoria are running out of gas and have little option but to import it. Credit: Getty Images
Australia is one of the most gas-rich nations in the world and one of the largest liquefied natural gas (LNG) exporters behind the United States, but gas import terminals are widely viewed as the best bet for NSW and Victoria to fill gaping holes in supply.
The two states that are home to more than half of Australia’s population have no near-term prospects of replacement gas supply. How did we get ourselves into this situation?
First, state and federal governments allowed the companies that built the Queensland gas fields to export gigantic volumes of gas through Gladstone port, with no requirements to set some aside for local use.
Second, NSW and Victoria have known for almost half a century that their traditional supply, the giant Bass Strait gas fields, would run out, but it is dwindling with no replacements in place.
Third, the gas pipeline from Queensland’s gas fields is already running at capacity and there’s little prospect of building a new one, given the huge price tag and the fact it won’t operate for long enough to recoup costs. Australia is committed to switching off fossil fuels and reaching net zero emissions by 2050.
Victoria is ending its hostility to new gas projects and removing hurdles to boosting supply in a bid to stop the south-eastern seaboard from running dry in coming years and prevent blackouts that could follow.
The state’s Energy Minister, Lily D’Ambrosio, has emphasised the need to cut gas use by getting households to switch to electrical appliances, and in June granted the first Victorian gas production licence since 2014. In September, she announced new draft laws would be introduced to parliament to enable offshore gas storage projects to be developed in Victoria.
These measures still won’t stop gas imports.
The consumer watchdog warned – again – in September that Victoria and NSW could run short of gas in the coming winter, on cold days of peak demand, and an ongoing, annual shortfall would hit by 2027.
In fact, if it were not for desperate measures by the federal government and energy agencies, NSW and Victoria would have run short twice in the past three years.
In 2022, the Albanese government capped gas prices and made producers guarantee domestic supplies. This year, big gas users such as manufacturers and smelters will be paid to reduce consumption in a bid to lower the risk of households running out.
Rick Wilkinson from energy advisory firm EnergyQuest says such interventions will not cut it for long and that import terminals are the only viable solution.
“We should bring on whatever gas projects we can when it’s available and if it’s lower cost than importing,” Wilkinson says. “But our analysis is clear that even if you did all of that, it won’t happen in big enough volumes quickly enough.”
That means instead of piping in cheap gas from local projects, it will be shipped in as super-chilled, compressed LNG. LNG needs to be decompressed via a converted tanker, which costs up to $300,000 a day to run, and then brought onshore via terminals being built at Port Kembla in NSW and Geelong in Victoria.
Even this might not come soon enough.
Viva Energy, owner of the Geelong oil refinery, was originally supposed to open a terminal this year, but was delayed by a drawn-out environmental approval process and state government demands for additional information. Viva has resubmitted its plan, but gas won’t flow until mid-2028.
Squadron Energy is developing the Port Kembla terminal. It has said the project could be operational as soon as next year, but gas shortfall forecasts show it needs to come online as soon as possible.
Wilkinson says imports make the most financial sense, arguing they are cheaper than building pipelines from where excess gas was available around the country – namely Western Australia and Queensland.
“Our analysis shows that it is 10 times the capital investment required to build a pipeline from Western Australia to Moomba [in South Australia, to join the east coast gas network] than it is to build a gas import terminal,” Wilkinson says.
It won’t be long until we see LNG tankers lining up at ports, but the problems that brought them there should have been spotted on the horizon long ago.
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