Australia’s energy market is one hiccup away from a major crisis, again. The gas market train wreck – long visible on the horizon – is now in front of us. Set in motion by Labor’s hostile gas policies since 2022, there are no easy levers left to pull to keep the lights on, while also keeping us warm in winter, and manufacturing jobs going. And it is only going to get worse in the years ahead.
The Australian Energy Market Operator has warned that supply of gas may be inadequate to meet demand. Gas prices have more than tripled, and power prices are following suit. This is driven by Bass Strait, Victoria’s main source of declining gas supply, undergoing necessary maintenance at a time when energy demand is rising in a cold winter. It is compounded by lower renewable and coal generation, resulting in the power system drawing more from the gas market at the same time. Victoria’s main gas storage facility, Iona, is depleting at a rapid rate. Alternative gas supply from Queensland is constrained by pipeline capacity to fill the gap.
The gas industry is scrambling to try to squeeze out any incremental supply, going as far as blending extra LPGs into the gas stream to eke out an extra per cent or two of production. Every lever to lift supply has now been pulled.
We are now one more unplanned outage away from a full-blown energy shortage crisis. And it’s only June. The rest of winter still awaits. With Bass Strait capacity only heading lower, even less gas will be available when needed to bridge the gap in years ahead amid increased unreliability from a renewables-filled grid and ageing coal fleet.
If the situation worsens, the remaining choices for the government and the regulator become tough.
In the first instance they may seek options such as burning some oil instead of gas for power, despite the higher emissions, and redirecting gas and storage flows even if it means breaking contracts (with serious negative repercussions for energy security the next time round). But these are limited measures and soon enough they may need to choose between keeping gas-intensive manufacturing jobs going, keeping us warm and keeping lights on. We enter the socialist world of rationing.
In 2022, Australia was on the brink of a market collapse, posing the need for severe gas and power rationing. Today’s market appears a repeat of the 2022 crisis.
Except this time Energy and Climate Change Minister Chris Bowen can’t try to blame the Ukraine war, or the collapse of a retailer, for the high prices and risk of shortages. This time, it is simply and clearly a shortage of gas supply in the southern states that is the problem. This government was warned that its draconian 2022 gas price cap policy would lead to lower investment and lower gas supply. Victoria’s hostility to gas exploration and imports compounded the matter. Now the chickens are coming home to roost.
By evading the true cause of the problem last time, the government has been unable to avoid it repeating this time. Industry has repeatedly warned that without encouraging more investment to stem gas decline in the southern states, the risks would only get worse in the years to come.
Yet all of Labor’s policies have hindered the gas industry from being able to invest to avoid shortages. Labor’s gas price cap has paradoxically resulted in higher prices than if the cap had never been introduced, as it delayed investment causing the market to be tighter. Another warning of an unintended consequence the government failed to heed.
The government’s recent Future Gas Strategy belatedly acknowledges the problem. But actions speak louder than words. To date, Labor has done nothing to deliver on the strategy to improve the gas supply situation and undo all the damage it wreaked to get us here. All Labor’s harmful gas policies remain in place.
Hopefully, with some luck the market will manage through the current winter with only limited actual shortages, although high prices now seem unavoidable. But hope and luck is what we are relying on at this point, and this isn’t a sustainable strategy for an energy market.
We need to listen to the alarm bell that is ringing now so a small crisis today doesn’t become a bigger one down the road.
At current policy settings, it is inevitable that Australia will face a much bigger energy train wreck. It’s only a question of if it is as long as a few years, or as soon as a few weeks, away.
Saul Kavonic is an energy analyst with MST Marquee.
