Without policy stability in the gas industry, flexibility will be required by both producers and users as they grapple with pricing, availability and new entrants to the market.

Key takeouts

Increase in demand and supply into the LNG market has put pressure on gas availability for east coast domestic consumption.

It has been argued that navigating Australia's many different government policies is impacting pricing and availability of gas.

Policy stability is necessary for the industry to make significant long term investments.

There has been much debate in recent times about the existence and extent of an east coast gas crisis and whether government policy has had an impact on this.

Increase in demand and supply into the LNG market over the last few years (especially Gladstone LNG), primarily driven by the onset of LNG exports, has put pressure on gas availability for domestic consumption in the east coast gas market.

Late in 2017, the Australian Competition and Consumer Commission forecasted a shortfall in the east coast gas market for 2018, ranging from 55 to 108 petajoules (PJ). A shortfall of 48 PJ was also projected for 2019, though conditions have since eased with the current forecast for 2019 indicating supply and demand will be in balance – but only just.

The 2019 Gas Statement of Opportunities and Victorian Gas Planning reports published by the Australian Energy Market Operator (AEMO) have alleviated concerns of a supply shortfall in the short term, as supply from existing and committed gas development is forecast to provide adequate supply in the east coast gas market until 2023.

However, supply and demand for 2021-2023 is finely balanced and shortfalls are expected from winter 2024 if depleting reserves in offshore gas fields are not replaced. This supply-demand balance could be further tightened by increases in demand as a result of unforeseen cold weather-related consumption or failure of ageing coal generators.

Gas is an important step towards the future sustainability of energy. When looking at the transformation of the energy sector in Australia, gas looks destined to play a critical role. Increasingly, people are recognising the importance of gas-fired generation to help with the transition away from coal-fired generation and towards renewable sources and sustainability, lower power prices and reliable supply.

Gas policy

It has been argued that government policy is impacting on pricing and the availability of gas for both domestic use and LNG export. The policy settings around the country are a veritable patchwork quilt of different policies which the industry must navigate through.

CSG and fracking are means by which additional gas could become available to the domestic and export market, but a number of states have banned it – despite numerous enquiries into fracking in Australia, which all concluded that fracking can be done safely if certain safeguards are implemented.

There is also an emerging policy debate about a domestic reservation policy for the east coast, which would restrict how much gas can be sold overseas. This kind of policy already exists in Western Australia and potentially at federal level with the introduction of the Australian Domestic Gas Security Mechanism (ADGSM).

Given the frequency with which there are state and federal elections and changes of government, the current policy settings may not remain as they are for long, creating further uncertainty for the industry.

The challenge of planning with certainty

Due to policy instability, the industry has indicated it is concerned about making significant investment decisions that have long term implications. They are looking for a stable policy environment in order to help them make those long term decisions, such as whether to build a new pipeline, develop a gas field or inject funds into exploration.

Challenges for customers

Gas users are also being impacted. A number of customers in Southeast Australia are entering into short term contracts at historically high prices rather than locking in longer term arrangements. This is in the hope that by the time their short term deals come up for renewal, the gas supply/demand equation is more balanced resulting in lower prices. However for this to happen there needs to be a significant increase in new gas becoming available.

Looking for policy stability

With so many differing voices and points of view as to the reasons for, and the solution to, the gas crisis making it difficult for Australians to understand the true position, a Royal Commission into energy may potentially provide some answers and possible solutions to the energy crisis. However, it remains to be seen whether a Royal Commission into energy will proceed. At this stage it seems unlikely.

While we wait to see if there is a Royal Commission, despite, or indeed because of that policy instability and inconsistency between various states and the Commonwealth, it is spawning industry responses that may not have otherwise seen the light of day. As a consequence, we're seeing a number of new and emerging gas explorers and producers, picking up some of the non-core assets from the majors with a view to developing assets that the majors have not. It is also giving rise to potential non-traditional responses such as the current proposals around importing LNG.

However, there is one certainty amongst this debate and that is there will be further changes in both policy settings and market conditions and so both producers and users will need to have flexibility built into their playbooks.