26/09/2017 12:21 PM AEST | Updated 26/09/2017 12:21 PM AEST

Turnbull To Gas Industry: Fix Shortages Or Face Export Controls

This time he's serious.

Hannah Mckay / Reuters
Malcolm Turnbull is threatening to force gas companies to keep more gas in the country.

With Australia on track to become the world's largest Liquified Natural Gas exporters in the world, it may sound peculiar to hear the country is facing domestic shortages so severe the Federal Government is threatening to limit exports to shore up the local market.

Prime Minister Malcolm Turnbull is threatening to force gas companies to keep more gas in the country in an effort to keep consumer prices down after shortages on the east coast of the country were forecast to be up to 3 times worse than previously predicted.

Australia and Gas:

The PM took aim at state governments for having "comprehensively failed" in developing their own gas resources, and threatened to activate laws setting export limits on gas giants and state governments if they don't bolster supply to consumers on the east coast.

Energy availability has been front and centre of Australian politics for months, with rising power prices biting into 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, different states also have different responses to gas production -- with NSW and Victoria each having partial or total bans on parts of the gas industry, such as fracking.

"Queensland is an honorable exception," Turnbull said on Monday afternoon.

Key Points:

  • Malcolm Turnbull wants gas companies to keep more gas in the country, threatening to force them to do it if he has too;
  • He also wants states such as Victoria and NSW to lift moratoriums on new gas exploration to drive down power prices;
  • Victoria says the problem is Australia exporting two-thirds of its gas supply overseas.

"Queensland is producing most of the gas on the east coast of Australia. But both Victoria and NSW are not doing enough.

"We will not let the power bills of Australians rise further and further because of a shortfall of gas on the east coast of Australia."

He said he wanted the NSW Government to approve development of the Narrabri Gas Project, which he said would over 58 petajoules of gas per year.

"That is critical to the energy security of Australia," Turnbull said.

The PM called for another meeting with energy heads, and said the export restrictions could be imposed if companies failed to act.

"We will continue to hold that mechanism ready to go and we will ensure that it is entirely fit-for-purpose in light of these changed circumstances that is a much bigger shortage than previously advised," he said.

Reports from the Australian Energy Market Operator (AEMO) and the Australian Competition And Consumer Commission warn the chances of a gas shortfall next year are much higher than expected.

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

It's not the first time the Government has threatened to initiate export controls -- called the Australian Domestic Gas Security Mechanism -- to secure domestic supply.

East coast gas companies met with Turnbull and the Energy Minister Josh Frydenberg on March 15 and April 19 to find solutions to a shortage of domestic gas supplies which had been driving up prices.

"Gas companies are aware they operate with a social licence from the Australian people. They cannot expect to maintain that licence if Australians are short-changed because of excessive exports," Turnbull said at the time.

In July an Australia Institute report looked at energy prices in South Australia and found a correlation between domestic electricity prices and gas prices, despite gas making up just 10 percent of electricity generation.

Another report by Melbourne University echoed similar reports in blaming the creation of an eastern Australian gas export industry for creating a jump in demand and linking prices to international markets.

    ederal Labor isn't convinced by the PM's tough talk.

    "All we've seen is talk, and we've seen no action," Labor energy spokesman Mark Butler told reporters.

    The NSW Government rejected Turnbull's more recent criticism, with Resources and Energy Minister Don Harwin arguing the state has more projects in the pipeline than any other state, including the Narrabri gas project.

    The Victorian Government blamed their federal counterparts and defended the Andrews Government's ban on fracking.

    Victoria's Resources Minister Wade Noonan said the state's ban on fracking is supported by every political party.

    "Our agricultural sector is very important to the Victorian economy and simply attacking the states such as Victoria is not showing any leadership on Malcolm Turnbull's behalf," he told ABC Radio on Tuesday.