Manufacturing Australia, which also includes chief executives of Dyno Nobel, Capral Aluminium, Cement Australia, CSR, Orora, Rheem and Sims, points to a tripling in the domestic wholesale gas from $4 a gigajoule to more than $12 over the past decade, despite production levels growing. It says this defies the laws of supply and demand and demonstrates the “east-coast gas market is broken”, and needs an urgent fix.
Australians are increasingly switching from gas stoves and heaters to electric alternative – but not fast enough to avert the threat of shortfalls.Credit: Getty Images
Gas producers remain staunchly opposed to the prospect of price controls, telling the government that seeking to artificially lower gas prices to below-market prices will undermine the economics of investing in new sources of supply and tighten supplies even further.
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While most of Queensland’s gas is locked into long-term export deals, two of the state’s three LNG producers – the Origin Energy-backed APLNG joint venture and Shell’s QCLNG – are also key suppliers of east coast domestic gas, together accounting for about 40 per cent of the market.
Shell, one of the world’s biggest energy companies, said in its submission last month that capping prices would “weaken the investment case for future gas supply and infrastructure developments in Australia, whilst at the same time increasing the assessed sovereign risk and decreasing investor confidence”.
The manufacturing chiefs, however, argue that failing to suppress gas prices would have lasting consequences for Australia. A shortage of competitively priced gas to run the gas-powered turbines needed to back up renewables when it’s not sunny or windy would make the nation’s energy transition far more expensive, they say. It would also undermine manufacturers’ ability to sustain existing investments and pivot to lower-carbon manufacturing industries of the future, such as green iron and steel-making.
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The Australian Energy Market Operator’s warnings of local gas shortfalls in the south-eastern states marks a deepening challenge for governments, which are having to balance goals to tackle climate change with the need to shore up supplies of polluting fossil fuels for those who still depend on them.
Households are increasingly switching from gas stoves and heaters to electric alternatives, aided by government incentives and policies banning gas hook-ups in new residences. However, that shift is not happening fast enough to avert the need to boost gas supplies, the market operator says.
Holding back more export gas for local buyers could improve the supply outlook, analysts say, but it would not alone solve the problem of shortfalls in Victoria and NSW on cold winter days when gas use for heating is particularly high. The north-south gas pipeline is often running at capacity during winter, and there is insufficient storage capacity in the south to store off-peak gas.
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