Gas crisis as Chris Bowen calls on reserve supplies

New gas projects will be forced to provide supply to the domestic market, with an east coast reservation scheme to be considered under a sweeping review into the regulations of the sector by the Albanese government.

Chris Bowen has opened up a review into the gas sector. Picture: Bloomberg

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New gas projects will be forced to provide supply to the domestic market, with an east coast reservation scheme to be considered under a sweeping review into the regulations of the sector by the Albanese government.

After the consumer watchdog warned the supply outlook for domestic gas supplies had deteriorated, Climate Change and Energy Minister Chris Bowen unveiled a “holistic review of the policy mechanisms designed to ensure Australian gas is available to Australian users at reasonable prices”.

As Mr Bowen acknowledged the green hydrogen industry was facing difficulties after The Australian revealed another major project had been axed, the minister said securing more gas was crucial “as we transition to renewables”.

Despite Labor opposing Peter Dutton’s push for an east coast reservation scheme during the election campaign, Mr Bowen on Monday revealed his intention to force new developments to provide supply to locals.

But unlike the Coalition’s pre-election policy, Mr Bowen said new rules that come out of the six-month review would not have an impact on export contracts LNG giants had already signed with overseas customers.

“It is important, if there is new supply, that Australians have a chance to get access to it,” he said. “New supply, wholly for export, will not help Australia’s domestic gas needs. New supply with appropriate standards to ensure Australians get access, obviously, will potentially play a role.”

While Mr Bowen said gas was crucial over the next decade to fuel heavy industry, he remained positive about the future role of green hydrogen despite the axing of the $12.5bn Central Queensland Hydrogen Project.

The failure of the Gladstone project has elevated concerns about the viability of the emerging sector, with $100bn of green hydrogen projects either stalled or cancelled.

“I’ve seen no other option to decarbonising heavy industry and moving away from gas than green hydrogen,” Mr Bowen said. “Green hydrogen remains very important for the decarbonisation journey, and it remains the fact that there are a relatively small number of countries around the world – Australia and a few in the Middle East, primarily – who have the capacity to develop a substantial green hydrogen industry for export. That’s a remarkable opportunity for our country.”

The gas review – to be handed down by the end of the year – will examine existing policies to encourage producers to sell locally at competitive prices, including the Turnbull government’s unused Australian Domestic Gas Security Mechanism which gives the resources minister the power to force producers to divert supply to the local market if there is a projected shortfall.

It will also consider the efficacy of the Albanese government’s reforms aimed at increasing domestic supply, including the industry code of conduct and the 2022 heads of agreement with major LNG producers.

The review will examine how the sector can help meet “legislated emission reduction obligations to ensure energy security as Australia and its key trading partners transition to net zero”.

“In addition to reviewing these existing mechanisms, the Australian government will consider options to consolidate and streamline regulations and create a long-term stable regulatory environment to support investment certainty,” the gas market review consultation paper says.

While Mr Bowen claimed Labor’s reforms had increased domestic supply, an Australian Competition & Consumer Commission report released on Monday found “total gas supplied by producers into the domestic market has fallen since 2022, while LNG exports are higher”.

The ACCC report showed policy settings were flawed, with most producers exempt from meeting the industry code’s requirement to offer gas to the domestic market at $12 a gigajoule.

It also argues the heads of agreement — that LNG producers provide uncontracted gas to the domestic market before exporting — had not lowered prices for Australian users.

“Domestic prices continue to be shaped by international and domestic supply-demand dynamics,” the report says.

“Producers have said that they paused investment in and production of gas because they considered there was too much regulatory uncertainty over 2022-23 for them to be confident to commit capital and undertake production expenditures.”

Australian Energy Producers chief executive Samantha McCulloch said the review should focus on bringing on new supply through streamlining regulation and “restoring market signals”.

“Natural gas will play a critical role in Australia’s energy mix for decades to come. The east coast gas market needs to be fit-for-purpose to support continued investment in our abundant gas resources and avoid projected shortfalls,” Ms McCulloch said.

Australian Chamber of Commerce and Industry chief executive Andrew McKellar said the most important issue was increasing the supply of gas.

Mr McKellar said it needed to be “carefully examined” whether a reservation scheme would encourage the opening of new gas fields.

“We have known for some time there is a level of dysfunction in the east coast gas market,” Mr McKellar said. “We have a number of measures to correct for that dysfunction but I think a more comprehensive review is timely.

“The fundamental issue is supply. We need to ensure that the incentive is there for sufficient exploration and production to service the domestic market and to also have a viable export industry.”

Australian Industry Group chief executive Innes Willox said the review should leave “no stone unturned to ensure we have continued extraction, distribution and supply as our energy mix continues to evolve”.

The ACCC report found the short-term outlook for gas supply had deteriorated since December 2024, with a potential shortfall by the end of the year if LNG producers exported all their uncontracted gas.

“There is a risk of shortfall in each quarter in 2026 if LNG producers export all their uncontracted gas,” the report says.

“The southern states face the prospect of continued shortfalls into 2027, with the decline in supply forecast to outpace the decline in demand.”

The ACCC says it is essential Labor consider how it could free up more gas for the domestic market before the country’s three LNG exporters renew foundational contracts that expire in 2031.

The recommendation again puts the country’s three LNG exporters — Gladstone LNG (GLNG), owned by Santos; Australia Pacific LNG (APLNG), part-owned by Origin Energy; and Shell’s The Queensland Curtis LNG (QCLNG) — in the spotlight, though any follow through by Labor could hit Santos harder.

APLNG and QCLNG are net contributors to the domestic market.

In contrast, Santos produces insufficient amounts of gas in the region and buys from the domestic market to meet contractual obligations, a practice that critics insist fuels domestic pressure.

Critics have routinely argued that Santos should be curtailed in the practice, with the ACCC hinting it would support any limits on the toll on the domestic market.

Opposition energy and emissions reduction spokesman Dan Tehan said supply shortages would be fixed very quickly with immediate action.

“A review should not be a substitute or delay actions that the government can do right now to bring down power prices and avert gas shortages,” Mr Tehan said in a joint statement with resources spokeswoman Susan McDonald.