GOT GAS: A short term reprieve but questions still unanswered

East coast has enough gas for domestic use during the December quarter
Gas shortages still expected in the years to come
Answer remains developing new gas supply and possibly importing gas

At the beginning of this week, the Government said it was confident that the east coast will have enough gas to meet domestic demand during the December quarter and as such would not need to activate the Australian Domestic Gas Security Mechanism.

Make no bones about it, this is a positive thing.

It means that for the rest of this year at least, there won’t be any mad scrambles for gas or load shedding in the electricity grid.

This could in turn mean no crazy jumps in gas prices like we experienced in 2022 following Russia’s invasion of Ukraine, which could in turn keep inflation in check.

All this is cause for celebration, but it comes with a caveat.

Not having to worry about gas shortages to the end of 2024 is at best a short-term reprieve and does nothing to address expected gas shortages just a little down the road.

Answers to gas shortages

At this stage, the most obvious answer to meeting the gas shortages is to secure new sources of gas.

While that sounds simple, the reality is far more complex.

After all if finding and developing new sources of gas was simple, we would already be burning gas from Santos (ASX:STO) Narrabri project in our homes and power stations and concerns about gas supply shortages would be considerably more muted.

Instead, we have a large gas resource that is mired in red tape and legal challenges.

Other potential answers include the gas import terminal being developed by Andrew Forrest-linked Squadron Energy.

The terminal at Port Kembla, which is nearing completion, is intended to help address shortages by importing liquefied natural gas.

With global gas production expected to climb, the company reasons that it would make more sense to import gas rather than developing new gas fields and infrastructure that might become obsolete once the energy transition hits its end point.

The last possible approach, activating the Australian Domestic Gas Security Mechanism and forcing LNG producers to suspend exports and supply said gas into the domestic market is the one that the government is most reluctant to make use of due to concerns that it will impact on Australia’s reputation as a reliable trade partner.

Best route forward?

The best route forward is probably a combination of bringing new gas fields into production and importing gas through the Squadron terminal.

Doing so gives Australia a combination of supply security and the flexibility to draw gas from LNG producers, which could in a twist actually be spot cargoes from local players.

While the issues with the first is actually (in some cases) finding the resource or getting approvals to actually get them off the ground while importing gas might cost more for every joule, the advantages in such a hybrid approach far outweigh not doing so.