Yes, we really are dumb enough to import our own gas. Here’s why
Bob Hawke said in 1988 that Australia should become “the clever country”. Judging by the current state of the gas market, the nation is a long way from that goal and about to reap the results of some truly dumb decisions.
Australia looks set to import gas amid an export boom.
Australia is one of the world’s largest exporters of gas, yet the only feasible way to fill local supply shortfalls is to bring it in from overseas.
The Australian Energy Market Operator last month put Victoria and NSW on high alert for gas shortfalls this winter during days of peak demand and forecast the structural shortfall would grow to 50 petajoules by 2028 and increase into the future.
There’s plenty of blame to go around for what, according to former competition tsar Rod Sims, is an “absolutely absurd” situation.
Consider the developers’ reassurances last decade that their vast Queensland coal seam gas fields would yield so much gas that the local and international markets would be in perpetual oversupply.
Sounds too good to be true, right? It was – but the federal government swallowed it.
Queensland’s production has fallen far short of the optimistic forecasts, which cynics say were designed to prevent the Gillard government from imposing a domestic gas reservation scheme to ensure local needs were met.
The gas companies argued against domestic reservation and signed up to huge, long-term supply contracts with Asian buyers that have underwritten the nearly $70 billion construction bill for vast gas fields and three separate export operations at Gladstone Port. But production fell so short of expectations there wasn’t enough to fill export contracts, which has meant gas has been taken from the domestic market and shipped overseas.
Santos’ Queensland fields have failed to live up to expectations, obliging the company to buy supply from other producers that would otherwise have been available to the domestic market.
Western Australia, which also has a massive export industry, has since 2006 required gas producers to reserve 15 per cent of their production for the domestic market. But it’s the only state to do so.
The actions of private businesses are not the only cause of the gas debacle. State governments in Victoria and NSW have failed to bring on meaningful new gas supply for more than a decade.
That’s despite a long-forecast decline in production from the Bass Strait fields, which traditionally supplied the bulk of gas to southern states.
State governments in Victoria and NSW have failed
Victoria slapped a ban on onshore gas exploration in 2014 before lifting it in 2021, but the effect on exploration and development was chilling.
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NSW didn’t impose a ban but did nothing to open new supplies, while gas company Santos’ proposed project at Narrabri has been “progressing” toward production since 2011.
Sims, who chaired the Australian Competition and Consumer Commission between 2011 and 2022, had a front-row seat to the gas dilemma.
“The gas industry has got away with more in Australia than it would in any other country,” Sims said this week.
Sims admits that while he did not advocate for a domestic reservation scheme on Queensland gas fields while at the ACCC, “in hindsight” it would have avoided the siphoning of gas from the local market to meet overseas orders.
“The government was assured there was enough gas for the three [Gladstone] projects when there wasn’t. But then again, nobody expected NSW and Victoria to stop gas development,” Sims said.
“Now we may be in the absolutely absurd position of exporting gas from Queensland and importing it back in.”
Several projects are looking to capitalise on the shortfall by building gas import terminals, which could buy shipments of gas from the international market.
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Gas is currently supplied from Queensland to NSW and Victoria via a pipeline, which is running at full capacity. It appears too late to build another now.
Building another pipeline would cost billions and take decades to repay, which makes it an unlikely investment prospect given the uncertainty over how long gas will remain a staple fuel during the shift to clean energy.
The pipeline constraints mean that any moves by governments to get more gas from Queensland into the southern states won’t fill the looming shortfalls.
Clever it is not, but that is why Australia looks set to import gas amid an export boom.