Japan needs us to step on the gas

Japan’s major gas buyers have provided a welcome reality check for government about how vitally important our energy exports are for our most valued trading partners and regional allies. Without our gas, millions of people in Japan, South Korea and elsewhere would be unable to light and heat their homes, something that carries with it a high risk of political instability. This would be against Australia’s interest and would undermine the status we enjoy as a stable and trusted trading partner and security ally. On climate change grounds as well, too little is made of the role that Australia’s gas exports play in replacing the need to burn more carbon dioxide intensive fuels to generate heating and electricity.

The Albanese government must consider these broader ramifications as it stares down demands by the Greens and others to ban future development of fossil fuel projects in exchange for support for its signature climate policy, the revised safeguard mechanism. They also must force the federal government to rethink its ill-considered interventions into the domestic gas market, which are having a chilling effect on investment, and to forcefully reject claims by Victorian Premier Daniel Andrews that his state’s gas needs should be given priority over supplies already pledged to the export market under contract via Queensland’s Curtis Island LNG facility as production from Bass Strait runs down. The Australian Energy Market Operator has warned of looming shortfalls of gas in the domestic market due principally to the faster-than-expected depletion of Victoria’s gas reserves and the failure of planned import LNG facilities in Victoria and NSW to proceed.

Uncertainty has spread past the domestic market and is causing grave concerns in Japan, the world’s most import-energy dependent economy. Top Japanese gas companies have said Australian LNG will be needed in even greater volumes until at least 2050 and will play a critical role in the country’s clean energy transition. Global gas demand is forecast to increase to 500-700 million tonnes of LNG a year by 2050, up from a current 400 million tonnes. Japan’s forecasts reflect a similar trend.

Japanese buyers are concerned about interventions by the Albanese government in the gas market and growing calls to divert export gas to plug any shortfalls in domestic supply. Changes to the Australian Domestic Gas Security Mechanism could allow Resources Minister Madeleine King to decide each quarter how much gas could be exported from Queensland if the gas trigger is ever pulled. Ms King has sought to reassure companies the changes would introduce protections for long-term contracts. She has said Australia is “steadfastly committed to remaining a long-term, reliable supplier of resources and energy to Japan and to remaining a stable and secure destination for investment”.

But another problem brewing is government moves to set a “reasonable” price for gas producers as a way to stop them profiting from periods of high world prices. Already, these measures have caused confusion among gas producers and sparked a capital strike as companies reconsider their investment plans. If this continues, the government will have introduced a new element of sovereign risk into the domestic resources industry on which much of today’s economic prosperity has been built. Inpex chairman Toshiaki Kitamura, whose company owns the $US45bn Ichthys LNG project off Australia’s northwest coast, told Ben Packham Australia’s stable regulatory environment was vital for energy investors.

The federal government faces tough negotiations for its safeguard mechanism, particularly given the release on Monday of the Intergovernmental Panel on Climate Change synthesis report that redoubles calls for swift reductions in global carbon dioxide emissions. The reality is that gas will continue to play a major role in global decarbonisation for decades to come. There are promising developments in areas such as hydrogen production, including from Victoria’s brown coal reserves. Again, Japanese companies are playing a major role in these developments. Domestic politics and unreasonable climate ambitions must not be allowed to undermine the strong ties we have with our regional allies. The government must focus instead on safeguarding Australia’s energy security. This will not be achieved by undermining confidence in our resources sector. Rather, it will be achieved by pulling state governments into line to open up for development the resources that will be needed to facilitate the transition to a lower emissions economy – of which gas will be a vital part for decades to come.