Gas crisis” A responsible agenda to get more gas will annoy almost everybody
The two liquefied natural gas (LNG) import terminals the ACCC expects to be available from late 2023 and 2024 may not happen, despite early works because regasification ships are in immense demand in Europe. The international gas outlook worsens daily, with Russia cutting off supply to more European nations in a bid to force acceptance of the conquest of Ukraine.
A prospective gas reservation scheme applying to new production is likely necessary for social license.
And even with adequate supply, the price of gas in local markets is likely to remain at incredible highs. The ACCC expects international prices will set the local price and nothing it proposes would change that.
Pulling the ADGSM trigger looks necessary because the absolute shortfall it was designed to address is now a very real prospect.
It is a horrendous decision to have to make. There is little sympathy between gas suppliers and energy users. But holding back gas from international markets will potentially increase global economic misery and worsen the perils facing our allies.
Russia’s economic blackmail threatens European security, is radically increasing costs in Japan and South Korea, and is making energy unaffordable or simply unavailable in poorer countries around the world. Cutting near-term gas flows into global markets worsens this situation.
Australia must safeguard our energy security. The less we need to rely on export cuts to do so, the better – even if the cuts are volunteered to forestall mandates.
The ADGSM is also insufficient. It is hard to use in its current form; the ACCC believes that all the export cuts would fall on the one LNG project with the least amount of excess gas. And reducing the risk of shortfall will still leave gas prices at extremely painful levels.
So beyond starting the ADGSM process, what should be done? A responsible agenda will need to annoy almost everyone.
The government is right to extend the ADGSM to 2030 and will have to rewrite its provisions, at a minimum to spread the pain across all east coast exporters and to streamline the trigger process.
Cutting demand for gas and accelerating our clean energy transitions are urgent priorities across eastern Australia. Lower demand reduces our own exposure and helps our allies. Europe is trying to cut gas demand by 15 per cent this year. We should set targets of our own and pursue efficiency upgrades, fuel switching and conservation across the economy. Despite good paybacks, households and business may need help with information, skills and finance. Upgrades will take time to deliver, and we need to ease skills and supply chain constraints.
LNG imports are unattractive amidst a lasting global gas crisis. However, this option is an important form of insurance and governments must ensure that at least one terminal is available to the eastern market in coming years.
Despite the unchanging arguments of gas producers, new local gas production will not fix everything. New projects take years, underlying costs for production and transport have risen, international pressures will see local gas priced far above those costs, and in the long-term gas production will likely be stranded by clean energy and falling demand.
For all that, getting enough gas out of the ground remains critical. A prospective gas reservation scheme applying to new production, though complex to design and slow to have an impact, is likely necessary for social license. A nationally coordinated approach would be vastly preferable to setting the states against one another.
Given high prices and likely uneven gas demand reduction, more and more vulnerable businesses and household energy users will roll off old energy contracts and into financial distress. Many will need some degree of aid despite Budget pressures.
The federal government has stepped up to initiate difficult decisions. More such decisions are coming. Getting out of this gas crisis will require all of us to recognise the dangers we face – and to act on them.