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Labor is weighing an unprecedented federal intervention to start bulk-buying natural gas from east-coast producers and selling it to local businesses at discounted rates as it seeks to head off shutdowns of manufacturing plants battling soaring energy costs.
This move would complement a domestic gas reservation scheme, due to be announced as early as next week. The federal government would use its purchasing power to act as a “group buyer” to sell gas to particular manufacturers at discounted rates.
The federal government is poised to become a bulk buyer of gas in a bid to stop factories shutting down due to high energy prices. Credit: Louie Douvis
The scheme is under serious consideration, according to government sources not authorised to speak publicly, but is not yet finalised. It has been backed by some of the nation’s biggest manufacturers and the Australian Workers’ Union.
The federal government has recently tipped billions of dollars into propping up smelters and mills across the country as concerns grow about energy prices and Australia’s dwindling manufacturing sector.
A gas market intervention would help address a major political risk as the Albanese government’s energy policies have failed to curb energy prices, while gas shortages could hit NSW and Victoria as soon as next year.
Some of Australia’s largest manufacturing companies, which need gas to fire their kilns and furnaces, have backed plans for a dedicated discounted supply.
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Manufacturing Australia, a coalition of chief executives of companies including BlueScope Steel, Brickworks, Tomago Aluminium and Dulux Group, pointed to a tripling in the domestic wholesale gas price from $4 a gigajoule to more than $12 over the past decade as proof the “east-coast gas market is broken” and needs an urgent fix.
“Australia is a global outlier by not ensuring its enormous gas resources actually benefit local customers,” Manufacturing Australia chief executive Ben Eade said.
“The longer we delay fixing that, the more damage it does to employment, investment and Australia’s ability to transition to lower emissions energy.”
Australian Workers’ Union national secretary Paul Farrow said a reservation scheme was a welcome first step but it would not prevent factories shutting down unless gas prices fell.
“The gas market won’t be fixed until we solve the price problem once and for all,” he said. “We support government exploring all options to deliver our manufacturers fairly priced gas.”
Queensland gas industry sources, who spoke on the condition of anonymity, on Thursday said the government had indicated it would make an announcement on reservation proposals “in the next 10 days”.
“We are expecting it to be a high-level announcement at first, followed by a consultation period,” one said. “The devil will be in the detail.”
Representatives from the Santos-led GLNG venture met with the federal government this week to offer “concessions” in the hope of avoiding a heavy-handed regulatory intervention.
GLNG, the only LNG producer that withdraws more gas from the domestic market than it puts in, told government officials it would not contract any new domestic gas to meet export obligations to buyers in Asia once its existing agreements expire in 2027, according to sources briefed on the talks.
Energy Users Association of Australia chief executive Andrew Richards, which represents big manufacturers, said an urgent solution was needed to drive down gas prices or there would be wide-scale “demand destruction” – factories shutting down.
“Government knows that beyond 2030 things will get better but building the bridge to that will be very challenging. Government is looking into what they can do in the coming years to prevent demand destruction,” Richards said.
Acting prime minister Richard Marles on Thursday appeared to confirm the government would announce a gas reserve “next week” but backtracked to clarify that the findings of its gas policy review would be released then.
Opposition Leader Sussan Ley held up her own energy policy pamphlet when asked about Labor’s plan on Thursday, saying the opposition had supported the move since Peter Dutton’s leadership.
“We’ve got an east-coast gas reservation policy in here,” she said, pointing to the document.
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This year the government has begun a review to ensure the rules requiring gas exporters to keep the local market supplied are delivering “as intended”. Manufacturers and the Victorian government have revived calls for the federal government to set up an east-coast reservation scheme for Queensland’s LNG sector, similar to the scheme in Western Australia, where gas exporters are required to hold back a prescribed volume for the local market.
Authorities have warned that shortages could bite before the end of the decade unless more supplies become available to southern states, and east-coast gas exporters in Queensland agreed to sell greater volumes into NSW and Victoria, rather than exporting it to Asia as liquefied natural gas.
Queensland’s massive onshore gas fields export a significant amount of their production to Asia, and the pipeline that connects the fields to NSW and Victoria is already running at full capacity at peak demand in Winter. Gas fields in Bass Strait that supply Victoria and NSW are running out of reserves after half a century of use.
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