Wed, Feb 12 2025 12 February, 2025

Australia’s gas supply conundrum continues amid shortage warnings

Australia faces gas supply shortfalls despite gas playing a critical role in the country’s energy transition, a new report says.

Melbourne city skyline from the perspective of Port Melbourne (Photo: Wiki Commons/Bob Tan)

Despite being one of the world’s largest LNG producers and exporters, Australia is still having domestic gas supply problems. Worse yet, there seems to be no easy solution for the problem as it pits government policymakers, politicians, legacy gas producers, special interest groups and environmental watchdogs against each other in a battle that has both domestic and global consequences.

Against this backdrop, the Australian Competition & Consumer Commission (ACCC) issued a report on January 10th that’s as cautionary as it is informative. It said that east coast gas supply is enough for the immediate horizon to 2026, but new gas production and supporting infrastructure investment is not being brought online fast enough to avoid future shortfalls despite gas playing a critical role in the country’s energy transition.

Because most of Australia’s major cities (Sydney, Melbourne, Brisbane, the Gold Coast and Cairns) are concentrated on the east coast, gas supply problems in the region will not only impact the residential sector but become a drag on manufacturing and industry. Perth, for its part, with 1.3 million people, is on the west coast.

The southern states are already facing seasonal shortfalls and are dependent on gas being transported from Queensland. “Yet, any gas importation will not obviate the need to continue domestic gas production,” the report added.

Australian Parliament member Ted O’Brian warned in August that a gas shortage was going to “destroy” the economy, cause a “crippling energy crisis” and have Australians suffering the ignominy of “cold showers.”

Others, however, disregard such rhetoric as scare tactics. Tony Wood, the director of the Grattan Institute’s energy programme, said there’s no threat of people freezing in their homes or having cold showers. “That sort of noise doesn’t help,” he said, but he also admitted that there’s a serious problem that’s been developing over the past ten years. “But if you catastrophise it, then nobody will solve it,” he said.

More gas production

Tom Purdie, lead analyst for Australian LNG at Energy Aspects, told Gas Outlook that the most realistic approach to addressing these issues is through deregulation or policies that boost domestic production. “A prime example is Western Australia, where in 2020, the premier lifted the 100 percent domestic gas reservation for onshore gas, allowing producers to export 20 percent via available LNG facility ullage,” he said. “This policy not only aimed to reduce ullage and support exports but also anticipated spurring onshore developments to meet domestic demand post-2030 when the policy ends.”

“Diverting LNG volumes will become easier later in the decade, while the upcoming wave of LNG projects is expected to create an oversupply, which will in turn put downward pressure on prices,” he added. “As existing contracts between Australian suppliers and buyers expire, more spot LNG will be available for the domestic market. Although this LNG may cost more than current domestic prices, it will still be cheaper than importing from elsewhere,” he said. He added that in the East/South, the situation is different, as existing LNG facilities are operating near maximum capacity and already have backfill options in place.

The ACCC report, however, highlighted several obstacles that are preventing more gas production, including a lengthy regulatory approval process, large upfront capital costs, an uncertain policy environment, push back from environmental groups, and a lack of competition in upstream gas markets.” Measures are needed to improve the longer-term look that support efficient and timely investment on the east coast and an orderly transition of the electricity and gas markets,” the report added.

Some offer a different take, claiming that Australia doesn’t have a gas supply problem at all, pointing to what they consider excessive LNG exports. In 2023, Australia was the world’s second largest LNG exporter, valued at around US$90.6 billion, a 23 percent increase from the previous year. Though the country produces around 150 billion cubic meters of gas yearly, between 70 percent and 80 percent is earmarked for export.

Greenpeace Australia in a recent report also put forth the premise that there’s no real gas shortage problem but it’s really a matter of priority. Added to the fray, Australian gas producers can make more money by selling LNG to international buyers than they can by selling it at home. “Instead of keeping that gas for short-term Australian use, these companies are now telling Australians we ‘need to drill for new gas’ during a climate crisis. What a scam!” the report said.

Greenpeace pointed to the Burrup Hub gas development proposal to prove its point. The project is a A$50 billion LNG mega-project led by domestic gas giant Woodside Energy. It involves the development of two new massive offshore gas fields and other petroleum resources, including onshore fracking developments for export from Northwest Australia. The project, if approved, will mostly sell gas overseas instead of to domestic markets.

Expensive LNG imports

Another solution that the federal government has been working on is importing foreign-produced LNG for domestic usage. As counterintuitive as it sounds for one of the world’s top LNG producers to import gas, it’s about to happen. Squadron Energy recently completed the Port Kembla Energy Terminal, Australia’s inaugural LNG import facility, located in New South Wales (NSW). LNG imports are slated to begin next year which aligns with the ACCC forecast of east coast gas shortages after 2026. The facility is reportedly equipped to supply up to 500 terajoules of gas per day, making it sufficient to meet most NSW peak daily demand.

However, LNG imports could also have negative consequences. The ACCC report cautioned that expensive LNG imports could increase domestic gas prices, adding that continued domestic gas production will be important to limit risks to energy security on the east coast and market stability associated with reliance on international LNG markets.

One way to help Australia navigate its impending gas crunch is to build out more renewable energy sources. However, according to an Australian National University report, the pace has been too slow.  By the end of 2023, Australia had 56 renewable energy projects under construction, down from 72 a year earlier. One reason that more new wind and solar power plants aren’t being built is because there’s not enough new transmission lines, the report added.

There’s also bottlenecks in the planning and approval bureaucracy, meaning that things are slow to get built. This includes putting in place renewable generators and upgrading roads so equipment and machinery can be used safely. The ACCC’s next report on the country’s gas supply-demand outlook will be published in March.

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