How to secure an affordable gas supply in the transition to net-zero

How to secure an affordable gas supply in the transition to net-zero

by Tony Wood, Alison Reeve, Esther Suckling

22.08.2022 Submission
Response to the Issues Paper published by the Australian Government’s Department of Industry, Science and Resources on 1 August 2022

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.

Download the submission

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.  

Download the submission

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.

Alison Reeve

Energy and Climate Deputy Program Director
Alison Reeve is the Climate Change and Energy Deputy Program Director at Grattan Institute. She has two decades of experience in climate change, clean energy policy, and technology, in the private, public, academic, and not-for-profit sectors.

While you’re here…

Grattan Institute is an independent not-for-profit think tank. We don’t take money from political parties or vested interests. Yet we believe in free access to information. All our research is available online, so that more people can benefit from our work.

Which is why we rely on donations from readers like you, so that we can continue our nation-changing research without fear or favour. Your support enables Grattan to improve the lives of all Australians.

Donate now.

Danielle Wood – CEO