Some time in the next couple of weeks, a well-known ASX-listed company could go to the wall if it can’t secure a new contract for gas.
That firm, for now at least, can’t go public without its share price cratering and its employees and suppliers being sent into a panic.
But energy industry insiders, who are aware of the firm’s predicament but won’t disclose its identity, have told the Guardian a very real crisis is not far off.
Nobody wants such a collapse, not least the Albanese government. It’s already seen off one energy crisis when the main electricity market had to be suspended in June and Victoria narrowly averted running out of gas during a severe cold snap.
New ministers are still working through their briefings and are yet to meet major business groups such as the Energy Users Association of Australia to understand their plight and prospects amid record gas and electricity prices.
In the past 24 hours, we have learned from the Australian Competition and Consumer Commission that eastern Australia faces a gas shortfall in 2023 that will be 10 times larger than the shortfall one year ago. At 56 petajoules, the potential gap amounts to about 10% of east coast domestic demand.
For now, the government and the competition watchdog are banking on growling rather than taking more forceful action to ensure the three giant LNG exporters that hold sway over 90% of the region’s gas do the right thing.
They are pleading with the exporters to spare about a third of the 167 petajoules of gas production expected next year – which is not yet earmarked in export contracts – for domestic use.
On the face of it, that doesn’t seem like a big ask. However, with global demand for non-Russian energy soaring, those mostly foreign-owned exporters might feel that their duty to act in the“national interest” is owed to a nation other than Australia.
Indeed, government ministers have stressed that Australia has a reputation to keep as a reliable supplier to international markets, implying their hands are largely tied.
The resources minister, Madeleine King, laid the blame entirely at the feet of the Morrison government in question time on Monday, saying: “The east coast energy crisis has been 10 years in the making, all from those opposite.”
However, the blame is a lot more bipartisan. The Rudd-Gillard and Abbott governments all backed the linkage of the region’s gas to global markets, a shift that sent production and exports leaping even as local demand drifted lower. Prices more than tripled from $2-$3 per gigajoule to up to $20.
Does Australia have a shortage of gas? Once the east coast gas market hooked up to the global market, something happened.... (Source: @TheAusInstitute ) pic.twitter.com/GAlgYLPdfZ
— Peter Hannam (@p_hannam) August 1, 2022
Richie Merzian, the head of climate and energy policy at The Australia Institute, says big exporters had claimed that opening up the market would not damage domestic users.
While seeking approval in 2009 for their GLNG export project in Queensland’s Gladstone region, Santos said: “The project has no direct implications for domestic gas prices.”
“The gas to supply the LNG facility will come from newly developed CSG [coal seam gas] fields …It is therefore unlikely to contribute to a future shortage of gas in the domestic market.”
However, by 2011, Santos was telling investors a different story: “A permanent structural shift in the east coast gas demand will cause higher gas prices and provide opportunities for commercialisation.”
“These companies like Santos promised that opening up the export market would have no direct impact on domestic gas prices, while at the same time banking on high and domestic gas prices,” Merzian says. “Their reward for misleading governments and the Australian public is windfall profits.”
Merzian says the gas industry has used up its goodwill and it’s time to set a tax on those windfall earnings. “The time has come [for the Labor government] to step in and ensure that the gas industry serves Australia and not the other way around,” he says.
Andrew Richards, EUAA’s chief executive, would also like to see more than just the prospect of government intervention.
“It is time for governments and regulators to stop rattling the sabre and to draw their sword,” he said. “It seems clear that threatening the gas industry with stronger actions is not enough. It is only taking strong actions that will effect change.”
So far though the government’s strongest action has beento review a heads of agreement deal with exporters, and extend the Australian domestic gas security mechanism out to 2030, with a plan to review how it can be implemented more than once a year and with more rigour. It could – just could – extend to gas export controls.
The AiGroup representing industry users says the existing levers, such as the Australian Domestic Gas Security Mechanism are necessary but insufficient. More attention needs to be put on consumption.
“The supply-demand balance is very bad,” says Tennant Reed, AiGroup’s energy policy head. “It’s really urgent we move to reduce demand.”
He predicts that high gas prices may be here to stay for years to come. That’s not the news struggling gas consumers, or the new government, want to hear.
