The federal government should do more to stop a looming gas crisis, including introducing a national interest test for exports and encouraging use of swaps to boost domestic gas supply, the Australian Industry Group has said.
In a letter sent on Thursday to Malcolm Turnbull, relevant ministers and the opposition, AiGroup warns that government efforts to boost supply while an “excellent start … may not be enough”.
Turnbull has got guarantees from domestic suppliers that they will increase supply and left gas reservation on the table as a threat but so far stopped short of endorsing a national interest test for exports, which Labor took as its policy to the last election.
The AiGroup letter from its chief executive, Innes Willox, warned that the gas market is “extremely tight”, noting that the Australian Energy Market Operator has warned that Australia is facing energy shortages from 2019-2024.
With prices rising from $9 a gigajoule for a one-year contract in mid-2016 to $16-$22 in February 2017, Willox warned trade-exposed businesses, particularly manufacturing, are “under extreme pressure” because of energy costs.
AiGroup noted that Australia was sending 1,400 petajoules of gas offshore for export while facing a domestic shortage of 54 petajoules a year, or possibly higher.
“A modest contraction in this volume could easily cover domestic shortfalls for the several years required for other supply and demand-side options to deliver,” it said.
AiGroup noted “there are large volumes of gas available on international spot LNG markets” at what it called “modest” prices.
It proposed putting together a swap arrangement so that commitments made by Australian exporters to overseas customers could be met with gas from outside eastern Australia, freeing up local gas to be sold into the domestic market.
AiGroup noted potential barriers to the swap plan but suggested that the government could help overcome these by acting as “a neutral and trusted player able to acquire and collate the necessary information, much of which is highly commercially sensitive”.
The government should also make clear that swaps to fulfil gas export commitments did not violate competition law.
If entering swaps was not sufficiently economically favourable, it suggested the public sector could provide a subsidy if it “judged avoiding a domestic supply crisis to be in their larger interest”.
AiGroup reiterated its longstanding support for a national interest test on gas exports. It said the test would determine on case-by-case whether there was a threat to domestic supply before an export arrangement was entered into.
“Such a policy can be more flexible, efficient and effective than a domestic reservation policy,” it said.
AiGroup argued the problem with reserving gas prospectively from new developments, as Queensland has done, is that it will not impact supply “for years”. Retrospective reservation would be “inflexible and inefficient” because of “serious sovereign risk, trade law and compensation issues”, it said.
In the long term AiGroup suggested shortages could be met by increasing gas production, although it noted several onshore gas projects were years away and that coal seam gas “is the subject of strong and sincere concern in parts of the community”.
The Queensland government wants its federal counterpart to guarantee funding for infrastructure like new gas pipelines into the Bowen and Galilee basins to open up reserves for domestic supply.
Queensland’s natural resources and mines minster, Anthony Lynham, has written to the federal resources minister, Matt Canavan, asking for guaranteed funding, including through use of the North Australia Infrastructure Facility.
The Queensland Resources Council has said the funding could help release “stranded gas” .
“It’s common knowledge the eastern seaboard of Australia is facing a gas shortage and instead of putting their head in the sand the government is looking at how to fix the problem,” its chief executive, Ian Macfarlane, said.
