After years of the government placing their heads in the sand on the East Coast Gas Crisis, which is about to engulf the Australian market, the Gas Statement of Opportunities (GSOO) and the government are finally recognising that the status quo will no longer work.
AEMO’s CEO, Daniel Westerman, has emphasised the severity of the situation, noting that the Longford plant is set to retire in 2033 and will likely see reductions leading up to that point. Longford supplies two-thirds of the East Coast gas supply, and with Bass Strait fields depleting and coal closures imminent, new investment in gas supply is imperative.
The gas gap, the difference between supply and demand, remains from 2028/2029, making investment decisions critical to ensuring supply security from that time. The GSOO has touted solutions such as LNG regasification terminals, new production sites, fast-tracking proposed projects, and developing new gas fields and transportation options. However, these solutions are costly, time-consuming, and unlikely to be operational in time to meet the imminent demand.
Don’t be under any illusion, Australia is not lacking in gas supply. As a replacement fuel for coal, there should be ample capacity to meet both domestic and power generation needs. However, up to 80% of the gas extracted in Australia is exported.
The government has tried to address this through the Gas Code of Conduct, which came into effect in 2023 and has, in some aspects, been successful. APLNG has agreed to supply 10PJ / year for four years at the gas cap of $12/GJ (CPI indexed) until 2029, an extension of the existing domestic supply deal, which was due to expire at the end of this year.
However, without clear investment signals and a significant gap between achievable contracts in the international and domestic markets, the market will inevitably follow the money. Gas will be required, regardless of advancements in batteries and renewables, gas-powered generation will still play a critical role. The government knows this, but with an election looming and energy policy at the centre of the debate, no one wants to acknowledge the elephant in the room or the cost of ignoring it.