Australian oil and gas sector delivers record contribution to government revenues in 2023-24

Patricia Karvelas: This warning from AEMO says (gas supply) issues could appear as early as next year, which is pretty soon, how is the gas industry responding?

Samantha McCulloch: That’s correct. The report that AEMO released yesterday is the latest in a series of warnings about gas supply shortfalls on the east coast of Australia. It’s pointing to pressures in the system after peak demand as early as next year, and then structural shortages from 2028. It really underscores the importance of urgent investment in new supply. For that, we need stable policy settings and we need to have that clear runway for that investment in the industry. There are a large number of projects that are currently in development, many of those are held up currently in regulatory approvals processes.

PK: Okay, it’s far from the first time AEMO has warned of gas shortages. Last year they overestimated demand. Why should the warning be heeded?

SM: Look, I think the consequences of having gas shortages need to be recognised, there are millions of Australian households that rely on gas for heating and for cooking. It’s playing an important role in power generation and it’s also underpinning our manufacturing sector. So, we absolutely should be heeding the warnings of AEMO and the ACCC and other authorities about the supply shortfalls. The fact is we do still have strong demand for gas for those functions, including for manufacturing, and it’s important that we ensure we’ve got ample supply for the market.

PK: What role does gas play in the transition to renewables?

SM: Gas is playing a really key role and this was underscored again in the AEMO report from yesterday. As we’re seeking to phase out coal and deploy more renewables in the power system, gas provides that really reliable, flexible backup that can be there, you know, when renewables might not be available. And as coal has been phased out of the system, we’ve seen that increasingly in recent years, and we’ll continue to rely on gas and we’ll need more gas in the electricity system as we move forward to support that renewable deployment

PK: We know that the country produces large amounts of gas but a lot of it, we know, goes overseas, how should Australia balance exports to Asia with the need to maintain domestic supply?

SM: It’s a really important question and we have been a very successful LNG exporter. Until very recently, we were the largest exporter of LNG in the world. We’re currently the third largest and most of our gas resources wouldn’t have been unlocked, if not for those export opportunities. It’s important though, that of course, the domestic market is well supplied. On the East Coast we have mechanisms in place to ensure that gas can be offered to the domestic markets from Queensland. But the key point here is that we need to be developing gas resources near to where the demand is. So, I know there’s been discussion about diverting LNG exports or diverting gas from Queensland down to Victoria. But as AEMO points out, there are actually infrastructure constraints to that. Victoria really needs to be developing its own gas resources to be able to supply that local demand.

PK: Victoria has banned new residential gas connections which may reduce demand, isn’t this report just evidence that Southern Australia’s energy future lies away from natural gas?

SM: The decision by the Victorian Government to ban new gas connections really is taking choice away from consumers.

PK: Isn’t it just about transitioning people to the future. We are meant to get to net zero. Isn’t that what they’re trying to do?

SM: And so, getting to net zero actually does still require gas and in the context of Victoria, you are pushing more demand onto the electricity system that is currently dominated by brown coal, you are pushing that demand in those peak periods that AEMO is warning is increasingly fragile, and you actually need more gas then for power generation. But I think the key thing is there are some opportunities to electrify, including in the household sector, but natural gas currently provides around 42 per cent of the energy needs for our manufacturing sector. And most of those opportunities can’t be electrified, it’s linked to either feedstock or it’s linked to high temperature heat. So, we can’t ignore the supply equation and the Victorian Government can’t ignore the supply equation.

PK: Samantha, thanks for joining us.

SM: Thanks so much for having me.

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