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Turnbull Government Strikes Deal With Gas Companies To Cover East Coast Shortfall

The Coalition is also prepared to limit exports to protect the national supply.

27/09/2017 3:09 PM AEST | Updated 27/09/2017 3:39 PM AEST
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The Federal government says it has struck an agreement with Australia's three biggest gas companies which will see them cover an expected gas shortfall on that nation's east coast in 2018.

Prime Minister Malcolm Turnbull said his government has reached a deal with Santos, Shell and Origin Energy that will see them provide enough gas to avoid a forecast shortfall of up to 107 petajoules, predicted by the Australian Energy Market Operator (AEMO) on Tuesday.

"AEMO identified additional gas requirements up to 107 petajoules of gas in 2018 on top of the expected shortfall amount," he said.

"We have secured that guarantee from these three big gas companies, three big gas exporters that the shortfall, the expected shortfall identified by AEMO and the ACCC in 2018 -- they will provide the gas to meet that."

Despite Australia being in-line to become the world's largest Liquified Natural Gas (LNG) exporters, the country is currently facing domestic shortages, seen mainly on the east coast, so severe Turnbull has even threatened to limit exports to shore up the local market.

"The Commonwealth has very considerable powers to control exports. We have made it very clear that we are prepared to exercise those powers in circumstances where there is going to be a shortfall of gas," Turnbull said.

"Our objective is to ensure there is not a shortfall of gas. That is the objective. We have been given the undertakings today and we have got further work to do. We want to see this incorporated into an agreement.

"It is very important to provide the maximum assurance for Australian families and businesses and jobs with the supply of gas."

As he has done in the past, the Prime Minister also took aim at state governments for their part in causing the shortfall by failing to develop their own gas resources, saying they are only costing Australians more.

"Whatever the price of gas is in Queensland, because Queensland is where most of the gas is now being produced on the east coast, it is going to be more expensive in Melbourne because of the cost of getting it there," he said.

"The failure of the States of Victoria and New South Wales to get their onshore gas resources developed means residents of New South Wales and Victoria and businesses in those states are going to continue to pay more for gas than they otherwise would."

Energy availability has recently been a hot-pocket of Australian political debate, with rising power prices eating away at household and business wallets, while blackouts have hit parts of the country during severe weather events.

Australia also signed gas export market contracts worth about twice the size of the domestic markets. As well, states around the country vary in their responses to gas production -- with NSW and Victoria each having partial or total bans on parts of the gas industry, such as fracking.

The heated discussion also comes in light of a report released in July of this year that found that the wholesale price of gas resources in Australia could actually be influencing high electricity prices around the nation.

In terms of the shortfall, reports from AEMO and the Australian Competition And Consumer Commission (ACCC) have warned the expected gas shortfall for next year is highly probable. AEMO said the risk of blackouts needs "close attention and monitoring" with shortfalls of up to 107 petajoules forecast for 2018, and 102 petajoules for 2019.

The ACCC warned a "substantial shortfall" is likely in 2018, with the outlook for supply and demand significantly deteriorated since its last inquiry.

In response to Turnbull's deal with the gas companies, Shadow Energy Minister Mark Butler slammed the decision on Wednesday and called for the Prime Minister to "pull the trigger on gas exports".

"Today we are heard from the Prime Minister and the Deputy Prime Minister that they had another talk fest with gas companies and apparently received some undertakings that the minimum level of supply shortage would be covered by the gas companies. Well, that is not enough," he said.

"That is not a sufficient guarantee to Australian business and Australian households that any shortage will be resolvedin favour of Australian companies rather than overseas exports markets.

"The only guarantee available to the government to cover this shortage that they've known about for years, apparently, is to pull the trigger on gas exports. He should have done it today. He should do it tomorrow if he is not willing to."

Australia and Gas

  • Australia is in the running to become the world's largest Liquified Natural Gas Exporter over the next three years;

  • Despite this, domestic prices have sometimes been four or five times those on offer in the U.S;

  • In 2016 Australian gas was being sold to Japan at 40 percent cheaper than it was at home, in part due to long term contracts signed by major gas providers.

Butler also said that for Australian manufacturers to have faith in the Turnbull agreement, a legal guarantee would need to be organised with the gas companies that holds them to their commitment.

"At the end of the day, if this is able to be resolved by agreement between the government and the gas industry, all well and good but Australian businesses and households have been given those assurances in the past and they haven't been delivered," he said.

"They need a legal guarantee from the government that if things don't come to pass the way that the Prime Minister hopes they will, Australian business and households will be looked after.

"There is no reason they shouldn't have pulled [out of export agreements] today. I call on the Prime Minister to do that. He can continue to have other talk fests and meetings with the gas industry in the meantime but we need a legal guarantee."

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