Mon Jun 24

the possible gas shortage in Victoria is a warning

Written by Samantha Hepburn, Professor, Deakin Law School, Deakin University

Not far inland from Port Campbell in Victoria lie three depleted gas fields. These underground sandstone reservoirs now have a second life, as the state’s main gas storage ^[1], responsible for 30% of the state’s winter gas demand ^[2].

Last week, these underground reserves began running low. Victorians were firing up their gas heating to combat the intense cold snap gripping Australia’s southeast. Problems at Longford, the gas plants which receives most of the gas from offshore fields in Bass Strait, meant production dropped. And the weather – cold, clear and with minimal wind – meant energy from wind turbines dropped, while solar languished.

In response, Australia’s energy market operator, AEMO, warned of a risk ^[3] to gas supply in the south-east, including New South Wales, Victoria, South Australia, Tasmania and the Australian Capital Territory.

The fact that Australia, one of the world’s top gas exporters, could face a potential gas shortage is a sign that something needs to change. As the saying goes, never waste a good crisis.

The gas problem is largely a Victorian problem

While many states could be affected, Victoria would be worst hit by any shortage. The state’s almost seven million residents are the nation’s largest users of gas, in their homes and businesses.

That’s because Bass Strait has plentiful gas supplies. Since gas was discovered in these wild seas in the 1960s, billions has been spent on extracting this fossil fuel, to the tune of eight trillion cubic feet ^[4]. Two million Victorian households rely on gas ^[5] in their homes. Almost 90% of the state’s households use gas appliances ^[6], according to a 2023 survey. Gas cooktops are widespread (68%), which is unusual in most other parts of Australia. Half of Victoria’s households have gas heating.

The state government has introduced a gas substitution plan, including banning gas connections ^[7] to newly built houses, and giving households incentives ^[8] to replace gas with efficient electric appliances. But because Victoria has been gas dependent for so long, it will take years to shift the dial. Large industrial users may take longer.

One of the four plants at ExxonMobil and Woodside’s Longford gas facility in Victoria. Joe Castron/AAP ^[9]

A public resource without the public interest

Natural gas resources are owned by our relevant state government, who can then determine which company or public entity can exploit it.

This is embedded in our laws because gas is a public resource, meaning that the state owns it on behalf of the public. When exploiting gas, the state must act in accordance with public benefit.

If this system was working well, the states would choose companies to exploit and sell the gas, redistribute the royalties and taxes to the public and ensure an adequate supply of gas for domestic markets.

But the system is not working well. The federal government’s Petroleum Resource Rent Tax is not adequately charging ^[10] companies for the enormous profits associated with the gas export market. State royalty schemes often give ^[11] gas producers a free pass. In contrast to other fossil fuel giants such as Norway ^[12], Australia has done very poorly out of these resources.

The legal notion of the public benefit has long focused on money. If a company wanted to exploit and sell gas, public benefit was satisfied when it returned some of these profits to the government. But as the climate emergency intensifies, the idea of the public benefit has changed.

Gas is a major contributor to climate change, through direct burning of the fuel as well as underestimated methane emissions escaping from pipelines and coal seam gas mines. Public benefit today is not just about making the most money possible from fossil fuels. It is also about ensuring fossil fuels do not cause irreparable global warming.

Opportunity more than crisis

Does Victoria face another potential gas crisis? The prospect takes us back to 1998 when, an explosion ^[13] at the Longford plant meant the state largely lost access to gas overnight. Many of us remember months of cold showers, or losses to business.

While some coverage ^[14] suggested a new shortage was imminent, it’s unlikely this time round. Gas prices have fallen after rising sharply last week. Southern and eastern states have a large network ^[15] of gas pipelines.

AEMO predicts supply will return to sufficient levels if the Longford plant increases production as expected, gas pipelines from Queensland run at maximum capacity, southern state gas production facilities operate at full production as per normal and demand for gas-generated electricity does not spike.

But what would happen if the cold snap and production problems outpaced domestic supplies?

If this happened, it might finally force the federal government to act. Australia’s “gas trigger” laws are a last resort legal avenue allowing the government to force gas exporters to reserve some gas for domestic use.

The problem is, the gas trigger has to be pulled ahead of time. The government would have had to make a decision in November last year that 2024 would be a shortfall year. They did not.

If the Albanese government pulled the gas trigger in November (the next possible date), it would address potential gas supply problems for 2025.

A better and more immediate option would be to implement a gas reservation policy for the east coast gas market, similar to Western Australia’s 2006 policy requiring exporters ^[16] to reserve 15% of their gas for local use. This policy ^[17] has stabilised domestic gas prices on the west coast.

What this week’s gas warning shows us is the need for other states – especially Victoria – to take it seriously. The Longford plant is getting long in the tooth. Production has dropped due to unplanned maintenance ^[18].

This is against a longer backdrop of declining output, as ExxonMobil and partner Woodside plan to progressively shut the plant in coming years as gas reservoirs are emptied. By July this year, the oil and gas companies plan to permanently close ^[19] one of the four gas plants at the site, followed by a second later this decade.

For their part, the Energy Users Association – representing large manufacturers and industrial gas users – see this shortfall ^[20] as a “very clear early warning” to get more gas flowing.

Even if this gas supply crunch is quickly solved, it’s forcing us to pay attention to core issues around gas in Australia: greenhouse gas emissions, a largely unregulated east coast export market, large fluctuations in supply and dramatic price hikes. None of this is consistent with public benefit.