Australian gas users are struggling with needlessly high energy costs as producers prioritise exports to lucrative LNG spot markets, according to a new report from the Institute for Energy Economies and Financial Analysis (IEEFA).
According to IEEFA, new policy solutions are urgently needed to alleviate the challenges faced by gas users in Australia. In addition, the report debunks ongoing calls for increased gas supply to address the looming gas supply gap in the eastern states.
Most recently, the Australian Competition and Consumer Commission (ACCC) raised concerns over future supply for the east coast gas market arising from as early as 2027. In its latest report, the ACCC called for reduced regulatory barriers to incentivise new gas development and production. However, IEEFA’s report argues that new production will not reduce the risk of supply gaps and that more innovative policy solutions are required instead.
Josh Runciman, Lead Analyst, Australian Gas at IEEFA, shared: “Focusing on developing new gas supply is not the answer to the looming east coast supply gap. We’ve seen these measures fail consistently over the last few years. Governments and energy agencies, including the ACCC, need to explore other solutions; in particular, they should look at diverting LNG exports into the domestic market.”
IEEFA’s report noted that the LNG industry accounts for about 80% of Australia’s total gas consumption. The development of the Queensland LNG export sector has coincided with increasing gas prices for domestic users. Most notably, market conditions have become increasingly challenging for major industrial gas users, leading to the closures of manufacturing facilities including Incitec Pivot and Qenos.
More troublingly, in recent years, gas exports have exceeded the levels required under long-term contracts as exporters have sought to capitalise on high prices on LNG spot markets. This has occurred at a time when the Queensland LNG producers have become net withdrawers of gas from the east coast. Diverting these discretionary exports into the domestic gas market, through export caps or similar mechanisms, could significantly alleviate supply concerns. For example, the additional volume of gas exported by Queensland LNG exporters in 2023 was 150% of the anticipated supply gap in 2030.
Runciman added: “Global LNG markets will soon see an unprecedented glut of new low-cost supply. In this context, redirecting gas for domestic use would have minimal impact on LNG exporters and it would offer the opportunity to resolve the east coast supply issue, ensuring we retain gas-intensive manufacturing jobs and skills.”
IEEFA’s report also examined ways to alleviate the impending supply gap through relatively simple, cost-effective demand-side measures. It identifies vast opportunities to drive further electrification and energy efficiency upgrades, in both households and industry, that could materially improve the supply-demand outlook on the east coast.
Runciman concluded: “Continued calls for new gas production have not altered the likelihood of future supply gaps in the east coast gas market. Fortunately, however, there are many other things we can do to improve the supply-demand outlook and mitigate the risks of supply gaps. These options are likely to be lower-cost, with lower emissions, and improve the operation of the east coast gas market.”