Labor puts gas companies on notice as supply shortfall looms

Australia’s three largest east-coast gas joint ventures have held an emergency meeting to discuss shoring up domestic supplies through a voluntary new agreement after federal Resources Minister Madeleine King raised the prospect of invoking unprecedented export controls by the start of next year.

Representatives from the three exporters – the Origin Energy-backed APLNG,Shell’s QCLNG joint venture and Santos’ GLNG – joined a conference call on Monday afternoon,according to senior gas industry sources familiar with the talks.

Australia’s east-coast LNG joint ventures are seeking to assure the market that they will supply enough gas to avert the threat of any shortfall next year.

Australia’s east-coast LNG joint ventures are seeking to assure the market that they will supply enough gas to avert the threat of any shortfall next year.Krystle Wright

The meeting was convened by their industry group,the Australian Petroleum Production and Exploration Association (APPEA) and discussed the drafting of a non-binding “heads of agreement” to take to the Albanese government in a bid to formalise their commitment to plugging a looming shortfall that authorities say will hit the eastern seaboard by next year.

In its latest report on the gas market,the Australian Competition and Consumer Commission on Monday said it expected a shortage of 56 petajoules is now expected in 2023,equivalent to around 10 per cent of domestic demand. It is the largest projected shortfall since the ACCC began its long-running inquiry into the east-coast gas market in 2017

On Monday,King announced she was preparing to issue a “notice of intent” to invoke the Australian Domestic Gas Security Mechanism (ADGSM),a policy that would curb exports of liquefied natural gas (LNG).

“Once the mechanism is available,I will take the first step in activating it,” she said.

Madeleine King:“Once the mechanism is available,I will take the first step in activating it.”

Madeleine King:“Once the mechanism is available,I will take the first step in activating it.”James Brickwood

Treasurer Jim Chalmers said the ACCC’s latest report from its ongoing inquiry into Australia’s gas supply “highlights some alarming features of the east coast gas market”.

“It projects a significant gas shortfall for next year unless gas producers supply more of their uncontracted or excess gas to the domestic market,” Chalmers said.

East coast gas prices are soaring on the back of a global energy crunch,which has been intensified by Western nations shunning Russian supplies of oil and gas to starve Moscow of the revenue it needs to fund the war in Ukraine.

Australia’s LNG exporters are earning record sales revenue while many local manufacturers are struggling under high domestic gas prices.

Australians are being warned the country faces a gas shortage in the next year which will see prices soar and jobs put at risk.

ACCC chair Gina Cass-Gottlieb said the consumer watchdog was “strongly encouraging” LNG producers to increase domestic supply or face market intervention.

“Our latest gas report finds that the outlook for the east coast gas market has significantly worsened. To protect energy security on the east coast,we are recommending the resources minister initiate the first step of the Australian Domestic Gas Security Mechanism,” she said.

The ADGSM empowers King to redirect exports into the local market. However,when gas prices took off following Russia’s invasion of Ukraine,Energy Minister Chris Bowen said the ADGSM was “not a short-term answer” because it required about six months of consultation and only triggered enough supply to fill gaps rather than cut the cost of gas.

“It is a supply trigger,not a price trigger,” he said.

Matt Golding

East coast gas producers export the majority of their supply to the lucrative international market,prompting warnings from the ACCC that domestic customers cannot be overlooked in favour of large,international buyers seeking long-term contracts.

The ACCC’s projected shortfall of 56 petajoules for 2023 is the largest it’s made since beginning its inquiry in 2017.

“LNG exporters are expected to contribute to the shortfall in 2023 by withdrawing 58 petajoules more gas from the domestic market than they expect to supply,” the report said.

“This could place further upward pressure on prices and result in some manufacturers closing their businesses,and some market exit has already occurred.”

Australia’s east-coast gas producers on Monday disputed the suggestion that a shortfall was looming,pointing to the ACCC’s finding that 167 petajoules of gas remained uncontracted and would be offered to local buyers first.

“This is more than enough gas to ensure that no shortfall occurs,” said Damian Dwyer of the Australian Petroleum Production and Exploration Association,which represents oil and gas companies. “Gas customers can be assured supply will be adequate next year so households and businesses can continue uninterrupted.”

However,major gas users declared the ACCC’s latest report had yet again painted an “alarming picture” for businesses that depended on the fossil fuel.

The Energy Users’ Association of Australia,whose members include ASX-listed fertiliser giant Incitec Pivot and building material supplier Brickworks,backed the government’s decision to initiate the first steps of the ADGSM,but feared it would “not be enough”.

“Energy users are looking for stronger action such as the ADGSM and heads of agreement triggers that not only ensure the volume of gas is sufficient but also seek to ensure the price of gas is affordable,” chief executive Andrew Richards said.

“It is time for governments and regulators to stop rattling the sabre and to draw their sword. It seems clear that threatening the gas industry with stronger actions is not enough. It is only taking strong actions that will effect change.”

The ACCC’s report did not identify any wrongdoing but Chalmers said he encouraged the consumer watchdog to act if any anti-competitive behaviour were uncovered in the future.

“It’s critical that our domestic gas supply is secure and competitively priced,particularly when households and businesses are under extreme pressure,” he said.

“The ACCC has raised concerns about the level of competition in this market,and I welcome its commitment to look into this and take enforcement action as required.”

Cut through the noise of federal politics with news,views and expert analysis from Jacqueline Maley. Subscribers can sign up to our weeklyInside Politics newsletter here.

Nick Toscano is a business reporter for The Age and Sydney Morning Herald.

Mike Foley is the climate and energy correspondent for The Age and The Sydney Morning Herald.

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