Australia facing ‘alarming’ gas shortfall in 2023 as ACCC urges producers to keep supplies onshore

Businesses could be forced to close and households could be left without enough gas next year unless the big three exporters keep some of their uncontracted liquefied natural gas for the domestic market, the competition watchdog has warned.

In its gas inquiry 2107-2025 interim report released on Monday, the Australian Competition and Consumer Commission (ACCC) said the east coast gas market is facing a gas shortfall of 56 petajoules in 2023.

This gap is about 10% of annual domestic demand, "signifying a substantial risk to Australia's energy security", the report says.

The potential shortage marked "a significant deterioration" compared with the ACCC's 2022 forecast and "could place further upward pressure on prices and result in some manufacturers closing their businesses, and some market exit has already occurred", the report said.

The treasurer, Jim Chalmers, said conditions in the east coast gas market were "alarming", and the government would "shortly" respond to the ACCC's recommendations.

"The findings are deeply concerning and I urge gas producers to do the right thing by Australians," Chalmers said in a statement. "It's critical that our domestic gas supply is secure and competitively priced, particularly when households and businesses are under extreme pressure."

The Australia Energy Market Operator (Aemo) last week said wholesale gas and electricity prices tripled in the June quarter from the previous quarter. Rising gas prices, caused in part by Russia's invasion of Ukraine and subsequent sanctions, affect power prices as the fuel often sets the market price.

The ACCC's warning also comes as the resources minister, Madeleine King, reviews the suitability of the Australian domestic gas security mechanism - dubbed the "gas trigger" - to ensure sufficient gas at affordable prices is retained for domestic users. The results of that review will be released soon, the Guardian understands.

Western Australia, which reserves 15% of gas demand for domestic use, does not face the same challenges. Power prices there have also not risen as rapidly as in the east.

The watchdog notes that just three big LNG exporters - Australia Pacific LNG, Gladstone LNG and the Queensland Curtis LNG project - and their "associates had influence" over about 90% of east coast Australia's proven and probable reserves of the fossil fuel. This highlights their "dominant position and the effective control", the report said..

All but 2 petajoules of the projected shortfall is in the southern states, with Queensland supply and demand close to matched.

Unless resolved, the southern region's 54 petajoules gap - about a 10-fold increase on shortfall projections for 2022 - some demand may have to be "curtailed", the gas equivalent of a blackout for electricity.

The ACCC "strongly" encouraged the exporters "to act immediately to increase their supply".

Those exporters, though, have already told the ACCC that they expect to ship overseas "the vast majority" of the gas they can access and is in excess of long-term contracts - as they did in 2021.

The report, unlike some previous ones, did not mention the need to develop new gas fields, such Santos's controversial Narrabri coal-seam gas project in northern New South Wales.

The ACCC noted that Aemo had introduced price caps of $40 per gigajoule in Sydney and Brisbane after retailer Weston Energy dropped out of the market in May. With a similar intervention in Victoria, the spot price would have risen to $800 a gigajoule, or about 100 times more than prices prior to Russia's war on Ukraine.

The watchdog was "very concerned" that commercial gas users were still facing offers as high as $21.20 a gigajoule that may flow through to long-term contract prices.

"Concerns about supplier behaviour reported in the January 2022 interim report have intensified," it said.

The watchdog also said it was worried about the amount of competition in the market, particularly as joint ventures spread.

"Information provided by producers suggests most have ring-fencing arrangements in place, but some do not appear to be very robust," it said, adding that some of the joint marketing was "without authorisation".

The ACCC will provide its next interim gas report in January.