Sally Sara: The competition regulator predicts there will soon be enough gas to meet demand on Australia's east coast for the next three years, despite warnings from the market operator about imminent shortfalls. The ACCC's report also found gas prices have continued to decline from record highs in 2022. But analysts warn the supply of gas is still extremely tight and recent weeks have tested its limits. Declan Gooch reports.
Declan Gooch: The last few weeks have seriously stretched Australia's supply of gas. The director of the energy program at the Grattan Institute, Tony Wood, says a cold snap and unusually low output from wind farms have driven up demand.
Tony Wood: That meant that we did run down the storage quite dramatically. The pipelines for bringing gas from Queensland were absolutely at full stretch and things were getting very, very close indeed. Now it looks like we've managed to get through that without major shortfalls, but it just shows you how quickly things can change and how close we are to major problems.
Declan Gooch: The latest report on the gas market from the Australian Competition and Consumer Commission confirms what's now widely known. Australia's barely able to supply enough to meet domestic demand. But the ACCC is also forecasting there'll be no shortfall in supply on the east coast for the next three years, even predicting a gas surplus of around 20% of total demand next year. Tony Wood treats that with caution.
Tony Wood: What also stands out, given this report was published today and was produced and developed over the recent months, is how dramatically quickly things can change. I think if they were writing the report this week, they might not be so positive about the near term.
Declan Gooch: The Australian Energy Market Operator has repeatedly warned of imminent gas supply risks, most recently last month. And Professor Bruce Mountain from the Victoria Energy Policy Centre says the ACCC's report doesn't actually contradict those warnings.
Professor Bruce Mountain: The key points I take out from it is that the market is still very tight. They've pushed back by a year the expectation of the point at which demand exceeds supply, essentially because the Eraring coal-fired power station has been contracted to extend its life for another couple of years. Nonetheless, the figures that they present are stark. When you add together the international LNG demand from our own gas supply to the domestic demand, there's precious little left. So a little bit of space to breathe because of the coal generation extension, but not terribly much.
Declan Gooch: Bruce Mountain says even though most Australian gas gets exported, long-term supply contracts mean there's little that can be done to increase domestic availability.
Professor Bruce Mountain: The one thing that the ACCC mention is in the mid 2030s, the long-term LNG contracts will start to roll off. They say that that therefore is an opportunity to fundamentally rebalance the availability of gas for local consumption rather than for export demand. But they are loathe to touch that contracted export LNG, as is the government, for fear of severe international pressure on Australia.
Declan Gooch: The ACCC has also found domestic gas prices have continued to drop, from a high of more than $30 per gigajoule in mid-2022, down to an average of just over $14. The federal government's pointing to the price caps imposed by its new mandatory gas code as a possible factor. Here's Tony Wood from the Grattan Institute again.
Tony Wood: My reading of the report suggested that it's not quite as clear as that. Two things happen and some people can conclude one caused the other. Now often part of it's coincidental. So to what extent the code has really brought down prices is unclear. In fact, in the last couple of weeks, gas prices have been back up again. And nothing like what they were back in 2022, fortunately. But they certainly spiked again. And that's what happens when things get tight.
Declan Gooch: Some of Australia's biggest industrial consumers of gas say the price caps seem to be making a difference. Andrew Richards is the CEO of the Energy Users Association of Australia.
Andrew Richards: We've seen the behaviour of some gas producers significantly improve. And we've seen prices significantly improve as a result from some. But not all. I think we're still seeing some patchy results where some of our members are reporting prices at the higher end of the scale that's in this current ACCC report.
Sally Sara: That's Andrew Richards there from the Energy Users Association of Australia, ending Declan Gooch's report.