ACCC warns Australia’s east coast remains at risk of gas supply shortfall

A gas supply shortfall is still possible for the east coast this year but big LNG exporters have enough spare capacity to plug any gap, the ACCC says.

A shortage of gas on Australia’s east coast this year is still possible despite an improvement in the outlook for the market, the competition regulator has warned, although LNG exporters have sufficient supplies to plug any gaps.

Users could face a supply shortfall of 30 petajoules of gas if the big Queensland LNG producers export all of their uncontracted gas, less than a 56PJ gap forecast in July 2022.

While the three LNG players currently have enough gas to dodge a domestic shortfall, some uncertainty remains in the market according to the Australian Competition and Consumer Commission.

“The east coast gas supply forecast for 2023 has improved, but the outlook remains uncertain as the LNG producers haven’t yet committed sufficient volume under firm contracts to address the risk of a domestic shortfall,” ACCC Chair Gina Cass-Gottlieb said.

Uncertainty in the supply outlook this year stems from lower than expected gas supply, including from the Northern Territory and Victoria’s Gippsland Basin while higher than expected demand for gas-powered generation could heighten the risks.

Still, LNG producers are expected to produce 146PJ more than their contractual commitments to domestic and international buyers, heading off any gap.

“This uncontracted gas could be sold domestically while allowing LNG producers to continue to meet obligations to international partners under existing foundational LNG contracts,” the ACCC said.

Even so, the new findings may sharpen tensions among energy producers still reeling from the Albanese government’s dramatic intervention into the market before Christmas in an effort to tame prices and boost supply.

A $12 per GJ price cap on gas has led to an ongoing standoff with gas suppliers, who stepped back from offering new volumes to buyers citing policy uncertainty.

The ACCC report shows LNG producers including Shell, Origin Energy and Santos have been net withdrawers of gas from the domestic market since 2021, buying more gas from other gas producers than they supply to domestic customers, which has worsened the gas shortfall.

“Demand for gas in the southern states is expected to exceed production by 52PJ from gas sources located in the southern states, which is equivalent to about 12 per cent of forecast southern demand.”

“While the latest information suggests forecast gas production from the Gippsland Basin will increase in 2023, this is offset by a reduction in forecast production from the Otway Basin due to unexpectedly poor performance of gas wells,” the ACCC said.

While official data released this week suggests the government intervention would indeed cool energy bills, the regulator said prices offered for supply on the east coast in 2023 increased sharply last year to the highest levels it had observed in the almost six years of its gas inquiry.

The average price of supply offers from gas producers to commercial and industrial users increased by 88 per cent to $19.77GJ between March and August 2022 compared to the prior six-month period.

However, those higher prices were not accepted by buyers, meaning the average price of supply contracts signed by producers increased by 30 per cent to $12.38 per GJ.

“The average price of gas being offered to Australia’s commercial and industrial gas users around the middle of last year was almost double what it was at the start of 2022,” Ms Cass-Gottlieb said.

Leading gas producers say they won’t finalise new supply contracts for 2024 until the Albanese government unveils its controversial mandatory code of conduct, as confusion over the wholesale gas price cap triggers opposition claims there could be rationing and blackouts.

Consultation on the mandatory code of conduct, which could result in a requirement for gas to be permanently sold at a “reasonable price”, will end on February 7.

“Our role monitoring and reporting on the market will be particularly important this year as it will provide an information base for assessing compliance with the price order and reviewing its effectiveness,” Ms Cass-Gottlieb said.

Two of Australia’s leading competition lawyers say the Albanese government’s gas price caps have created uncertainty and confusion in the market and will be ­extremely difficult to enforce.