Bernadette Cullinane 3By Bernadette Cullinane

Over the past 10 years, Australia’s liquefied natural gas (LNG) industry has been at the very heart of the gas revolution, delivering eight highly complex, technically leading edge, world scale projects. Our industry is now contributing significantly to overall energy supply and helping to transform gas into a global, fungible and liquid commodity.

This revolution can deliver significant benefits to Australia’s economy and secure the country’s place as the world’s largest, most economic and reliable supplier of LNG that supports thousands of jobs locally. Globally, Australian LNG will accelerate the transition from highly carbon intensive coal-fired power generation to one that is lower in carbon and cleaner.

While our LNG projects contribute significant gas to the domestic market, export volumes will continue to increase for the next few years. The rising cost of gas is an important issue impacting Australian companies struggling to secure long-term gas contracts at affordable rates.

There’s no doubt Australia’s energy sector faces a number of challenges. The impact of the Queensland LNG industry on domestic gas prices has become particularly evident in recent months. The tension between domestic gas and LNG exports, a lack of production from existing gas fields, a moratorium on onshore drilling in Victoria and New South Wales adding to supply tightness and electricity demand rising are all creating the perception of an acute gas supply shortage.

Further exacerbating this situation, some LNG producers have had to purchase significant volumes of gas to feed their newly running LNG trains. Gas prices have been steadily rising across all regions in the National Energy Market with domestic gas pricing moving towards export parity.

It has led to the paradoxical position that, Australia, as the soon-to-be world’s biggest exporter of LNG, now finds itself considering export restrictions and the potential of importing LNG to address a looming domestic gas supply shortfall.

The best solution for easing southeastern Australia’s looming shortage of natural gas would be to follow Queensland’s lead and boost onshore production in Victoria and New South Wales. However, these states have imposed barriers to onshore drilling. The Australian Energy Market Operator’s 2016 Gas Statement of Opportunities highlighted the critical importance of continuing to develop gas resources and the need for policy settings to facilitate gas supply in the future.[1] And the Australian Petroleum Production & Exploration Association (APPEA) has reported there is significant undeveloped gas in eastern Australia. The question is whether the industry will be allowed to develop it and if there is adequate infrastructure such as pipelines to move it to market.[2]

There has already been a great deal of government and company action/reaction. The Federal Government has moved to impose export restrictions on gas companies to increase domestic supply.[3] Several companies have confirmed they are also offering solutions to help solve the gas shortage.

Faced with this situation the government should support the following actions:

  • Lift the current moratorium on onshore gas drilling in Victoria and New South Wales
  • Encourage companies to increase production from the existing fields, and explore and develop new fields
  • Ensure Australia is viewed as an attractive destination for capital by reducing regulatory uncertainty and burden
  • Support investment in infrastructure.

The unintended consequences of an Australian LNG export boom does not have to be a domestic gas shortage or export restrictions. The solutions to this apparent dilemma are readily available if companies, the government and customers work together to develop win-win approaches and encourage investment in the industry to create more gas supply. This will in turn create more jobs while also increasing revenues to the government.

Bernadette Cullinane is Deloitte’s Australian Oil & Gas Leader

[1] AEMO, Gas Statement of Opportunities, March 2016; https://www.aemo.com.au/media/Files/Gas/Planning/Reports/GSOO/2016/2016%20Gas%20Statement%20of%20Opportunities.pdf

[2] https://www.appea.com.au/2017/04/nsw-victoria-must-step-on-the-gas/

[3] http://www.abc.net.au/news/2017-04-27/government-to-restrict-gas-exports-to-shore-up-domestic-supply/8474432