Could Australian gas prices run away due to the expected global LNG supply squeeze brought about by Russia cutting gas supplies to Poland and Bulgaria?

After all, European gas prices have since soared more than 20% as the rest of Europe provided gas to the two countries, gas that is in short supply throughout the entire sub-continent.

So where’s the gas coming from? The answer of course is LNG, which no doubt has many a gas executive getting all starry-eyed at the prospect of getting even more money for their LNG cargoes.

That prospect has led analysts to forecast that Australian LNG exporters would see improved margins from the scramble for non-Russian gas.

This has in turn led to warnings that the domestic gas market could need to slash its usage due to the tightening market.

But wait, you say, won’t the increasing use of renewable energy as Australia electrifies address this issue?

Well, the Australian Energy Market Operator says you’re wrong. Its gas operations manager Matthew Clemow told the Grattan Institute webinar that while Australia had to move towards electrification and decarbonisation, the problem was “the rug is being pulled out from us and the gas supply is falling away faster than we can electrify out of it”.

His numbers – for Victoria at least – are telling.

While the state typically uses 10 petajoules of gas a month during the summer and shoulder season, this rapidly climbs to between 25PJ and 30PJ during winter.

Gas prices increases?

So does that mean we are doomed to pay more for our gas (and the electricity it generates)?

The answer is yes, we are going to be paying more for gas, but maybe not as much as you fear – and also that there is a very definite shelf life to how long this sorry state of affairs will last. All without having to resort to any sort of gas-fired recovery.

There is little doubt that gas prices will climb, especially in circumstances such as the one that the world is facing right now.

But as Got Gas has pointed out several times now, there is one key difference that differentiates Australia from Europe.

That is quite simply that Australia is a gas exporter while Europe is a net gas importer.

While much of our gas is locked into long-term export contracts, there are a small number of cargoes that are contracted and sold on the spot market.

Enough of an uproar like that which resulted in the fuel excise being cut in half for six months and there is every chance that the government in question would require that gas that would otherwise go into spot cargoes be redirected to the domestic market.

Even a single such cargo per month would go a significant way towards meeting demand and reduce gas prices.

Using one of the North West Shelf’s vessels as an example, the typical LNG tanker can store 125,525 cubic metres of LNG or about 2.6 billion cubic feet of gas.

With each billion cubic feet working out to being about 1.05PJ of gas, that represents about 10% of Victoria’s monthly consumption during winter. Not bad for a single tanker.

There are also new sources of gas being developed and while these might not actually increase supply, they do go some way towards mitigating the declines from existing sources.

Time limited gas crisis

Meanwhile, the factors that have contributed to the current European gas crisis will only last for a finite amount of time. Either the Russian invasion of Ukraine ends through any number of ways or Europe diversifies its way out of its reliance on gas.

This will in turn reduce the demand for LNG that will translate into lower gas prices.

Developments in Australia – particularly greater adoption of renewable energy – will also go some way towards reducing demand for all fossil fuels.

No gas-fired recovery plan that seeks development of expensive shale or coal basins required.