Australian business at ‘significant risk’ from 2023 gas shortage, ACCC warns

More Australian businesses could close if the government does not stage a drastic intervention to correct an “alarming” 10% gas shortfall forecast in 2023.

That’s the finding of an interim report from the Australian Competition and Consumer Commission (ACCC), which warned it could amount to the largest national gas shortage in five years.

“The outlook for 2023 is very concerning and is likely to place further upward pressure on prices, which could result in some commercial and industrial users no longer being able to operate,” the report said.

“This is a significant deterioration in conditions relative to what we projected for 2022 at the same time last year and presents a real risk to Australia’s energy security.”

It’s going to sting NSW, Victoria, South Australia, Tasmania and the ACT the most, while Queensland will feel less pain, and the mostly self-sustaining WA will be spared the damage of this issue.

Here’s what you need to know.

Why is there a shortfall?

About 90% of the east coast’s gas is produced by three big exporters: Santos-controlled Gladstone LNG, the Shell-controlled QCLNG, and Origin Energy-operated Australia Pacific LNG.

The trio sell about 75% of Australia’s gas to offshore trading partners under contractual agreements, according to 2018 figures from the government.

But of the remaining quarter of the gas, a whopping 70% of it is being sold off to overseas buyers as well, instead of keeping it in the domestic market to power Australia.

Why? The war in Ukraine is seeing a worldwide gas shortage, which means Australian gas is a valuable commodity on the world stage right now.

How bad is it?

It’s not great.

The ACCC has predicted a shortfall of 56 PJ next year, which equates to 10% of domestic demand — the largest projected supply shortfall since 2017.

“LNG exporters are expected to contribute to the shortfall in 2023 by withdrawing 58 PJ more gas from the domestic market than they expect to supply into the market,” the report added.

Treasurer Jim Chalmers says ACCC’s findings are “deeply concerning” and appealed to exporters to “do the right thing by Australians” by keeping more gas on home turf.

“The ACCC’s latest gas inquiry report highlights some alarming features of the east coast gas market,” Chalmers said.

“The government takes these findings extremely seriously and will shortly respond to the ACCC’s recommendations.”

Will it affect Australian business?

It already has.

The report noted Advance Bricks announced it was closing its manufacturing operations that employed more than 20 people due to gas price rises.

Further textile company Flickers and plastic producer Qenos were named as two manufacturers with business operations “on the line” owing to massive increases in prices on the spot market.

Likewise, the competition watchdog spoke to users who said gas price increases are “significantly impacting their business operations”, with one saying the supply of cheap energy maintained their product competitiveness.

“However, this advantage has eroded and there is no opportunity to pass on costs to downstream markets,” the report found.

“This user also advised that ‘if we don’t get some level of control or supply in the market it will be very difficult for manufacturers in Australia’.”

What is the ACCC recommending?

Firstly, for exporters to put more gas aside for Australians.

“LNG producers will need to divert a significant proportion of their excess gas into the domestic market,” the report stated.

In addition, the ACCC urged a rethink of the “gentleman’s agreement” between the big three and the government. Known as the Heads of Agreement, it ensures there is enough reasonably-priced gas in Australia’s market.

The deal is finishing next year, and the ACCC says now is the time for the federal government to tighten the rules and introduce reporting obligations for the fossil fuel giants.

The watchdog also urged the government to pull the trigger on the Australian Domestic Gas Security Mechanism (ADGSM), also known as the “gas trigger”.

It allows Resource Minister Madeleine King to intervene in the gas market to control exports in order to keep enough gas onshore.

How does meaningful climate action factor in?

In the longer term, the ACCC said supply shortages can be topped up by gas projects in the Gippsland Basin, the southwest pipeline in Victoria and further progress on LNG import terminals.

But it also recommended better investment in hydrogen and carbon capture/storage projects are required to bolster the gas industry in Australia as the country transitions away from fossil fuels like natural gas.

“Users remain concerned about costs and uncertainty associated with government policy and the subsequent impact on their business operations,” the report found.

“We expect more users will consider alternative energy sources as they become more affordable, adequately tailored to their business operations and government policies and transitional arrangements become clearer.”