East Coast gas producers fear they could soon be ordered to break long-term export agreements amid warnings that fossil fuel price caps will deter new supply projects and increase the need for regulators to use emergency powers to avert future winter shortages .
Albanian government last week new laws passed Aims to curb soaring energy bills, including capping uncontracted domestic gas prices at $12/GJ for 12 months and introducing a mandatory code of conduct to ensure “reasonable” gas contract prices beyond next year.
Gas prices are expected to soar another 40 per cent by 2024 as the Ukraine war sparks competition for Australia’s liquefied natural gas (LNG) supplies, putting pressure on households and businesses that use the gas.
However, the government’s move has sparked a strong reaction from the gas industry, which argues that investment will be driven out of key new drilling programs needed to shore up local supplies and replace rapidly declining offshore fields in the Bass Strait.
There is now growing concern across the industry that the laws will exacerbate the threat of shortages in future peak winter months and leave the government little choice but to operate under a program called the Australian Domestic Gas Security Mechanism (ADGSM).
“This winter or the winter after that, the federal government will have to decide between rationing gas and breaking the LNG contract,” said Santos managing director Kevin Gallagher.
While Australia is one of the world’s largest LNG shippers, most of the LNG is produced in the north of the country and sold on long-term contracts to buyers in China, Japan and South Korea. The Australian Energy Market Operator (AEMO) has warned there is a “risk” of winter gas supply shortages in the southern states in the coming years as output from traditional offshore fields dries up.
Graeme Bethune of Adelaide-based energy consultancy EnergyQuest said the government’s emergency intervention would worsen the business case for several new east coast supply projects, including Woodside and ExxonMobil. Ongoing investment to sustain production in the Bass Strait, Narrabri coalbed methane development in Santos, and the proposed establishment of a dedicated shipping terminal to start importing LNG cargoes.