Last week, the Australian Energy Market Operator released its annual Gas Statement of Opportunities. The statement reinforces earlier concern about gas supply gaps in southern states, only in stronger language. It identifies risks of seasonal shortfalls as early as next year and calls for urgent investment to fill annual supply gaps from 2028.

The response from governments and industry has been deafening silence or blame deflection.

The role of gas in Australia has changed in the past couple of decades. With huge exports of liquefied natural gas, only 30 per cent, or about 500 petajoules, of gas produced on the east coast is now consumed domestically.

Recent mild winters and fuel-switching from gas to electricity have meant that consumption has been slowly falling. That trend is projected to continue through the current decade, before demand for gas-fired power generation increases from the early 2030s as coal-fired power plants close.

The problem is that annual gas supply in southern states is projected to fall from 381 petajoules this year to 236 petajoules in 2028 and to less than 100 petajoules by 2032. Declining production from offshore Victorian gas fields is unlikely to be substantially replaced by new local gas supply. The result is an annual shortfall of about 50 petajoules between 2028 and 2032, later rising to more than 100 petajoules.

There are two other emerging risks. Demand for gas in the southern states, particularly Victoria, is strongly influenced by the need for winter heating. Even while Victoria remains a net annual producer, there is a risk of seasonal winter shortages from 2026. More urgently, a combination of extreme peak demand for winter heating with high demand for gas-fired power generation creates a risk of shortfalls as early as next year.

There is a range of options that could help. They include pipeline expansions to deliver more gas from the north, LNG import terminals, additional storage and new local supply in the south. None of these is a single saviour.

Gas from the north could come from Queensland or the Northern Territory. Such sources could be significant but would require major investment in pipeline capacity that would carry high risk in a market of falling demand in the longer term.

Terminals to import LNG from other states or overseas are being considered and one is close to completion in Port Kembla in NSW. But regulatory barriers and local objections have proven difficult and securing customers to contract for such gas is even more so.

Gas storage to meet peak demand has never been a significant need in Australia and there are no such big projects on the horizon. Finally, exploration for new gas in southern regions has led to only modest discoveries, and new coal seam gas fields that require fracking are either banned or face community opposition.

Further, none of these options can address the emerging seasonal risks. Getting large numbers of consumers off gas to electricity is a sound environmental and financial solution but is politically challenging and won’t happen soon enough.

The only remaining options are to curtail industrial demand or to run gas-fired generators at least partly on another fuel such as diesel. The former will be hard because there are few big users whose reduction would be material, and the latter is technically limited at best.

The next steps are hard but necessary.

To deal with the emerging shortfalls, the first and most important task for governments is to be clear on the role for gas in Australia’s energy transition. They are not there today. Yet, only then can the best choices be made by governments on policies and by industry on investment.

The place to begin should be the federal government’s yet-to-be-announced Future Gas Strategy. For the longer term, the strategy should provide the context for industry and governments to identify the best combination of investments to match supply with demand and how the risks and costs of the choices are best managed. There are no easy choices.

Options to address the shorter-term seasonal risks are even more limited. Like electricity, governments should direct AEMO to identify and implement seasonal contingency plans for demand curtailment over the next five years, working with the other market agencies if changes to market rules are required.

The energy transition means getting the role of gas right is difficult in many dimensions. Failing, such that we run out of gas in key states at key times, would be one best way to derail the transition.

Tony Wood

Energy and Climate Change Program Director
Tony has been Director of the Energy Program since 2011 after 14 years working at Origin Energy in senior executive roles. From 2009 to 2014 he was also Program Director of Clean Energy Projects at the Clinton Foundation, advising governments in the Asia-Pacific region on effective deployment of large-scale, low-emission energy technologies.