Getting gas into the domestic market at a reasonable price

There is fierce debate about how to increase the supply of gas in the domestic market, while balancing imports and exports in a way that works for everyone.

With gas producers, large energy users and consumers pulling in different directions, Panellists at the ADGO 2024 Conference all agreed that greater collaboration and certainty are needed to move the industry forward.

However, some heated debate also sparked up among panel members, as Strike Energy CEO Stuart Nicholls, Solstice Energy CEO Phaedra Deckart and Energy Users Association of Australia (EUAA) CEO Andrew Richards took a deep dive into the arguments.

Talk turned to ‘gas jihads’, major industries going under, and the risk of people freezing to death if we can’t find a way of providing larger amounts of affordable gas to Australian consumers.

Notably, Nicholls was strong in support of a deregulated market. In his opinion, it’s not the producer’s responsibility to provide affordable gas to consumers, especially by subsiding the import of gas from overseas.

The conversation was moderated by Barrenjoey’s Head of Energy & Utilities Research, Dale Koenders.

Regulatory barriers to affordable gas

Richards cited the planning process and community engagement as key obstacles to reasonable gas prices.

“We can’t meet clean energy targets on our current trajectory. Do we sacrifice the local environment to support broader renewable outcomes, for instance? Governments face difficult decisions to ensure that gas supports the energy transition.”

According to Deckart, the mandatory code of conduct has done nothing to help energy customers.

“The market needs more supply, but the regulatory framework is cumbersome. Too many stakeholders are holding up production. We need to remove red and green tape from upstream production, encouraging open conversation between buyers and sellers.”

Nicholls said increasing gas output could lead to deregulation of the industry.

“WA is trying to get out of coal, as a state, and this won’t happen unless we keep on drilling up new gas reserves. The current regulations are holding Perth basin producers back from turning the drill bit as quickly and thoroughly as they need to.”

How to frame the pricing debate

Where does responsibility lie for reasonable pricing? Should the market decide?

Richards said we need a more favourable policy environment to get things done. This requires regulatory frameworks that work for everyone.

“We need more gas out of the ground, and more people getting gas out of the ground. More smaller players and less regulation will increase diversity of supply. Import terminals are not the answer,” he said.

“How are we supporting domestic gas suppliers if we just buy it from Qatar? If we want more consumer support for gas in Australia, we need to produce the gas we have here. The issue around social licence is missing from this debate.”

Industrial customers have had to bear significant price increases to stay operating, Deckart said. Yet is this sustainable in the long term?

“Only they can answer that. With potential supply shortfalls looming, we know prices will be high. The only answer is to deliver more supply to market. LNG import terminals can do this, meeting capacity market needs. By assisting upstream producers to smooth out the development profile, we can better deal with scarce winter supply.”

Impact of LNG import terminals on gas markets

Deckart supported the import of LNG to fill the current supply gap.

“I don’t want to see large industrial customers going out of business because they’ve run out of gas. Hospitals, food producers and a host of other businesses will need gas for many years to come,” she said.

“Yet we’ve done a really bad job, as an industry, in explaining to consumers why gas is essential. Gas drives every product they use, it’s a very efficient fuel for industrial grade use. Yet consumers just think about the trajectory to net zero and see the demonisation of gas.”

Richards agreed that everyone needs to understand why we need more gas.

“The import terminal may have short-term appeal, but it can be another excuse not to give gas producers the environment they need. Otherwise, we’re in danger of losing them to overseas. We all need to come together on this.”

According to Nicholls, the free market should be allowed to do its work.

“It’s an amazing thing. Govt should step back and let the market do its work. We need deregulation, and energy users would be the beneficiaries.”

Imperatives for industry change

According to Richards, the Victorian Government has declared a “jihad on gas” by banning gas connections in new homes. This could lead to dire consequences for householders if they can’t afford to pay their electricity bills.

“I hope it doesn’t take a disaster to force action. We must be relentless in hammering the message home. People can freeze to death if they’re too scared to turn the heater on. There are massive gaps on long duration storage. These are the real impacts.”

Deckart said: “We need to tell the right stories.”

“What happens if we’re not manufacturing bricks, food, milk? If gas gets switched off, milk gets poured down the drain. Jobs will be impacted too. The whole value chain is a team sport, requiring us to work together.”

Nicholls said: “It’s not us (producers) driving energy poverty, a huge amount of other people are taking rent along the value chain. Then fossil fuel generators are demonised as taking unfair returns.”

Time will tell if government intervention is the solution to gas affordability in Australia.