Australia is facing gas shortages. We shouldn’t be here, but there is a way out

Curtailing the inefficient use of gas to heat our homes will help bridge the supply issue expected in 2027

According to the Australian Energy Market Operator (Aemo), Victoria, New South Wales, South Australia and Tasmania are likely to be facing shortages of gas by 2027. Furthermore, shortages are possible as soon as this winter if we experience a severe and widespread cold snap across those states.

We shouldn’t be here, but we have a path out of this problem.

Demand for gas across the interconnected east coast market (which includes the Northern Territory) is actually declining. In spite of the major coal generator outages over 2022, gas consumption for power generation last year was 30% lower than it was in 2017 because of large growth in renewable energy. By 2027, when shortages are likely, gas consumption for power generation is forecast to have fallen even further by between 25% to 66% compared with 2022 levels. Meanwhile, in the residential and commercial sectors, gas consumption is forecast to be around 11% lower than last year’s level and 5% to 12% lower in the industrial sector.

Overall total east coast demand for gas in 2027 is expected to be approximately 493 petajoules under the scenario Aemo treats as most likely.

Meanwhile, production of gas in that year is expected to be around 1,850 petajoules or 375% greater than domestic demand. However, because gas producers have entered into long-term contracts with overseas customers, the domestic market is expected to be left five petajoules short in 2027. By 2030 this shortfall will have grown to a more substantial 53 petajoules.

We knew a very long time ago that output from the Victorian gas fields in Bass Strait would be declining around this time. But what has left us in trouble is that this decline has unfolded faster than initially expected because a lot of this gas is being sucked into NSW and South Australia. This is to fill the gap left by the fact Santos signed contracts with overseas customers but then didn’t discover as much gas in Queensland as they had hoped. So they have been drawing upon gas from fields further south that would have historically served NSW, South Australia and Victoria.

But that’s history – the issue is what to do about the circumstances we’re now in.

Obviously new gas fields and new gas pipelines would help. But there’s three problems here.

Firstly, these take several years to plan and build so won’t help until several years into the future.

Secondly, the gas producers face challenges procuring enough gas to meet export contracts, not just domestic demand, according to Aemo. So we need guarantees that the gas producers won’t just use new gas fields to cover for their own export contract shortfalls. This can’t be done without imposing a domestic gas reservation not just on the new fields, but all gas fields. This is because the gas producers can give with one hand from the new field but then take away with the other hand by accelerating withdrawals from the other pre-existing fields.

Thirdly, we’re supposed to be reducing emissions to zero in the coming decades. New gas fields and pipelines are large and long-term investments that really shouldn’t be required by 2040. Gas pipeline owners are already asking the regulator to let them recover the cost of their pipelines faster from customers on the basis these pipelines won’t be needed longer term. If the regulator approves new pipelines, it’s likely to be customers, not the pipeline owners, who will be stuck with the cost of what might be barely used metal pipes in two decades’ time.

The better option is that we curtail the inefficient use of gas to heat our homes and water. According to Australian government figures, heating our homes consumes 90 petajoules of gas per annum, while heating water consumes another 50 petajoules. Victorian households account for more than two-thirds of this consumption. These households for the most part are poorly insulated, with rental properties being particularly poor. That’s why Victorian households consume more gas to heat their homes than those in Britain or the Netherlands. This is even though these European nations regularly experience near-subzero temperatures during winter nights.

Homes in Canberra are also profligate users of gas, but the ACT government has recently moved to require all rental properties install decent levels of roof insulation progressively over 2023 to 2026. Over the decades that this insulation is likely to last it will save rental tenants $8,000 more than the cost of that insulation. Victoria desperately needs to follow the ACT’s lead.

In addition, the federal government needs to rapidly follow through on its deal with the Greens party to roll out a “significant package of measures” to help households and businesses convert from gas to electric appliances. Using a combination of several split system reverse-cycle air conditioners to heat a home instead of a central ducted gas heater is almost seven times more energy efficient according to Renew. While this is likely to increase electricity demand, only a small portion of electricity comes from gas generators.

While such measures will take several years to roll out across the Australian housing stock, they should be readily able to bridge the five petajoule supply gap expected in 2027 and take a very large bite out of the 53 petajoule gap expected by 2030.

They can also deliver energy bill savings that exceed the equipment installation costs, while also reducing carbon emissions.

This article was amended on 17 March 2023. An earlier version incorrectly referred to the Netherlands as “Holland”.

Tristan Edis is a director with energy advisory firm Green Energy Markets