"The belated but clear signs that the Federal and key state governments have recognised they need to reverse course to avert a debilitating major gas shortfall are welcome first steps to inject realism into our energy debate," Innes Willox, Chief Executive of the the National employer association Ai Group, said today.
"There are signs of welcome pragmatism emerging from many quarters. That newly found pragmatism needs to continue to trump ideology if we are to keep industry competitive during the energy transition.
"Victoria has approved gas exploration and this week took steps to expand gas storage while better focussing its gas substitution roadmap. This welcome shift comes after years of refusal to meaningfully engage on the supply side of gas policy.
"The Federal Government is developing sectoral transition plans to answer some of the demand shift questions posed by its Future Gas Strategy.
"NSW is retooling its hydrogen scheme and may incentivise biogas too. Stakeholders are calling for a major national push to upgrade and electrify buildings, but also increasingly acknowledging the need to shore up supply along the way.
"That practicality is welcome but well overdue. We are now playing catch up to secure our energy future after years of failing to properly recognise the need to keep local industry competitive.
"The reality is three overlapping gas challenges demand urgent action.
"Supply adequacy is threatened as soon as 2027, with expected supply declining much faster than expected demand. Shortfalls should not be possible but are. They can be avoided but might not be.
"If shortfalls ensue they will mean serious disruption either to Australia's trade relationships, or to industry and power systems in the depths of winter. Some mix of supply increase and demand transition is needed to maintain balance.
"Gas prices are much lower than during the crisis of 2022, but much higher than before it. The Federal Government has sought to keep a lid on prices with the Mandatory Gas Code of Conduct. But fundamentals of production cost and pipeline distance mean that future Eastern Australian gas prices will be challenging for industrial and residential investments made back when gas was cheap.
"National, state and corporate emissions reduction goals also imply much lower overall gas consumption over time, though gas plays many different roles and some uses will last a long time – or even increase – within that overall decline. Peaking and backup gas power generation is a small but vitally important component of the Integrated System Plan through 2050.
"The broad outline of a package of solutions is becoming clearer. Boosting efficiency, electrification, biogas and hydrogen will variously make sense for different gas users, but mass upgrades will take time and substantial support. That work needs to happen now if it is to pay off later. And since electrification looks likely to be a large part of the overall solution, we need to ensure that the costs of a declining gas network over time do not fall disproportionately on hard-pressed industry or vulnerable households.
"New gas production will be needed, along with the pipeline capacity to bring it to demand. Reinvesting in existing basins and expanding existing pipelines will often make more sense than new assets that face stranding within their technical lives. But these too will take time to deliver.
"One or more Liquefied Natural Gas import terminals unfortunately appear increasingly necessary to provide near-term breathing space. It is crazy that they are needed, but true that they can be quick to deliver, highly flexible and lock in little capital. As policy makers and stakeholders square up to that reality, we need firm reassurance that such terminals will neither push off better long-term solutions, nor send local gas prices permanently to import parity levels.
"Simple stories that pretend there are black or white solutions to our problems won't take us far. Not everything can be electrified, and renovating millions of buildings is hard work. The cheap gas that sustained industry for decades is not coming back, though the cost can always get worse. Gas produces emissions, though some uses support emissions cuts.
"Gas usage over time will decline, but every use case is different and will have its own solutions and pace of transition.
"The gas debate is starting to move beyond simple stories, and that is good. However, we have little time. 2027 shortfalls are not far away. Nor are emissions goals for 2030 and 2035.
"Business competitiveness and even viability are challenged every day right now by high prices and policy induced uncertainty. We can solve these problems if governments, industry and other stakeholders are hard headed and clear sighted," Mr Willox said.
