Gas industry must change its tune as opposition mounts

To date, policy actions taken by the Albanese government that relate to gas have actually hindered the sector’s ability to continue to invest.

The new Labor government has made very supportive statements regarding the gas industry. The Prime Minister highlights that it “has a key role to play” in the energy transition. The Minister for Climate Change and Energy echoes the “need for gas”, while the Resources Minister argues Australia’s “gas resources are essential for energy security, stability … and will be needed for ­decades”.

However, in recent months, the policy landscape has shifted markedly against Australia’s gas sector. To date, policy actions taken by the new government that relate to gas have actually hindered the sector’s ability to continue to invest. This has serious implications for the future of Australia’s second-largest export earner, jobs, investment environment, energy security, emissions trajectory and the energy and national security of allies and trading partners in Asia and Europe.

Australia’s gas sector now faces policy challenges across multiple fronts. Regulatory changes are under way across gas taxation, east coast gas pricing, export controls, carbon policy, environmental policy reforms, project approval processes, availability of government support for industry initiatives, and industrial relations reforms. Each of these individual policy reforms has their own unique drivers, and is not co-ordinated with an intent to hinder the gas sector. However, there are five underlying currents behind a policy landscape becoming more challenging for the gas sector.

First, the gas industry is not popular amid rising public concerns about climate change, cost of living, and equitable sharing of resources/rents. There is little public appreciation for the value gas provides to Australia’s economy, manufacturing sector, jobs, energy security or foreign trade. Much of the public debate is skewed by selected information from narrow interest groups. Many key stakeholders are hostile rather than supportive. And social licence challenges are increasingly becoming a legitimacy issue.

Second, Australia’s gas industry is at the most vulnerable phase of its lifecycle. The large growth booms in Australia’s gas sector appear behind it as industry moves to harvest mode. The risk of government interventions harming growth projects is no longer a significant policy consideration.

Looking globally, this can prove a ripe moment for more interventionist governments with budget pressures to increase government take and intervene more.

Third, the new make-up in parliament, involving the Greens and teals – who campaigned on environmental platforms – skews the political calculus against the gas sector. This comes atop the public sentiment issue, which makes political support for gas more challenging as well. Indeed, policy that hurts the gas sector is playing well politically.

Fourth, the environmental movement is becoming more extreme. Climate and environmental consideration are rightly a priority for Australia, investors and the energy industry. But pragmatic environmental organisations are being crowded out by more extreme positions competing for fundraising dollars. Environmental advocacy is proving louder and more numerous in Canberra, as environmental organisations have become better funded and more sophisticated in campaigning for their goals.

Finally, the gas industry is struggling to find a voice. It has caught itself flat-footed under the new government. Many in the Australian gas industry were not around when we last had a stable Labor government, and relationships with Labor are less mature. Many in industry are also struggling to engage with the government, which has unique factional and political drivers.

Is this the beginning of the end of Australian gas? In isolation, the gas industry is likely to have gone along with many of the policy changes currently under way. But the collective position, with no counterbalancing supportive policy developments, is seeing the ­industry reassess whether investment in gas is still welcome in Australia. The prospect of entering extended decline is now a well canvassed discussion topic within the industry. Many in industry are raising hurdle rates and reducing price assumptions, which will see investment drop. Australia’s homegrown energy companies are now seeking to deploy capital abroad rather than at home. And many of the policy interventions are likely to require further interventions to address unintended consequences, which could set off a negative spiral for the sector.

But it is not too late to right the ship. The gas industry, too, needs more focus on actions rather than words when it comes to improving their public and political standing. This means being proactive to finally address its social licence standing, trying to find a new and effective way to work with the government, and if all else fails, considering contingency and campaign planning to bridge the next election cycle or two.

This requires doing things differently. Waiting to be hit with policy headwinds and then complaining afterwards will continue to be a failing strategy. Ideally, our gas industry needs to find ways to work with the Australian government if possible, recognise which battles are worth fighting and where compromise is a better outcome, and seek any avenues where it can be an ally of the government and its policy priorities.

Most importantly, it is finally time for the gas industry to act on its deteriorating social licence. The gas industry would be in a much better position if it had a stronger social standing, including a broader appreciation by stakeholders and all Australians of the value gas provides to Australia’s economy, jobs, energy security, local communities and regional trade and security. Industry has known about its deteriorating social licence for years yet has not done much about it.

The recent policy shifts are signs that the deteriorating social licence is finally starting to bite practically. A key question for industry is whether this will be enough of a wake-up call to pursue a more proactive approach to social licence before it’s too late. This will require campaigning to rebuild the public perception of the industry. It will take time. But headwinds abound unless the narrative regarding gas is changed.

Saul Kavonic is head of integrated energy and resources at Credit Suisse.