News
The Coalition’s proposal to direct gas for export to the domestic market has support from those who favour cuts to production – but that’s not what the plan envisages. By Mike Seccombe.
The Coalition’s bright idea on gas
This week, before the release of the economic analysis underlying the opposition’s election promise to reserve more gas for domestic consumers, Danny Price predicted how the gas industry would respond.
“What’s going to happen,” said Price, the principal of Frontier Economics, who did the opposition’s modelling, “is the gas producers are all going to catastrophise.
“They’ll say there will be an investment freeze. They’ll say it will be counterproductive, there’ll be a reduction in supply.”
Sure enough, after his work was released on Wednesday by Opposition Leader Peter Dutton, that’s exactly what the gas lobby said.
“The policy would introduce price controls in the east coast gas market and would be yet another heavy-handed intervention that will drive away investment and risk exacerbating the supply pressures in the longer term,” said Australian Energy Producers chief executive Samantha McCulloch in a media release.
“Rather than increasing gas supply, the Coalition’s policy risks reducing domestic gas production and supply…”
There was nothing new in these warnings. The industry ran similar lines in 2006 before the Western Australian Labor government introduced a scheme requiring new gas developments to withhold a portion of their supplies from export for the domestic market. It has done so in response to any suggestion of a gas reservation policy in the eastern states. It issued similar dire warnings in 2022, when the federal Labor government introduced caps on gas prices in response to skyrocketing costs due to the Ukraine war.
The surprise was not that the industry was again making the same old hollow threats. It was that they were responding to a policy from the Coalition. In the past, Dutton’s side of politics has argued the industry line, as McCulloch pointed out in her media release.
In 2022, she noted, the Coalition had claimed Labor’s price caps would lead to a “collapse in industry confidence resulting in job losses and long-term investment downturns” and had cited modelling “that showed a $10-per-gigajoule cap could remove or delay more than 700 petajoules of new gas supply in less than eight years”.
The Coalition has radically shifted its position. The supposed champions of free markets propose that in government they would intervene to force the industry to hold back an extra 50 to 100 petajoules of gas from the lucrative export market and sell it domestically at $10 a gigajoule – a discount, at current prices, of about 23 per cent.
On Price’s calculations, that would see average household gas bills fall by 7 per cent, electricity bills fall by 3 per cent, and the cost of gas for large industrial users decline by 15 per cent.
The corollary is that the gas industry stands to lose hundreds of millions of dollars in windfall profits it would have received from selling that gas at the current high international prices.
The warnings of tanking investment and reductions in gas supply can be safely ignored, says Price.
When the investment decisions were taken to develop most of the gas now being produced for export, he says, “prices [were] much lower than what we see now, and even much lower than $10.”
A quick survey of the history of gas prices in Australia underlines his point. This country used to have some of the cheapest gas in the world. Until 2015, the average east coast price was well below $5. Before the Russian invasion of Ukraine three years ago, it had never gone above $10. Which is the target price of the Coalition/Price policy.
The reason it was so cheap was that Australia was blessed with abundant supplies – and still is. The problem lies in the fact that most of it is sold to foreign buyers, which has created what Tim Buckley, director of Climate Energy Finance, calls a “contrived shortage” of domestic supply.
“The Australian Energy Market Operator report for the December quarter of 2024 shows domestic gas use accounted for only about 16 per cent of total gas produced in eastern Australia,” says Buckley.
“We exported the other 84 per cent of all the gas produced in eastern Australia. That’s the most important point: we don’t have a shortage.
“The second point is that gas production in eastern Australia has trebled in the last decade, and domestic demand has dropped by about 40 per cent.”
In his budget reply speech two weeks ago, Dutton blamed the Albanese government for having “created a national gas emergency due to insufficient supply”. He was blaming the wrong Labor government.
Tim Buckley, along with many other analysts, traces the root of the problem back to 2010. That’s when the Labor government of Queensland and then federal Labor minister for resources and energy Martin Ferguson – who later jumped into work with the gas industry – approved a massive new gas export market.
“When we opened up six LNG export trains concurrently in Gladstone … we heard that enormous sucking noise of all of that gas in eastern Australia going offshore,” says Buckley.
Other factors have contributed to the problem. Victoria is by far the most gas-dependent state, accounting for two thirds of all residential consumption, followed by New South Wales, which consumes about 15 per cent. The south-east has long relied heavily on gas flowing from fields in Bass Strait, which now are becoming depleted. While there is plenty of gas elsewhere in the country, the problem is getting it to where it is needed. There is not enough pipeline or storage capacity.
This led to proposals to build import terminals in NSW and Victoria to take gas from elsewhere in the country or, ludicrously, to reimport gas from Japan, which is Australia’s biggest gas customer.
Japan now does a thriving trade in re-exporting gas it has bought from Australia and elsewhere – it actually onsells more gas than it imports from Australia. Not surprisingly, the Japanese gas traders and government are virulently opposed to any measures to reduce export volumes.
Japan does not need Australian gas to keep the lights on. Australia does.
In its most recent update on the outlook for gas supply, released two weeks ago, the Australian Competition and Consumer Commission warned of a potential shortfall of nine petajoules this winter across the east coast “if LNG producers export all their uncontracted gas”.
In the case of “unexpected weather events” or outages among Australia’s antiquated coal-fired power stations, the ACCC warned, things could get very sticky.
“To ensure that the east coast gas market has enough gas this winter, including through any significant demand or supply shocks, we recommend that the Australian Government work with LNG producers to secure additional gas, which is currently uncommitted, for the domestic market,” said ACCC commissioner Anna Brakey, in a media release accompanying the update.
Labor claims its existing code of conduct for the industry is sufficient to deal with the supply issue. A problem for the opposition is that, by its own admission, it could take a year or more before the details of its plan are fleshed out, the wholesale price comes down to $10 and the benefits flow to gas users.
As explained by Joshua Runciman, lead Australian gas analyst with the Institute for Energy Economics and Financial Analysis, the opposition plan is simple enough in essence: a levy would be applied to gas exports and “by supplying a specified volume of domestic gas, LNG exporters can effectively earn an exemption from the export levy”.
“However, the modelling omits crucial detail on how the policy might work in practice,” he says. For instance, he notes that Frontier Economics has provided no guidance on how the government would determine the volumes LNG exporters would need to supply, or how those volumes would be split across the three Queensland exporters.
Moreover, he says, “determining the volumes required to push prices to $10/GJ is likely to be highly complex and challenging”.
Still, the plan has won support from surprising quarters. Richard Denniss, executive director of the progressive think tank The Australia Institute, lauds the opposition’s announcement as marking “a turning point for energy policy in Australia”.
“Australians have been told for a decade that we had a shortage of gas,” says Denniss.
“The main justification for expansion of gas in Australia has been that’s the only way to get energy prices down. Well, Dutton’s just showed there’s other ways – that all we need to do is to tax gas exports, to ensure our gas flows first to Australian businesses and households.”
There is no indication the opposition thinks taxing gas exports is “all we need to do”. Quite the reverse.
It proposes to spend $300 million to formulate a “strategic basin plan” and spend another $1 billion on a “critical gas infrastructure fund to relieve gas supply constraints” – that is, build more pipelines and storage. It plans to designate gas as a “critical mineral”, to expedite the approvals process, to encourage more offshore gas drilling and to constrain opposition to gas projects.
In short, it is doubling down on gas.
Both major political parties continue to talk up fossil gas as an important part of Australia’s future energy mix, but it looms far larger in Coalition planning. That’s because of the Coalition’s other big policy initiative: building nuclear power plants.
By the opposition’s own account, getting nuclear up and running would take at least 10 to 15 years. In the meantime, the Coalition is committed to slowing the rollout of renewables – including by abandoning Labor’s $20 billion Rewiring the Nation plan to build new electricity transmission infrastructure. As a result, gas will be a bigger part of Australia’s energy mix, for longer, if the opposition wins the coming election. So will coal.
The Climate Change Authority’s analysis of the Coalition’s nuclear plan showed the net result would be the emission of at least an extra two billion tonnes of greenhouse gas, an amount consistent with 2.6 degrees of global heating.
As Danny Price attests, setting a price of $10 for wholesale gas will not impede future gas production in any significant way.
Seen in that context, the industry’s bleating about the gas reservation plan rings very hollow. A Coalition government would actually be good for its long-term future.
What it would not be good for is the climate.
This article was first published in the print edition of The Saturday Paper on April 12, 2025 as "Bagging gas".
For almost a decade, The Saturday Paper has published Australia’s leading writers and thinkers. We have pursued stories that are ignored elsewhere, covering them with sensitivity and depth. We have done this on refugee policy, on government integrity, on robo-debt, on aged care, on climate change, on the pandemic.
All our journalism is fiercely independent. It relies on the support of readers. By subscribing to The Saturday Paper, you are ensuring that we can continue to produce essential, issue-defining coverage, to dig out stories that take time, to doggedly hold to account politicians and the political class.
There are very few titles that have the freedom and the space to produce journalism like this. In a country with a concentration of media ownership unlike anything else in the world, it is vitally important. Your subscription helps make it possible.
Subscriber exclusive
Send this article to a friend for free.
Share this subscriber exclusive article with a friend or family member using share credits.
