The rebound in global gas prices, which have seen the fuel command over $20 per gigajoule on the Asian and European spot markets, is undoubtedly good news for Australian liquefied natural gas producers, but it may be a harbinger of pain for the domestic gas market.

East coast spot prices have seen some gains in recent months though they still remain in the single digits, but winter is coming in the northern hemisphere and that will almost certainly result in further increases in the global gas price.

Couple that with energy advisory EnergyQuest noting that the east coast market had entered into deficit during the second quarter, a situation that was addressed by dipping into stored gas, and it is not a stretch to say that current domestic prices of about $8.15/GJ could just be a comparatively pleasant memory.

High gas prices have a flow through effect on every other costs, which could well put the economic recovery at risk.

This seems to indicate that the Australian government’s gas-led plan to secure affordable gas that would drive the country’s recovery from the COVID-19 outbreak is the right plan to pursue.

And it just might have alleviated (but not solved) the rising cost of energy, had it been introduced a couple of years earlier to address some of the structural issues that Australia’s gas industry was facing rather than as a response to the pandemic.

Demand vs supply

At the core of this issue is the simple fact that even with some of the new projects coming online, the decline of existing gas fields means that even with renewables taking off some of the load, gas demand is going to outstrip supply sooner rather than later.

EnergyQuest noted in its ‘September 2021 EnergyQuarterly Report’ that while coal seam gas production increased by 11.9 petajoules, or 0.8%, to a record 1,519.2PJ in the 2021 financial year, conventional gas output fell by 33.1PJ, or 3.7%, to 862.3PJ during the same period.

Narrowing down on Victoria, notwithstanding the start-up of production from the West Barracouta and Sole gas fields, output in the state is trending down and expected to be just 96PJ by 2030, down 68% from 2020.

This trend isn’t exactly a recent development and without taking other sources of energy into account, should have been addressed earlier.

Looking ahead, there are certainly options available to introduce more gas into the system.

These include plans to construct LNG import terminals and the government’s move to encourage the development of the promising Beetaloo Basin in the Northern Territory.

Both could help alleviate the expected supply shortfall in the east but there’s one thing that they are not – providing cheap gas.

Affordable, maybe. Preventing gas prices from reaching unviable levels, quite likely.

For that alone, it would be well worth pushing ahead with either or both alternatives.