‘We Are Running Out of Time,’ Regulator Warns as Australia Faces Gas Shortfall

Australian Competition and Consumer Commission (ACCC) Chairman Rod Sims speaks during an interview with Reuters in Sydney, Australia, on Oct. 31, 2016. Reuters/Jason Reed

According to a new report by the Australian Competition and Consumer Commission (ACCC), gas supplies on Australia’s east coast and southern states are under threat.

During a conference on March 24, ACCC chair Rod Sims brought to attention a looming gas crisis—which may affect close to 90 percent of Australians—and pointed out we are running out of time to deal with the impending problem.

“New sources of supply and related infrastructure will be required to avoid a potential shortfall in supply from 2P reserves in the east coast from 2026, and from as early as 2024 in the southern states,” Sims said.

Sims noted that the long-term supply outlook is becoming critically dependent on the development of new projects. However, many of these projects are currently running behind and “will not come online in time, if at all,” and those that do come online will not be sufficient to avoid the estimated shortfalls the east coast is expected to experience.

“We are running out of time,” Sims said.

The ACCC indicates in their report that the potential gas scarcity has been influenced by two primary factors: dependence on undeveloped reserves and the fall of gas prices.

The increasing reliance on undeveloped reserves and resources, particularly in the southern states, is likely to face several technical and commercial challenges. This, Sims argues, will create a problem producing and delivering liquefied natural gas (LNG) on time to all areas.

Additionally, falling LNG prices have impacted several spheres of the gas production industry.

Retail gas prices peaked at $22/GJ in March 2017, but since then have declined sharply to $6-$8/GJ in 2020.

This decrease in cost for LNG consumers in Australia is likely influenced by low international gas prices, exacerbated by the COVID-19 pandemic, the report says.

Financial year average prices are shown for gas market prices in Victoria, STTM hubs in Adelaide, Brisbane and Sydney, and others, between 2011 and 2021. Australian Energy Regulator

In response to lowered gas prices and subsequent loss in profitability, several producers have cut upstream expenditure, delaying or halting the development of some new projects.

Specific cases include the delays of both Woodside’s $66 billion (US$50 billion) Burrup Hub project off the coast of Western Australia and Santos’ $7 billion (US$5 billion) Barossa project 300km north of Darwin in the Northern Territory.

Furthermore, a wave of gas reserve “write-downs” have occurred over the last three years, the majority of which reside in the fields of Queensland.

A write-down occurs when the extraction of oil and gas from a well is no longer economical, with costs of extraction eclipsing those of market prices, resulting in producers ceasing operations on that particular well.

To counter this growing threat, the ACCC outlined several steps it believes will help provide an adequate supply of the natural resource in Australia and lead the country to a more robust gas industry.

One possible solution it offered was to increase exploration and development of new, more economical sources of oil and gas like the private sector Santos’ Narrabri project, which can potentially supply the gas for half of New South Wales and is awaiting further approval.

A view of Coal Seam Gas wells and a wastewater treatment plant in the Pilliga Forest in Narrabri, Australia, on Feb. 06, 2021. In September 2020, Santos' mining company won approval from the Independent Planning Commission (IPC) for the $3.6 billion Narrabri coal seam gas project. Photo by Brook Mitchell/Getty Images

The other remedy to Australia’s gas problem takes the form of the development of LNG import terminals.

Currently, there exist proposals for five (potentially six) LNG import terminals, all located in the southern states.

However, while imported LNG can save the southern states’ from gas supply issues, the ACCC warned it might come at the expense of higher gas prices due to the addition of tariffs and transportation in the final costings.