The Australian Labor Government has committed to enhancing federal support for new gas projects, aiming to ensure the provision of affordable gas to consumers for the foreseeable future.
Today’s announcement comes amid warnings of potential gas shortages within the next four years if supply is not increased.
The government's plan includes backing for new gas fields and import terminals to stabilise supply.
This move, however, is expected to spark controversy, as it conflicts with demands from the Greens and environmental groups who advocate for the phasing out of fossil fuels.
Critical role of new gas supplies
The Future Gas Strategy outlined by Resources Minister Madeleine King emphasises the critical role of new gas supplies in Australia's economic transition towards net zero emissions.
This strategy aligns with the government's 'made in Australia' agenda, which is a key component of the forthcoming federal budget.
According to an official report supporting this strategy, addressing potential future gas shortfalls will involve developing new gas fields, including the Scarborough field off the coast of Western Australia by Woodside and the Narrabri project in northern New South Wales by Santos.
These developments are portrayed as essential steps in securing energy supply while advancing towards environmental goals.
Empire Energy Group Ltd (ASX:EEG, OTC:EEGUF) managing director Alex Underwood has welcomed the plan.
“The Federal Government has now made clearer than ever before its support for our industry,” Underwood told Proactive Investors.
“I think it underscores what those of us in the industry know, which is that gas is a critical part of our energy mix and as we move into more and more renewables in the electricity sector, gas will become more and more important as a supporting fuel source.”
King said Australia’s future relies on gas.
“A future made in Australia will need Australian gas. We will need affordable gas to support energy reliability for households and businesses as we move to a more renewable grid," Minister King stated.
We need gas to support Australian manufacturing and Australian industry, and tens of thousands of Australian jobs in the manufacturing sector.
“Our region needs our gas to warm their homes and cook their meals. And to power the great cities of Asia. We need gas to help us achieve our commitment to net zero. Our trading partners depend on our gas to meet their commitments to net zero.
“Australia will also need gas into the future, to firm renewables and ensure the reliability of the grid. We need to manage the emissions from gas, while ensuring affordability and reliability of energy as we undergo our energy transition and decarbonise our homes, businesses and industries.”
The Institute for Energy Economics and Financial Analysis (IEEFA) has already outlaid its objections.
Responding to the Future Gas Strategy, IEEFA's lead gas financial analyst Josh Runciman says, "Though the Future Gas Strategy calls for more gas supply to address ‘shortfalls’, IEEFA’s research finds that cost-effective measures to lower residential gas demand will eliminate the risk of annual and peak day shortfalls in the southern states while also lowering household energy bills.
"Australian households are locking in $1.2 billion in unnecessary costs for each year that new gas appliances continue to be installed.
"We do not believe that gas will support Australian industry. As we've seen in recent years, a number of major industrial gas users have closed facilities due to challenging gas market conditions despite a focus on new gas supply by AEMO.
"Lowering residential household gas demand will be more effective in ensuring adequate gas supply for industries that are not yet able to use alternatives to fossil gas.
"Our research has found that further gas exploration and development is definitely not needed. Gas exploration expenditure has been falling for the past decade as gas companies pivot to renewable investments or return cash to shareholders. It is unlikely that expenditure will materially increase as anticipated by the Future Gas Strategy.”
You can’t turn gas off overnight
Australia currently depends on gas for 27% of its energy requirements and it accounts for 14% of the nation's export income. However, there is a growing divide within political and environmental circles regarding this dependency.
Some supporters of the Labor Party along with members of the Greens, are advocating for the phasing out of fossil fuels, specifically gas, by 2030. This stance poses a significant challenge to the government's energy policies and its recent commitments to support new gas projects as part of its economic and environmental strategy.
As we all know turning gas off overnight would be catastrophic and the government knows this.
“Gas is needed out to 2050 and beyond, but its role is changing. The energy transformation will take time – it will take investment in renewables, new industry processes, new technologies,” King stated.
“Turning off gas overnight would do untold damage to our economy, impede efforts to get to net zero and have a severe impact on our region, which is the fastest growing in the world. Pretending otherwise is counterproductive and won’t help Australia and our region get to net zero by 2050.
“A future made in Australia needs affordable, reliable and clean energy. Australian gas is part of the future. Gas-powered electricity firms up renewable generation. This will help Australia achieve our target for 82% renewables by 2030.
“Our manufacturing sector needs gas for a range of industries, such as producing food, processing critical minerals, and to manufacture fertiliser, cement, glass and bricks.
“Australia’s gas industry is one of our country’s great economic success stories. Since the 1980s, the industry has grown to supply around 20% of the world’s gas, earning about $72 billion of export income for Australia’s economy in 2023-24. The industry creates highly paid and skilled jobs. It pays for roads, hospitals, schools and our security.”
What does it mean for smaller players?
Underwood underlines the capital support the Federal Government’s announcement could bring to the industry.
“As a company, we are very focused on commercialising our properties in the Beetaloo Basin in the Northern Territory. We have had very strong support from the NT Government, which we greatly appreciate.
“However, when I have been speaking to investors in the last couple of years, there has been some ambiguity around Federal Government support for the industry. The statement from Minister King today is helpful in one material regard for us, which is being able to attract capital.
“The gas industry is an industry that is very capital intensive and new investment needs to go into gas fields all the time in order to simply maintain them.
"So, this strong statement of support from the government, I think, will significantly help with investor confidence. We're seeing that in the market this morning, where gas stocks are moving quite materially higher on the back of this announcement.”
Empire Energy has recently raised $47 million, with support from existing shareholders and new shareholders including some major players in the US shale gas space. It will utilise the funds to drill its pilot development well, and for the cost of surface facilities so that Empire can start delivering gas into the pipeline.
The company has submitted almost all of its regulatory approval documents and is negotiating agreements. It has also acquired a secondhand gas processing facility from AGL which is well-suited to its pilot projects.
All going well, EEG expects to be in production in approximately the next four months.
Critical for the economy
According to ACIL Allen, the gas industry in Australia supports over 80,000 jobs, primarily in regional and remote areas, and provides energy to more than five million households. Efforts to manage and reduce emissions from gas are underway, primarily through Australia's safeguard mechanism and fuel-switching strategies.
King emphasised the necessity for further action, including releasing more greenhouse gas acreage for carbon capture, use and storage, as part of realising Australia’s geological storage potential.
The future gas strategy underlines that past investments alone are insufficient to sustain the country through the depletion of existing fields in the coming decades. Continued investment will be required to develop gas supplies essential for Australia's energy transition and industrial growth. This will involve a sustained commitment to exploration and a receptiveness to foreign investments that have historically contributed to the industry's success.
King reiterated that Australia remained a dependable trade and investment partner. The strategy highlights the crucial role of Australian gas in supporting the national economy and industries, as well as in assisting global trade partners in transitioning their economies to net zero, positioning Australia to compete globally for jobs and opportunities.