The Federal government has been urged to consider intervening in the energy market, amid concerns of a gas shortage that could lead to higher prices, according to the latest report by the consumer watchdog.
Key points:
- The ACCC’s report projects the largest supply shortfall of domestic gas since 2017
- The projected shortfall could place further upward pressure on prices
- Concerns are raised that some manufacturers could shut down
The Australian Competition and Consumer Commission (ACCC) has released an interim report of its inquiry into gas supply along the east coast.
It noted that while Australia has “relatively abundant gas resources”, most of it is produced for export and substantial volumes were required for the domestic market next year to avoid a shortfall.
“The outlook for 2023 is very concerning and is likely to place further upward pressure on prices, which could result in some commercial and industrial users no longer being able to operate,” the report said.
“This is a significant deterioration in conditions relative to what we projected for 2022 at the same time last year and presents a real risk to Australia’s energy security.”
It has recommended that the government consider intervening in the market, by pulling what’s known as the “gas trigger” to ensure there is enough supply.
The ACCC has predicted a shortfall of 56PJ next year, which is equivalent to about 10 per cent of domestic demand, the largest projected supply shortfall since 2017.
“This represents a further [almost tenfold] deterioration in conditions relative to what was forecast for 2022 at an equivalent time last year,” the report said.
The ACCC has partly pointed the blame at liquefied natural gas (LNG) exporters.
“LNG exporters are expected to contribute to the shortfall in 2023 by withdrawing 58 PJ more gas from the domestic market than they expect to supply into the market,” the report said.
The shortfall is expected to mainly affect New South Wales, Victoria, South Australia, Tasmania and the Australian Capital Territory, with less significant consequences for Queensland.
How to fix the problem
To avoid the gas shortage, the ACCC has encouraged LNG exporters to act immediately to increase domestic supply and has recommended the government work with exporters to ensure they supply more into the domestic market.
“LNG producers will need to divert a significant proportion of their excess gas into the domestic market,” the report stated.
It has also recommended the federal government go further and initiate the first step of the Australian Domestic Gas Security Mechanism (ADGSM), more commonly known as the ‘gas trigger,’ and formally determine if 2023 will be a shortfall year.
The gas trigger is an emergency provision, which allows the Resources Minister to directly intervene in the gas market and impose export controls to ensure there are adequate supplies for use in Australia.
The government is yet to outline whether it will follow the recommendations but in a statement, Federal Treasurer Jim Chalmers said he was concerned by the findings.
“The ACCC’s latest gas inquiry report highlights some alarming features of the east coast gas market,” he said.
“The government takes these findings extremely seriously and will shortly respond to the ACCC’s recommendations.
“I urge gas producers to do the right thing by Australians.”
The ACCC said other measures that could also help with supply issues include sourcing additional gas from the Northern Territory and withdrawing gas from storage.
Long-term plans
The government has an agreement with LNG exporters that aims to ensure there is enough reasonably priced gas supplied to the domestic market, known as the Heads of Agreement.
However that deal ends next year, and the ACCC has recommended the government strengthen the stipulations which include reporting obligations.
It has also made a similar recommendation on strengthening the ADGSM.
The ACCC has also pointed to supply issues being resolved in the medium to long term through the expansion of gas projects in the Gippsland Basin, the south-west pipeline in Victoria and further progress on LNG import terminals.
However the report notes the growing focus on other energy supplies, as Australia tries to reduce its emissions, and has acknowledged federal funding will help further support natural gas, carbon capture and storage, and hydrogen projects.
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