Reform needed to resolve price and supply uncertainty

Contrary to views that fossil fuels will fade from the energy scene, Australia’s east coast gas resources are taking on an ever-more important role, underlining the need for durable policies and regulations to meet the needs of supply investors, consumers and the environment.

A recent report by the Australian Energy Market Operator (AEMO) sees total consumption of gas on the east coast doubling over the next five years as Queensland’s new LNG export developments expand production – and, after a period of decline, demand is expected to grow for gas to fuel power plants as coal-burning generation units are retired.

As with so much of the energy market, gas is in transition and there is a fierce ongoing debate about how best to restructure and manage the arrangements for exploration, development and delivery.

Key to a satisfactory approach is the treatment of unconventional gas – supply from coal seams and shale rather than traditional sandstone reservoirs. Forty per cent of the gas produced on the east coast and 90 per cent of the region’s resources are unconventional.

The upstream petroleum industry is agitating strongly for the gas management framework to be considered as a whole and not treated piecemeal depending on political circumstances. The Australian Petroleum Production and Exploration Association (APPEA) declares that “the biggest risk to a sustainable east coast gas market is regulatory failure”.

Australia’s manufacturing sector is equally vehement in arguing for a policy regime that delivers gas to factories at affordable prices without ongoing fears of shortages. Manufacturers point to their gas prices being 44 per cent higher now than they were in 2005 and are concerned that a substantial amount of output could be lost by 2021 because of the rising costs of the fuel.

Industry stakeholders have taken heart from the December declaration of the Council of Australian Governments (COAG) ministerial Energy Council that bringing more gas to market is fundamental to meeting national energy challenges.

The federal, state and territory ministers acknowledge that domestic gas markets are “changing at a rate unprecedented anywhere in the world”? and agree that reform is needed to resolve uncertainty around price and availability.

A major input to their decision-making in this area will be the outcome of the east coast gas inquiry being undertaken by the Australian Competition and Consumer Commission (ACCC) with a draft report due in March, to be released at the Australian Domestic Gas Outlook (ADGO) 2016 conference, taking place in Sydney.

Federal Energy Minister Josh Frydenberg says all jurisdictions need to work together on “innovative and practical”? resolution of medium and long-term gas development problems.

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