How can policy spark gas exploration and investment?

What does the federal government’s 2030 target of 43% carbon reduction mean for national gas production? And how can we craft practical policy going forward, giving investors confidence in the future of gas?

These questions were a key focus of a panel discussion at the Australian Domestic Gas Outlook (ADGO) conference in March. 

Here's what EnergyQuest CEO Rick Wilkinson, Australian Pipelines & Gas Association CEO Steve Davies, Deakin University Faculty of Business and Law Professor Samantha Hepburn and Australian Resources Development Executive Director David Carland had to say.

Is current energy policy doing its job?

While panellists had their individual takes on how the industry needed to progress, they all agreed on one thing. A fresh perspective is required to effect real change. 

As Davies pointed out, existing solutions haven’t delivered. Traditional exploration and production policies aren’t effective in a fast-changing operating environment. 

“We all agree that we need more gas supply.”

Hepburn noted that regulatory energy frameworks are “reactive rather than proactive”, with “deep and rapid regulatory shifts” needed to ensure real progress to decarbonisation.

Carland took a more hard-nosed approach to net zero. With Treasury forecasts of 56% price increases in electricity over the next two years, he suggested government takes a “good hard look” at the real cost of achieving a decarbonised economy. 

“Is there a better way to do this?” he asked.

What’s the rationale behind energy policy?

“What’s going on in the heads of politicians?” According to Wilkinson, we were told years ago that gas production was waning and price hikes were coming. 

“Clearly, someone’s not been listening,” he said.

In Hepburn’s view, many government mechanisms are simply a reaction to a difficult situation – codes of conduct, domestic security mechanisms and price caps. Instead, we need to “create a framework responsive to reliability, security, affordability and sustainability,” rather than skewing action solely to pricing concerns.

As Davies said, policy makers have focused on ensuring users of energy infrastructure don’t pay too much which is important for consumers during the energy transition. 

“Yet now we’re facing such big changes, we need to consider how to de-risk the energy environment for investors… paving the way for the next wave of investment in gas production.”

Carland posed the question: “Is there a cheaper way forward than expensive and unreliable renewables?” 

He expressed concern that it will get “exponentially more expensive,” and unstable to roll out renewables backed by massive amounts of costly storage. 

Comparing the cost and risk of getting to 2050

Davies pointed out that the energy transition is the “biggest change to society” most of us will experience. Yet we don’t have realistic or fit-for-purpose energy policies to get us there.

Carland forecast “rolling blackouts in big cities,” insisting that “renewables won’t fix this.” He sees reliance on fossil fuels as inevitable, at least in the short term, to fill in the gaps left by renewables.
Yet government policy changes day by day, he added. 

“We’re seeing some crazy stuff at the moment. A cap on the price at which coal can be sold to domestic power stations, then compensating coal producers for missing out on sales at higher prices to those stations. There’s no cohesive road to 2050.”

More flexibility in market policy is needed, in Hepburn’s opinion. 

“Regulation has to enable mitigation and adaptation, providing directional targets to access the right technology. No wonder we’re seeing so much uncertainty.”

What do the growing biofuel and hydrogen industries mean for gas?

The rapid advances currently seen in Denmark will probably happen here too, according to Hepburn. 

“Biomethane is likely to supplement gas in the future.”

Every major upstream company is now exploring biogas and hydrogen alternatives, Davies added, so more investment in gas supply is critical. 

“It needs to be explored more rapidly and urgently, to deliver zero or near zero carbon gasses into the economy.” 

According to Wilkinson, there’s a lot of interest in Australia’s development of these alternative energy sources. Yet many potential investors are being held back by policy settings. 

“They want to invest in hydrogen and biogas, but it’s so hard to sit down with an energy minister and have a discussion. There’s a question mark here.”

Why is it so difficult to enter long-term gas contracts?

Gas retailers are rightly reticent to enter ten year contracts for gas supply, Daviessaid, not knowing what the carbon costs will be in three or five years' time. “We have to design a system so you’re not penalised in the future for delivering a solution we need now.”

“It might make sense for government to underwrite these contracts in unusual circumstances,” Carland suggested. “This means the government can fix a distortion the market won’t touch.”

Summing up

“I’m optimistic,” Hepburn insisted. “Australia has enormous capacity for gas production moving forward, especially on the east coast.”

“Government just wants to reduce gas, seeing it as bad,” Carland said. “I’m worried alumina companies will be run into the ground and forced offshore. We have to take a more global approach.”

“We need to find the next wave of solutions by working together, not just state by state,” Davies claimed. “We need the biggest possible gas industry for Australia, and this demands cultural change, a more holistic view of the energy market.”

“The industry needs new language and a new narrative,” according to Wilkinson. “We have to find new ways of engaging government, and that takes time and perspective.”