Australian gas policy in spotlight amid supply challenges ahead of federal election

A stable and supportive policy, along with an effective regulatory framework, is needed to boost new gas supply in Australia, one of the world's top LNG exporters, regardless of the outcome of the upcoming federal election scheduled for May 3, industry sources said.

"We seek to engage with all parties about policies we believe will enable Australia's energy security and economic growth while advancing lower carbon aspirations," a Chevron Australia spokesperson told Platts, part of S&P Global Commodity Insights, on April 28.

Australia's energy challenges underscore the need for stable fiscal and regulatory settings that support investment in the development of the country's energy resources, the spokesperson said.

"Acting in Australia's best interests requires a better, more pragmatic conversation about energy, and for partisan politics to be set aside," the spokesperson added.

In the upcoming Australian election, the Liberal-National Coalition (Liberal National Party, LNP), led by Peter Dutton, will face off against Anthony Albanese's Australian Labor Party (ALP).

The LNP advocates for an energy mix that incorporates renewables, gas, and nuclear power, with a gradual transition to zero-emission sources by the 2040s.

If Dutton wins, the Coalition plans to commit to implementing a gas reservation policy covering Australia's East Coast, which may include a tax or levy on uncontracted gas exports to prioritize local supply nationwide.

In a report on March 20, the Australian Energy Market Operator noted that investments are imperative in Australia's central and east coast gas markets to avert gas shortages in southern states.

The risk of peak-day shortfalls and seasonal supply gaps in the southern states is expected to emerge from 2028, with annual supply gaps anticipated from 2029, when production from existing, committed, and anticipated projects in the southern states is forecast to decline by 32%, according to the AEMO.

Meanwhile, the ALP acknowledges the crucial role of gas in supporting the reliability of renewable energy and high-heat manufacturing while also targeting 82% renewable energy generation by 2030.

Interventions are not new in Australia's gas market, with previous measures such as the Australian Domestic Gas Security Mechanism and the Gas Market Code. However, further intervention could hurt exports and deter investments, some sources said.

The market intervention by the Labor government in 2022 "shook the certainty" needed for investment and positioned the Australian Government as an active player in the gas and electricity market, Rick Wilkinson, CEO of domestic consulting firm EnergyQuest, said.

The possibility of more market interventions has not been addressed by the Albanese government, he added.

The Coalition's approach is considered more balanced than Labor's focus on renewables plus storage, according to Logan Reese, associate director on the Asia-Pacific Regionally Integrated team at Commodity Insights. However, this balance also includes coal, which serves as the direct tradeoff for nuclear, Reese added.

Boosting investments

In his Budget reply speech in March, Dutton proposed an audit of development-ready projects, fast-tracking a decision on the extension of Western Australia's North West Shelf project, and implementing curbs on activist lawfare, among other intended measures.

"As Australia approaches a federal election, it is encouraging to see both major parties recognizing the essential role of gas in supporting national prosperity and a stable energy transition," Woodside Energy CEO Meg O'Neill said in a statement on April 23.

"We look forward to certainty for ongoing operations at the North West Shelf beyond 2030," she said.

Australian Energy Producers Chief Executive Samantha McCulloch, recently stated that regulatory uncertainty and approval delays are major barriers to new gas supply across Australia, undermining its competitiveness for investment.

"The Opposition's proposed reforms recognize the need for an effective and streamlined regulatory environment to provide greater certainty and attract investment in urgently needed new gas supply," McCulloch said.

Sources said that while the Albanese Government's endorsement of gas through its Future Gas Strategy announcement last year is positive, it requires clearer direction.

"The Federal Government is right when it says Australian gas will play an important role in global and domestic energy to 2050 and beyond," David Berman, ExxonMobil Australia Commercial Director said at a domestic industry event on April 1.

The AEMO "is right when it says this means investment in new gas production and infrastructure is required", and "the ACCC [Australian Competition and Consumer Commission] is right when it says new gas production and infrastructure is not being brought online fast enough", Berman said.

However, despite this consensus, there is less alignment on how to restore the investment certainty needed to secure capital for producing the energy Australia requires. He noted the need for a 'clear and durable commitment' to stable and supportive policies to promote investments.

For gas, the primary levers to increase supply lie with the states, although the federal government also has a vital role to play, Shell Australia Country Chair Cecile Wake shared at the same event.

"If there is a need for a conversation about more commitments to the domestic market, let's do so with proper consultation and design a system where all participants and states contribute their share and that protects rather than erodes the investment case for Australian gas," she said.

"Whatever the makeup of the next federal administration, there is a real opportunity to approach things in a different way," Wake said, noting "that will be critical to building the energy system for tomorrow."