The east coast of Australia could face a natural gas shortfall in 2023, prompting experts to call for the country to protect its energy security by diverting liquefied natural gas (LNG) exports to the domestic market, according to a report by the Australian Competition & Consumer Commission (ACCC).

The Interim gas report, released yesterday, 1st August, forecasted that Australia’s east coast could face a shortfall of 56 petajoules (PJ) in 2023, a significant increase on the 2 PJ shortfall predicted last year for 2022’s gas supply. 

With a large portion of the gas produced in Australia’s east coast generated by companies that are also LNG exporters, Gina Cass-Gottlieb, Chair, ACCC, stated that the organisation is ‘strongly encouraging’ LNG exporters to immediately increase their supply into the market. 

“Our latest gas report finds that the outlook for the east coast gas market has significantly worsened,” she added. 

As a result, the ACCC has recommended the Resources Minister to initiate the first step of the Australian Domestic Gas Security Mechanism (ADGSM), which dictates that if there is a supply shortfall in the domestic market, LNG projects may be required to limit their exports or find new gas sources. 

The report also raises concerns about the high level of market concentration, noting that 90% of the east coast’s proven and probable (2P) reserves were influenced by LNG exporters and associates in 2021 through various measures. 

65.6% of the region’s gas produced in 2023 (1981 PJ) is forecast to be exported overseas under long term contracts, leaving an excess amount of 167 PJ, which – according to Cass-Gottlieb – is increasingly diverted to overseas spot markets, with as much as 70% of it going overseas in recent years. 

“If LNG exporters were to provide all of their excess gas to overseas markets, the east coast gas market would be facing a supply shortfall of 56 PJ.” 

Having been net withdrawers of gas from the domestic market since 2021, LNG exporters have upset the supply-demand balance by purchasing more gas from domestic producers than they supply to domestic customers. 

EU’s LNG problem

The report comes amidst a dearth in LNG supply for the EU initiated by Russia’s invasion of neighbouring Ukraine, exposing an over reliance by many European countries on Russian natural gas. 

In its drive to increase supplies of gas before the winter months, Europe has signed supply deals with both the US and Asia, and opportunities were provided to Australian exporters to secure new LNG export contracts for existing and new projects to Europe over the next few years 

Although analysts see little scope to immediately expand sales to Europe, Australian shipments were expected to climb over the course of the next few years, a prediction that could be impacted by the ACCC’s recommendation to focus on domestic supply. 

According to the report, the Australian Government has committed to renegotiating the Heads of Agreement that will help ensure LNG exporters make gas ‘broadly and transparently’ available to all domestic users. 

“We welcome the announcement by the Minister for Resources that Australian Government has decided to review and renegotiate the ADGSM and the Heads of Agreement with LNG exporters,” remarked Cass-Gottlieb. 

“Both mechanisms are critical to ensuring adequate supply to the domestic market in 2023 and future years”