Is Victoria on the brink of a gas crisis, and what does this mean for your wallet?
A multinational energy company has struck gold, discovering the first new natural gas deposits in Victoria in four years. These reserves lie approximately 50 kilometers off the coast of Port Campbell, sparking a flurry of questions about the state's energy future.
Earlier this year, ConocoPhillips got the green light to drill up to six exploratory wells in the Otway Basin, hoping to unearth fresh gas supplies. The first well's drilling commenced late last month, and the company has already announced a promising discovery.
While further investigation is needed to determine the commercial viability of this find, a ConocoPhillips spokesperson expressed optimism, citing looming gas shortfalls. They emphasized that the Australian Competition and Consumer Commission and the government have stressed the importance of new supplies to meet Australia's current and future energy demands.
For years, gas extraction companies have used the argument of shoring up the state's gas supply to justify their search for gas off Victoria's coast. But here's where it gets controversial: environmental groups counter that Victoria already produces more gas than it consumes annually.
So, who's right?
Victoria's Gas Supply: A Closer Look
Victoria has long been the most gas-dependent state or territory in Australia. Recent national data reveals that in the year ending June 2024, Victoria accounted for a staggering 62% of Australia's residential gas usage.
However, the demand for gas in the state has been gradually decreasing over the past decade. According to a report from the Australian Energy Market Operator (AEMO), this decline is due to a combination of factors, including the electrification of residential loads, rising living costs, and reduced commercial and industrial gas use.
Data from the Department of Climate Change, Energy, the Environment, and Water confirms that Victoria's gas production has historically exceeded its usage for decades. But this is set to change. AEMO predicts a shift by 2029.
Traditionally, most of Victoria's gas has come from the legacy oil and gas fields in the Bass Strait, but this supply is dwindling. AEMO forecasts a 36% drop in production from the Gippsland region by 2029.
To address this, the state government has approved Victoria's first gas import terminal, proposed for Corio Bay near Geelong. In 2022, the state government introduced a plan to reduce gas usage rapidly and has since implemented policies, including the staged banning of new residential gas connections. This year, AEMO pushed back its prediction of gas shortfalls to 2029.
What's Behind the Predicted Shortages?
Victoria currently exports more gas interstate than it uses, but this is expected to change as the Bass Strait supply diminishes. Gas produced in Victoria becomes part of a national pool, some of which is used domestically and some exported.
The Victorian government has unsuccessfully urged the federal government to create an east coast domestic gas reserve, aiming to reserve gas for Australian supply.
Bruce Mountain, Director of the Victoria Energy Policy Centre, believes ending interstate gas exports is unlikely soon, as gas is a federal resource. He points out that Victoria constitutionally lacks the power to restrict the trade of this commodity.
Mr. Mountain notes that many Victorian consumers believe the government should implement an industry policy supporting domestic activity, given that gas is a resource found within Victoria.
This means that while Victoria produces more gas than it consumes, there isn't a distinct "Victorian gas supply" – only a national one. Mr. Mountain suggests that it's reasonable to view this as a global resource, with the economy benefiting from open trade, which has long been the essential economic policy in Australia.
What This Means for Gas Prices
Despite excess production and consumption being at its lowest since the 1980s, gas prices in Victoria have soared for two main reasons.
Because Victoria supplies gas to other states, including those that export gas overseas, local prices are affected by the international market. As overseas buyers pay more for gas than local buyers, domestic prices rise.
Furthermore, gas extraction companies haven't found a gas source comparable to the historically rich reservoirs off the Gippsland coast.
Mr. Mountain says prices will only fall if supply increases and is constrained to the Australian market.
"If there is a policy to reserve [gas] domestically for consumption, that will constrain the market and likely ensure lower prices," he said. "And if there's a plentiful supply, that too is likely to mean lower prices [but] neither of those two things exist. The first is a matter of government policy, the second is a matter of geology."
What are your thoughts on this situation? Do you agree with the government's approach to gas supply, or do you have alternative solutions? Share your views in the comments below!
