Labor states Victoria and South Australia face off over gas supply

South Australia’s Labor government has taken aim at Daniel Andrews for ­restricting gas development as power prices soar.

Daniel Andrews and the NSW Liberal government have now both backed a West Australian-style domestic reservation scheme for the east coast. Picture: Luis Ascui

South Australia’s Labor government has taken aim at Victorian Premier Daniel ­Andrews for ­restricting gas development in the midst of soaring power prices

The growing divisions ­between ALP-run states on the energy crisis came as electricity and gas retailer Origin Energy posted a 64 per cent rise in its gas revenue to $2.77bn for the September quarter and predicted another ­future boosts in its earnings.

Mr Andrews and the NSW Liberal government have now both backed a West Australian-style domestic reservation scheme for the east coast, which would set a level of gas that producers have to supply locally ­before ­considering exports, with a goal of decoupling prices from the soaring international market.

After being asked about the Victorian Premier’s call for an east coast reservation scheme, South Australia’s Labor Energy Minister, Tom Koutsantonis, said it was “interesting to see reservation policies being advocated by governments that don’t allow gas ­developments to proceed”.

South Australian Energy Minister Tom Koutsantonis. Picture: Brenton Edwards

“We will consider all options on the table, but any solution to the national energy crisis needs to be comprehensive nationally, not state by state,” he said.

After a meeting of state and ­energy ministers last week, Victorian Energy Minister Lily D’Ambrosio denied that the state’s gas development restrictions affected prices. “It’s not a supply issue. It’s an absolute profiteering issue,” she said.

Victoria’s moratorium on ­conventional onshore gas ­exploration was lifted in 2020, but it retains a ban on unconventional extraction such as fracking.

Australian Petroleum Production and Exploration Association chief executive Samantha McCulloch said there had been “no gas coming out of the ground in onshore Victoria for many years due to moratoriums and bans that have stifled investment in new supply that would put downward pressure on prices”.

“These same bans mean that Victorian households and businesses pay at least an extra $2 per gigajoule when they need to transport gas from Queensland,” Ms McCulloch said.

The electricity and gas retailer reported a 64 per cent rise in Australia Pacific LNG revenue in the three-month period to $2.77bn from the same time a year ago, while its average price for domestic gas jumped to $12.44GJ from $6.36GJ in the prior quarter.

The company said the average domestic spot gas price for the September quarter was $26GJ, down from $29GJ in the June quarter, but more than double $11GJ in the same quarter a year previously.

The average domestic gas spot price remains below export gas ­prices, Origin said, calculating LNG netback prices averaged $44GJ over the past quarter.

With unions and manufacturers pushing for a $10GJ domestic gas price cap, Anthony Albanese said “price was a major issue we need to deal with”.

“We’re working through, very carefully, what the best options are,” the Prime Minister said. “We know that households and businesses are under pressure and we want to ­alleviate that pressure.”

NSW Treasurer Matt Kean – who has also been criticised for stalling on the Narrabri gas project – backed a domestic reservation, but said he doubted it would bring prices down in the short term. He argued the focus needed to be direct government subsidies on electricity bills.

He said the proposed price cap on gas being considered by the federal government needed to be extended to coal and in place by the end of November to be effective.

“Gas is only setting the spot price of electricity for 50 per cent of the time; the other 50 per cent, the price is being set by coal,” Mr Kean told Sky News.

“So putting a cap on gas or putting a gas reservation policy in place is not doing the trick … You’ve got to be looking at coal as well as gas.”

Federal Resources Minister Madeleine King said it was difficult to replicate the West Australian reservation scheme across the east coast, where a lot of the gas is ­contracted and coming out of Queensland. “It is very difficult to retrospectively put in a reservation policy after you have had investment go in,” Ms King said.

“And this is tens upon tens of billions of dollars (of investment). So the risk is around breaching international investment rules and World Trade Organisation rules. Although we respect and totally support Western Australia’s reservation policy, retrospectively putting one across eastern Australia is very complex and problematic.”

Ms King said there were also complexities with implementing gas price caps.

Former ACCC boss Rod Sims said Victoria’s gas development policies over the past decade had contributed to the crisis.

“It was a ban on conventional and unconventional gas. That ban did have an effect in the sense that there is gas onshore in Victoria and developers have been prevented from developing it,” Mr Sims said.

“So there is no doubt that ban has led to less gas being available in Victoria. That is true.

“The only point I would add is we have got a current crisis with energy prices and you can cry over the spilt milk all you like, but I think to fix it we need to demand more supply from the Queensland LNG producers.

“It is not so much a reservation as requiring them to put more gas into the domestic market to get the price below $10 (a gigajoule).”

Queensland Energy Minister Mick de Brenni backed Victoria’s claim that the price crisis was not a supply issue, but would not say whether he supported a reservation scheme.