The Albanese government wants the outcome from a review of its so-called gas trigger “within weeks” to reduce the risk of a repeat of last week’s crisis that almost left Victoria short and sent spot market electricity prices soaring.
Federal cabinet agreed on Thursday to extend the Australian domestic gas supply mechanism beyond its current operations into next year. The review of the mechanism, the second since its creation in 2017, would also look at whether it will address not only prices but supply, the resources minister, Madeleine King, said.
“It is a long, complicated, convoluted and ineffective mechanism that takes a very long time to produce results,” King told a media conference after cabinet met in Sydney.
“We are determined to change that and … make sure that this mechanism, as well as the other tools available to us, are all on the table [to] ensure that gas supplies are appropriate, adequate and affordable for Australians right across the country,” she said, adding a separate heads of agreement with gas companies had also been extended.
“We need to resolve this situation so that a future crisis can be addressed in a more timely manner than we’ve left with,” King said, adding “I’m not worried about putting anybody’s noses out of joint. My priority is to make sure there is affordable and adequate supply of gas for the southern states of Australia.”
The Australian domestic gas security mechanism, which has been referred to as a gas supply “trigger”, is a policy available to the resources minister and which can require natural gas projects to limit exports or find new gas sources.
Rising energy bills and the scramble for extra gas amid multiple cold snaps across southern Australia provided early economic challenges for the new government. National energy ministers had their first meeting since the federal election on Wednesday with plans for a follow-up gathering in July.
The federal energy minister, Chris Bowen, said he was “pleased with the progress we’ve made … and will continue to make”, noting the 11 areas of agreement were approved unanimously.
These included the creation of a national transition plan to decarbonise the economy, accelerated work by the Energy Security Board (ESB) on building in extra capacity for electricity supply, and for regulators to investigate the purchase and storage of gas to reduce the risks of shortages.
The Guardian, though, understands that most of Wednesday’s meeting, while cordial, was taken up by regulators providing an explanation of the recent turmoil in the market, and updates on their work. The 11 items had been agreed beforehand and there was little discussion on the various issues.
Among the details that remain unclear was where any spare gas would be stored and who would pay for it. Queensland has all the gas it needs, while Victoria and NSW are the jurisdictions most in need of it.
At Thursday’s media conference, Bowen said the Australia Energy Market Operator had been given the task to investigate. He said it was too early to say where the gas would be kept but “obviously in a physical location in south-eastern states”.
“If you put more gas into the east coast market, it takes pressure off everyone,” he said. Storage would be paid for “on a cost-recovery basis”, implying the cost would not be subsidised but paid for by consumers.
“There’s some issues that need to be worked through but we want it to happen as expeditiously as is prudent but it is possible [in 2022], Bowen said, of the timing. “If we had this capacity last week, it would have helped.”
Another issue that will need to be thrashed out will be what energy sources will be included if the eastern states are to have a capacity market added to the power sector. The ESB had been working on plans for changes after 2025 in which extra supplies of so-called dispatchable electricity would be required to limit the risk of blackouts.
“We need to do better” than 2025, Bowen said. “But we also need to make sure we get it right and that includes ensuring that it supports new technologies, renewable energy and storage. And that is the instructions that ministers gave last night.”
Several jurisdictions have said they would oppose the inclusion of coal and gas generation in any capacity market, insisting instead that such reserves only be created to foster extra renewable energy and storage such as batteries or pumped hydro. One senior source said they would have to wait to see the ESB plans before deciding whether to support them.
“Ultimately it will be a decision for ministers to endorse,” Bowen said, adding that “I support experts doing good work”, with the ESB asked to come back within “a week or so” with an update.
“There was a real spirit of cooperation in the room last night,” Bowen said. “State and territory ministers responded very warmly. We are all energy ministers doing a job in a difficult circumstance.”
Victoria’s energy minister, Lily D’Ambrosio, said the meeting “was very different to any held previously – with a federal government that supports climate action, wants to bring down the cost of energy bills and is about outcomes not spin”.
“It is good to finally have a national plan on how we can transition to a clean energy future – with supply and jobs protected while delivering cheaper prices,” she said.
However, D’Ambrosio also reiterated her state’s stance on what energy sources should be supported in a capacity market: “We have always been clear that a capacity market operating in Victoria would make payments to zero emissions technologies and not fossil fuels”.
“We were supportive of more gas being reserved to meet our domestic needs here in Australia,” she added. “I’m hoping that they come up with a mechanism that is far better than what we’ve got now.”
Shane Rattenbury, the ACT’s energy minister, said Bowen had a “definite change of tone from his predecessor”, Angus Taylor. “He wants energy ministers meetings to be more collaborative, and he wants to meet more often.”
Industry groups, too, are keen for the meetings to be more transparent and include more stakeholders, particularly with major changes planned for markets.
Oil and gas organisation Appea said it would work “constructively” with the Albanese government’s review of the gas trigger and the renegotiation of a new heads of agreement with gas suppliers.
“[I]t is important to note that any changes must be carefully considered to maintain investment confidence in Australia,” Damian Dwyer, Appea’s acting CEO, said, adding the industry had invested more than $70bn to develop the gas sector in Queensland alone.
Dwyer said the heads of agreement between LNG exporters and the commonwealth contained “commitments provided by the government, including to advocate for the removal of state and territory-based gas exploration and development bans and moratoria and encourage jurisdictions to accelerate exploration and development”.
“These commitments also need to be honoured in future agreements,” he said.
