Gas has key role in delivering energy security
The government’s Future Gas Strategy is a clear signal about the central role of gas during the energy transition, but producers say more needs to be done to bring on new supply.
Gas has assumed a central role in Australia’s energy mix, but the biggest players in the sector say more action is required to deliver the right policy and regulatory settings to bolster investment in new domestic supply and infrastructure for households and industry.
Although Australia has substantial gas resources, the Australian Energy Market Operator has forecast potential annual supply shortfalls in the southern states from 2027.
With local production in Bass Strait approaching the end of its life, the nation’s southern states face the prospect of being increasingly dependent on gas transported from northern gas fields or on yet-to-be-completed liquefied natural gas import terminals to meet domestic demand.
The federal government’s Future Gas Strategy released last month includes a range of measures to increase domestic gas supply, including actions to encourage timelier development of existing gas discoveries; providing certainty on offshore exploration acreage releases; and working with gas producers to increase gas supply.
“For the energy security of all Australians, these policy revisions need to be urgently implemented,” Woodside chief executive Meg O’Neill says.
The firm has supplied energy to Western Australia for almost 40 years and pioneered Australia’s LNG industry in 1989.
“The energy supply and price challenges experienced in east coast Australia during 2022 were driven by the market being unable to respond to a sharp increase in gas demand caused in part by intermittent renewables generation and increased unreliability of coal generation,” O’Neill says.
“These issues were only resolved by gas producers stepping up to provide much-needed supply, including Woodside placing excess capacity into the Victorian and NSW short-term market to support energy stability over the winter period.”
ACIL Allen has estimated that the gas industry directly supported nearly 82.000 full-time jobs and contributed $84bn to the national economy in 2021-22.
A recent Australian Energy Update from the Department of Climate Change, Energy, the Environment and Water shows gas accounts for 42 per cent of the energy used by the local manufacturing sector.
Given there are more than five million residential and commercial customers using gas across all states and territories, O’Neill says bringing on new gas supply is key to ensuring reliable energy and putting sustained downward pressure on prices for Australian manufacturers, power generators and households.
“This becomes critical as Australia rapidly reduces its reliance on coal for power generation and develops large-scale renewable generation and transmission infrastructure,” O’Neill says.
“With further supply challenges forecast in coming years in both the east coast and WA markets, longer-term energy security will require investment in new gas infrastructure and supply.”
Yet the Victorian government effectively has banned all onshore gas exploration and development before scientific investigations can clear their environmental impact. In recent times, organisations such as Rewiring Australia, the Grattan Institute and Energy Consumers Australia also have advocated a move away from gas use in homes.
Some jurisdictions, such as Victoria and the ACT, even have implemented bans on gas supplies to new homes.
But the challenges of electrifying existing homes are likely to mean that natural gas remains an important household energy source for many years.
For businesses, there are also often high upfront costs transitioning from gas to electricity.
Firms currently struggling financially because of the tough macro-economic environment are unlikely to have the capacity to invest in new equipment, particularly when their existing equipment is still working effectively.
APA Group, an ASX-listed owner, operator and developer of energy infrastructure assets across Australia, says there is an immediate opportunity for the federal government to work more closely with states across a range of areas to boost the gas sector.
These include aligning on strategic objectives, acknowledging the need for gas to support domestic industry, and the reality that both natural gas and renewable gases are essential for Australia’s decarbonisation and to keep the nation’s industries internationally competitive.
APA chief executive Adam Watson says government policies aimed at restricting or reducing natural gas use are simply increasing uncertainty for investors in gas assets.
“The overall sentiment towards gas within most governments across Australia is shifting, with broad acknowledgment of the central role it must play in energy security, energy transition and powering Australian industry,” Watson says.
“That said, this sentiment needs to translate to actions.
“Governments need to work together and move faster to unlock domestic gas. The Australian Energy Market Operator has made it clear that Australia’s gas supply outlook has deteriorated further and the risks of shortfalls in the years ahead are real, so fast action is needed.
“Despite these warnings, we are still in an operating environment which has too many hurdles, including unnecessarily onerous approval timelines for new gas projects, exclusion of gas generation from the capacity investment scheme, and additional regulatory impositions, including the recently initiated review of gas pipelines by the Australian Energy Regulator.
“To put it simply, we are in an unworkable situation where one part of government is telling us to get on with it and you’ve got other parts of government pulling the handbrake on investment.
“This will inevitably end with a market failure, where we will see energy supply shortages, energy prices escalate, and our emissions will continue to rise.”
Watson also argues that standing in the way of new gas supply is “nothing more than a pro-coal and pro-blackout campaign”.
“These are the only outcomes we will see if we don’t proceed with the development of gas,” Watson says.
“We have just seen this happen in NSW, the extension of the Eraring coal-fired power plant – advocating against gas is effectively support to extend the life of coal-fired power and Australian taxpayers are funding it.”
He argues more certainty is needed over approval processes to unlock necessary investment.
“This will require governments to reduce red tape and provide a stable and sensible regulatory environment to ensure the industry has the confidence to invest,” Watson says.
“The commonwealth’s Future Gas Strategy definitely points us in the right direction to deliver a reliable, affordable and low-emissions energy system. But they are only words if we can’t bring new gas fields to market, like Beetaloo in the Northern Territory, and if we can’t transport gas around the country to meet the changing landscape of demand and supply.”
Jemena, which owns and operates a diverse $12bn portfolio of energy assets throughout northern and east coast Australia, says governments should facilitate the energy transition by avoiding the temptation to intervene in the market. They also need to ensure regulatory frameworks are sufficiently flexible and that approval processes support rather than hindered private capital.
While the firm says the private sector remains best placed to provide commercially responsive investment to meet domestic demand and avert supply shortfalls, managing director David Gillespie says an environment that supports long-term investment confidence is critical.
“The world is experiencing a once-in-a-lifetime shift to a net-zero future, the size and cost of which is unprecedented. To secure the amount of investment required, governments need to provide a stable framework in which the sector can operate and capital investment is encouraged,” Gillespie says.
“We have seen some positive moves in recent times, including the future of gas strategy and the establishment of GreenPower, a renewable gas certification scheme. However, we’d be keen to see this go further, with renewable gas being recognised by the National Greenhouse and Energy Reporting Scheme, the federal government’s framework for reporting emissions.
“This would enable large gas users to have their use of renewable gas formally recognised as part of their emissions reduction efforts and would help spur further development of the renewable gas sector.”