Big gas shortage looming, but government stays hand on export controls

The government has issued another warning to gas producers but held off pulling its export control trigger, despite two new reports warning of potential severe local supply shortages.

The Australian Energy Market Operator (AEMO) and the Australian Competition and Consumer Commission (ACCC) have both pointed to looming shortfalls in the eastern Australian market in projections released on Monday.

AEMO said supply remained tight for 2018 and 2019, with a shortfall risk for 2018 of between 54 and 107 petajoules (PJs); for 2019 it was between 48 and 102 PJs. This was in the context of total expected demand for domestic gas of about 642 PJs in 2018 and 598 PJs the following year.

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The ACCC projected a shortfall in the east coast market of up to 55 PJs in 2018 which could be as much as 108 PJ if demand were above expectations.

The government earlier this year foreshadowed using export controls to force more local supply but so far is holding back from implementing them – despite calls from the opposition to do so. It hopes the threat will be enough.

Malcolm Turnbull told a news conference, held with Treasurer Scott Morrison and Energy Minister Josh Frydenberg, that the reports showed the shortages in the east coast domestic market would be considerably greater than estimated six months ago. The 110 PJs estimate was more than three times an earlier estimate, he said.

Turnbull said that following the announcement about export controls more gas had come into the local system from the exporters “but it has clearly not been sufficient to date”.

“The recent rises in the cost of gas are the single biggest factor in the current rise in electricity prices,” he said.

“More expensive gas has huge implications for industry and for struggling families but it feeds directly into the electricity market.”

He condemned the “comprehensive failure” by state governments to develop their own gas resources. Queensland was “an honourable exception” but NSW and Victoria needed to act, as did the Northern Territory. He would be contacting the premiers and the NT chief minister to urge they do so.

Read more: Memo to COAG: Australia is already awash with gas

He said the government had already had discussions with the executives of the big gas exporting companies and “we’ll be speaking with them again this week”. Turnbull spoke by phone on Monday with Origin Energy, Santos and Shell.

“We expect them to demonstrate to us what they have already indicated in meetings and in writing – that they will ensure that there is not a shortage of gas next year on the east coast.

"If they are able to do that, and to the satisfaction of the ACCC, then the foreshadowed export control mechanism will have done its work.

"But we will continue to hold that mechanism ready to go … so that if we are not able to receive the assurances from the industry to our satisfaction and that of the ACCC, then we will impose those export controls.”

Turnbull said the government’s commitment was “to ensure there is not a shortfall in the domestic market in 2018”.

Bill Shorten tweeted: “Turnbull just admitted a huge gas shortfall. As I’ve been saying: it’s time to pull the trigger on export controls. Why does he refuse?”