Can Madeleine King find a workable path for the gas sector?

As the new Minister for Resources, Madeleine King has to find a way to ensure adequate supply (at a reasonable price) for the domestic market, reassure exporters that their supply is secure and appease the anti-fossil fuel faction within her party. LNG’s ongoing lack of social licence with the general public makes the debate politically sensitive. Keith Orchison analyses her four-fold dilemma.

The next 12-18 months are going to be of critical importance in shaping Australia’s domestic energy supply and cost environment for the next decade, and perhaps for longer than that.

This is not some sudden development, it has been inexorably increasing in importance for some dozen years, as witness the presentations and discussions at the annual Australian Domestic Gas Outlook conferences, but speculation about problems is now hardening into real current challenges for suppliers, regulators, governments and consumers, not least major business sectors.

Federal Resources Minister Madeleine King summed this up in a recent statement (about releasing a large new area for offshore petroleum exploration, inevitably to lamentation by opponents of fossil fuels). She said:

• The use of gas as a “transition fuel” in pursuit of net-zero national carbon emissions by 2050 is a key challenge
• Continuing exploration for gas is central to alleviating future domestic gas supply shortfalls
• It is also vital to Australia’s role as a reliable supplier of energy to global consumers, especially in the crisis created by the war in Ukraine.

To this, Samantha McCulloch, the new chief executive of the Australian Petroleum Production & Exploration Association has added that gas exports from here have significance for global efforts to meet net zero. Higher emissions internationally will quickly eclipse any cuts achieved in Australia through restraints on development of local gas resources.

This drives home the point that our current gas situation can’t be regarded as an “either/or” choice between exports and domestic supply. Local resources are vital home and away, feeding into the health of our economy on both fronts as well as to our role in international efforts to improve Earth’s climate outlook over the rest of this century.

It is only too clear from the state of the debate on the multi-pronged gas issues that this long and wide game is too often not appreciated or understood within Australia.

Voter focus on the home front — literally in the shape of bills for energy, whether electricity, gas or vehicle fuel, all of which are currently painful for many households — is understandable. But opinion leaders need to work hard to communicate clearly on the broader challenge of achieving balance in managing the “trilemma” of security, affordability and sustainability.

The issue for suppliers — particularly explorers and producers — is to continuously lift their game in the “social licence” arena and to work with governments, whose regulatory regimes frequently need repair and maintenance, to ensure that crises or even the potential for crises are avoided. This is easier said than done. Flaws in governance are one of the enduring problems in lots of areas, not just the resource sector.

In August, Minister King announced the first in a series of new offshore greenhouse gas storage sites, urging oil and gas companies to convert their “talk about CCS into action” and support the global effort to decarbonise and arrest climate change.

These offshore permits, and the subsequent investment in CCS will do little to win the public over; there is a perception that the gas sector is making windfall profits whilst paying very little tax, and scepticism about CCS remains strong.

Minister King has proposed an extension of the Australian Domestic Gas Security Mechanism (ADGSM) until 2030 to secure ongoing domestic gas supplies for the next decade and has already announced a separate review of the ADGSM to ensure the mechanism is fit for purpose. The Government will also renegotiate the Heads of Agreement with east coast LNG producers.

Beyond the “blunt tools” of the ADGSM or the gas exporters’ agreement, the Minister has several levers to help solve the affordability problem. These include installing a gas reservation policy on the east coast similar to that in Western Australia. Introducing an LNG levy on east coast exports to incentivise producers to supply domestic users first would improve the excess gas available for domestic buyers, but might be of concern to exporters, who she has already had to reassure.

At the time of publication, Madeleine King had just announced she would not trigger the ADGSM after a successful negotiation with Queensland-based LNG producers to avoid a supply shortfall in the east coast domestic gas market.

Consumer groups also want to see a redistribution of gas producer profits to protect vulnerable consumers. Doing this without distorting the gas market would require careful modelling and oversight, but gas prices have already started to bite so there will be pressure to act quickly.

The bottom line, and not only for gas supply in the energy sector, is the need for high reliability in supply while also juggling other requirements (eg affordability). It is fair to say that customers for gas, large and small, are not less uneasy in 2022 than they were in 2012 when the ADGO conference was being launched. Like maintenance of the Sydney Harbor Bridge, this is a never-ending task and none of the stakeholders can afford mistakes to be made.