Natural gas has played an important role in Australia’s domestic economy for more than 50 years and has contributed to our exports for more than 30 years. The Australian Government has published an Issues Paper that identifies an expectation that the east coast market will see a shortfall of gas in 2023. This is consistent with reports by the ACCC and the Australian Energy Market Operator warning of east coast shortfalls.
Considering the obvious concerns raised by these projections, the Issues Paper identifies and seeks views on options to overcome shortcomings in the Australian Domestic Gas Security Mechanism (ADGSM).
The ADGSM gives the Government the power to restrict LNG exports if there is a projected shortfall a year ahead in the domestic gas market.
Under a complementary Heads of Agreement (HoA) with LNG exporters, the latter have agreed to help avert potential shortfalls by offering uncontracted gas to the domestic market on internationally competitive terms before offering to the export market. The Government has extended the ADGSM to 2030 and is proposing to negotiate a new HoA.
Although both LNG exporters and domestic gas customers have been critical of these arrangements, the evidence is that there has not been a domestic shortfall since they were introduced. They were sorely tested in the second quarter of 2022 when both the electricity and gas market were subject to unprecedented intervention by the market operator. Although shortfalls were averted, wholesale gas prices have risen alarmingly with flow-on consequences for power prices. The high prices are expected to continue for some time, considering international circumstances.
In this submission we make the following observations and recommendations to the Issues Paper:
- The ADGSM and HoA are effective in avoiding gas shortfalls. They can be improved to be more responsive.
- It is unlikely that any policy or mechanism could have averted the recent east coast energy crisis, including any form of gas reservation policy.
- High gas prices should be addressed to avoid a major loss of industry and further cost of living impacts for households. This would best be done by a windfall profit tax on domestic sales by LNG producers.
- The broader energy market reforms being considered by energy ministers should consider closer integration of the electricity and gas markets.
- All the above need to acknowledge that the role of gas in the Australian economy must diminish if we are to meet our emissions targets.
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