Australian gas industry pushes for greater investment in supply, CCUS focus

Australian prime minister Anthony Albanese’s government has taken a number of steps in recent months to ensure that sufficient energy supplies reach the country’s populated eastern regions at prices Australians can afford. Australia is one of the world’s largest natural gas and coal producers, but soaring prices on the global market have prompted the country's gas and coal industry to focus on addressing foreign demand, especially in the case of LNG, leaving eastern Australia to compete for energy supplies with foreign entities at soaring market rates.

Australia is indeed one of the world’s largest exporters of LNG and most of its gas resources are cited well away from the major cities. The gas industry was established with exports to foreign markets in mind, but as the eastern cities grow, so grows demand, which is proving difficult for Australian producers to meet, especially when global market prices are so profitable and local customers complain of high power costs.

A report from the Australian Competition and Consumer Commission (ACCC) last summer warned that considering global market circumstances, Australia could face gas shortages and see steep price hikes in 2023 and 2024. The commission urged the government to invoke the 2017 Australian Domestic Gas Supply Mechanism (ADGSM), which allows the government to direct gas originally meant for LNG export to be diverted for domestic supply.

Albanese took steps in accordance with the ADGSM, including placing price caps on fuels sold to Australian power producers – at A$12/GJ for gas and A$125/metric for coal. According to recent government data, these measures have succeeded in bringing electricity prices down, but the industry is alarmed about further government measures that might restrict future operations and cut into earnings. Such government moves, the industry argues, could interfere with customers supply schedules and deter shareholders and foreign partners from investing in projects that would generate new supply.

Further adjustments are expected to the ADGSM that could see a government decision needed for exports from Queensland LNG facilities on a quarterly basis rather than on the annual basis at present. The plants located in Queensland include Gladstone LNG, Australia Pacific LNG and Queensland Curtis LNG. 

Furthermore, the government is looking to have domestic gas contracts be set at a price that covers production costs with a profit that allows a reasonable rate of return.

 The government proposals have faced criticism from the Australian Petroleum Production & Exploration Association (APPEA) which filed its Federal Budget submission in early February, urging Albanese’s government to promote investment in new gas supply and emission reduction measures “to put sustained downward pressure on gas prices, help deliver energy security, and fast-track the path to net zero,” a statement released by APPEA said. 

“The sector had never been more important to the nation’s economic and cleaner energy future, and ensuring a dependable investment environment would deliver more benefits to Australians,” the association said.

CCUS

In its 2023-24 Federal Budget submission, the APPEA called for the creation of a national carbon capture utilisation and storage (CCUS) roadmap to “provide clear policy direction, identify and progress priority hubs for low emissions projects and promote Australia as a regional carbon storage leader.” It also called for the government to encourage investment in new gas supply to meet demand and drive prices down, rather than interventionist policies which have the opposite effect.

The association suggested key measures that it would like to see the government take as: (1) letting the market work to bring prices down; (2) progressing new acreage releases; (3) encouraging New South Wales and Victoria to lift moratoriums which are contributing to the highest gas prices in the country; and (4) giving major project status to new supply and low emissions technology projects. 

The APPEA position stands in stark contrast to that of the Australia Greens party, which is demanding that Albanese’s government commit to blocking new hydrocarbon projects, a move that the climate change and environment ministry has refused to do. 

The APPEA has said it wants to take the lead on developing Australia's CCUS potential. 

APPEA CEO Samantha McCulloch argued in the Federal Budget statement: “Capturing and permanently storing emissions from industrial facilities, including hydrogen production, and directly from the atmosphere makes the most of our world class geological resources and is critical to reaching net zero.”

McCulloch said Australia’s natural gas is essential to the country’s energy future in that it will play a role in Australia’s economic success for decades to come. She said “clear and stable policies are essential to provide industry with confidence to invest in the new energy supplies needed.”

“The recent government price-cap intervention – combined with the proposed Mandatory Code of Conduct – lets the government permanently determine gas prices. This – along with ongoing legal hurdles and delays for new oil and gas projects – create significant uncertainty and make investors nervous to allocate new capital to the sector and the economy,” McCulloch said.

The APPEA wants to improve environmental standards and build business certainty while avoiding added costs and delays. To that end it suggested the following as a means for “accelerating the path to net zero”:

• Develop a national CCUS roadmap that will (1) provide clear CCUS policy direction and consistent regulatory frameworks; (2) support collaboration to ensure CCUS and carbon removal technologies are available across the economy; (3) identify and advance priority hubs for CCUS, low-carbon hydrogen and hard-to-abate industry; and (4) demonstrate that Australia is ‘open for business’ as a regional CO2 storage focal point.

• Enable investment for a secure, affordable energy future by: (1) let the market work to unlock new gas supply and drive down Australia’s energy prices; (2) support new oil and gas development through acreage releases, and encourage states to lift moratoriums on new exploration and development; (3) assign major project status for new energy supply and low emissions technology projects; and (4) ensure a modern and competitive fiscal system that removes regulatory and investment barriers to efficient market operation.

• Protect and preserve Australia’s environment by: (1) remove existing duplication, avoid new duplication, and streamline EPBC Act [Environmental Protection and Biodiversity Conservation Act] approvals; (2) limit the scope of the independent Environmental Protection Agency consistent with the government’s pre-election commitment; and (3) finalize the decommissioning legislative reforms and financial assurance framework.

CCUS is a major focus of the oil and gas industry globally, and Australian energy firms have already launched a number of such projects. In line with the position of the International Energy Agency (IEA), the industry argues that the technology will be essential for decarbonising hard-to-abate sectors.