According to the International Energy Agency, Australia is expected to become the world’s second-largest gas exporter in 2024, behind the United States. With large amounts of natural gas discovered offshore, the country is now uniquely situated to change the dynamics of global energy markets. The uncertainties around domestic gas supply and pricing mechanism add enormous complications. Will Australians benefit from cheaper power bills as more supply comes onto the grid?
The eastern gas region is especially significant, holding approximately 31% of Australia’s total gas reserves. This southern region, combined with the western and northern gas regions, makes up Australia’s competitive and diverse gas market. The three liquefied natural gas (LNG) plants on Curtis Island sit at the center of the industry’s storm. Owned by QGC Pty Ltd, Santos GLNG, and Australia Pacific LNG, they together export roughly 5 percent of the world’s LNG when running full throttle.
Structure of the Gas Market
Australia’s gas market consists of three distinct regions: the eastern, western, and northern gas regions. Each region faces a unique set of regulatory and market dynamics. The eastern gas region is by far the most dominant and influential, making up almost half of domestic consumption.
On the east coast, the ADGSM is the only regulatory measure standing. The ADGSM was a smart move to guarantee enough domestic supply, but it has no mechanisms for direct export controls. Producers are focusing their attention on export markets to lock in the highest returns on their investments. For this reason, domestic users are a growing burden.
“There is no direct export control on the east coast market,” – Ms Hepburn
Lastly, the western gas market has a reservation mandate. This lopsided mandate forces producers to give up 15 percent of their gas for domestic use. This unfunded federal mandate draws a clear line between the much fledged liberalized market structure of the east coast.
Impact on Electricity Markets
Australia’s electricity landscape is primarily governed by two wholesale markets: the National Electricity Market (NEM) and the Wholesale Electricity Market (WEM). The NEM provides electricity to over 23 million Australians, spanning most of eastern and southeastern Australia. Second, it is very much intertwined with the politics of gas supply.
The Australian Energy Market Operator (AEMO) manages these markets, coordinating supply and demand to maintain a balance while minimizing prices. We know that when gas prices go way up and down, so do electricity prices. That price cap, emergency measure though it was, recently expired. It was capped at $12 per gigajoule for domestic consumers, and now there’s a drumbeat of fear regarding soaring electricity costs in years to come.
“Domestic wholesale prices on the east coast, for instance, purchases without a contract, are often high because the three Queensland LNG projects have linked domestic prices for this surplus gas to international prices.” – Ms Hepburn
About 80 percent of Australia’s gas is exported in the form of LNG. This can leave domestic users often at the mercy of global market forces. The combination of the preferred choice of producers to export their gas rather than sell it in a competitive domestic market worsens this dynamic.
“The producers preferentially sell into offshore markets due to the higher margins they can make vis-a-vis domestic sales,” – Dr Lilford
Future Directions in Energy Supply
Whatever the solution, experts argue that a more comprehensive approach to energy is needed in Australia. As the nation continues to navigate its energy transition, it should be taking a long game approach. Short-term pork, easily swayed by political interests, should go by the wayside.
Dr. Lilford touches upon the need for urgency in addressing systemic exploitation within the energy sector. He makes clear that Australia does not have an integrated plan to deliver reliable energy, sustainably and affordably.
“We need a mix of energy solutions, since no one energy system will provide everything we need,” – Dr Lilford
As Australia heads toward that 2050 horizon, the challenges become more pronounced in delivering a reliable, dispatchable, and accessible energy mix.
“We should be addressing long-term paradigms to support affordable sustainability, not short-term promises to secure votes,” – Dr Lilford
