PERTH (miningweekly.com) – The Australian Competition and Consumer Commission’s (ACCC's) latest Gas Inquiry interim report has highlighted the need for further investment in the Australian energy sector.

The report found that while domestic gas contract prices rose slightly between March and August 2021, Australia avoided the up to 230% price increases seen overseas in the Asian liquefied natural gas (LNG) spot market.

The ACCC noted that timely investment and advancement of gas basins and infrastructure is critical to avoid an earlier than previously forecast gas supply shortfall in the south. 

Southern states are likely to be reliant on gas from the north to avoid a shortfall on certain days later this year, and this is predominately due to a reduction in forecast production in the Gippsland and Cooper basins. 

“There is a gas shortage forecast for Australia’s southern states from as soon as this year, which is likely to continue next year and beyond. Southern states will be reliant on gas from Queensland until additional supply from new sources comes on,” ACCC chairperson Rod Sims said.

The report shows that LNG producers are forecasting to take more gas out of the market in 2022 than they expect to supply in. However, they forecast to produce an additional 122 PJ of gas that could be supplied into the domestic east coast gas market, rather than international LNG spot markets.

“We’re extremely concerned that LNG producers are currently forecasting to withdraw 27 PJ more gas than they expect to supply into the domestic market this year,” Sims said.

“The uncertain supply situation reinforces the importance of the Australian government's heads of agreement with LNG producers, which concludes on 1 January 2023.”

The heads of agreement requires LNG exporters to offer uncontracted gas to the domestic market on internationally competitive terms before it is exported, and to provide relevant material to the ACCC to demonstrate they are complying with the agreement.

“Compliance with the heads of agreement by LNG producers is very important, given that Australia’s southern states may depend on their surplus gas in the coming years. LNG producers’ reporting to the ACCC has improved since the July 2021 report, but they can still do more to comply with the heads of agreement and make gas available on reasonable terms that users are capable of accepting,” Sims said.

The ACCC also recommends that the Australian government consider extending the heads of agreement well before it expires on January 1, 2023.

“Additional supply from a southern LNG import terminal from 2023, or more domestic supply from the north, may not be enough to address the projected shortfalls, and it may still be necessary to divert excess gas into the domestic market that would otherwise be exported if new supply can’t be developed rapidly enough,” Sims said.

Consistent with the government’s 2021 National Gas Infrastructure Plan, the ACCC notes that over the long term the development of basins such as the Beetaloo, in the Northern Territory, North Bowen and Galilee in Queensland, and Gunnedah in New South Wales, would help to alleviate the shortfall. 

The report also notes that although low emissions alternatives may assist supply in the medium to longer term, technologies like hydrogen will not assist any sooner than 2030. 

The report also makes findings from the first stage of the ACCC’s examination of competition in markets for the exploration, production and processing of gas for the east coast, including the factors affecting when gas is brought to market.

“The timing of the development of uncontracted reserves is critical for the domestic market but these decisions are largely in the hands of a relatively small number of major gas producers,” Sims said.

“Our review suggests that there are a range of infrastructure, regulatory and capital factors impeding upstream competition and limiting gas supply.”

To address these issues, the ACCC recommends governments implement a range of reforms to encourage greater diversity of suppliers and reduce the barriers faced by producers. Upstream competition could be improved if owners of existing infrastructure, such as processing and storage facilities, provided third party access to this infrastructure on reasonable terms, it said.

Treasurer Josh Frydenberg said the ACCC acknowledged the government’s measures to bring forward new domestic supply and to protect Australian households and businesses from the kinds of price and supply issues being experienced in other countries.

“The ongoing supply of affordable gas is crucial to helping Australia’s economy as it rebounds from the impact of the Covid pandemic,” Frydenberg said.

Minister for Industry, Energy and Emissions Reduction Angus Taylor said that Australia has been fortunate to escape the devastating price impacts seen in Europe owing to their energy crisis.

“Accelerating the gas-fired recovery is essential to ensure this does not happen here,” he added.

“While the report notes some positive signs for infrastructure investment in expanding south-bound capacity, the government will continue to assist industry where needed through our Future Gas Infrastructure Investment Framework.

“It is clear from the ACCC that under-investment in the gas sector cannot continue. This report is a stark warning that we cannot allow activism to slow gas projects. Without unlocking gas, we will feel the price pressures being experienced overseas.”

Minister for Resources and Water Keith Pitt said the interim report highlighted the need to further develop Australia’s vast gas resources, with the ACCC flagging a tightening east coast domestic supply-demand balance in 2022. 

“The government recognises the importance of regularly looking for new opportunities to improve gas supply in the east coast market,” Pitt said.

“This government understands the importance of opening gas development in Australia. We have committed to release new Strategic Basin Plans to unlock supply. Plans for the Beetaloo basin and the Galilee and North Bowen basins have been released, and we are working on the Cooper and Adavale basins’ plan.

“The ACCC notes the uncertain supply outlook emphasises the importance of the heads of agreement signed with major producers, which continues to ensure competitive gas supply into the domestic market. The ACCC will continue to closely monitor LNG producer compliance with the heads of agreement.”

“I also fully endorse the ACCC’s strong encouragement of state governments to not adopt blanket moratoria or bans on gas development; these reckless bans cannot come at the cost of our energy security,” Pitt said.

The Australian Petroleum Production and Exploration Association (Appea) has echoed calls made by the ACCC report, saying that the competitiveness of investment settings still needed to be strengthened further, encouraging more gas investment, exploration and supply.

“There is a massive economic opportunity for Australia – but it will only happen if the policy settings are right,” said Appea CEO Andrew McConville.