00:00The East Coast market, particularly the domestic market, is much bigger than the West Coast
00:07and the way this thing is designed to operate is also tricky because it's, in being introduced
00:15at a time when we've already got a series of policies, long-term contracts have been
00:19there for, you know, 10, 15, 20 years almost, and so it's got the dynamics are quite different,
00:25but the fundamental principle that says we need to reserve a certain proportion or a
00:31certain amount of gas for the domestic market is exactly the same.
00:36And the big question, of course, is will this bring down prices?
00:40And we'll come to that in just a moment, but tell us where prices are at right now and
00:43how much of it we do export.
00:47Look, I think to be able to talk about price, we have to use some numbers, and forgive me
00:51for quoting numbers, I'll try and put them in context.
00:54And that is that we buy gas by the gigajoule.
00:57A gigajoule is an amount of energy.
00:59A typical Melbourne home with heating, cooking in hot water would use 70 gigajoules a year,
01:05maybe 60.
01:06A typical Queensland home using gas for cooking would use less than 10.
01:10So for households, it is modest, maybe important in Victoria, but not really noticeable in Queensland
01:18and other states like New South Wales would be in between.
01:22For large industrial users, they would be using thousands of gigajoules a year.
01:27Now, the price of gas has been as low as $4 or $5 a gigajoule.
01:30That's the wholesale price, not what you and I pay for it delivered to our homes, about $4 or $5.
01:36Now it's around $12 to $15.
01:39That's a lot more expensive.
01:40It was as high as $30.
01:42And the hope is that this might bring that price down by at least a couple of dollars a gigajoule,
01:47maybe between 10% and 20%.
01:49That's the sort of number I think we're talking about.
01:51And so by forcing gas producers to reserve supplies for us here in Australia, will it bring down prices?
01:58When would that be likely to happen?
02:00And to what extent must it do so to be considered a successful scheme here?
02:03Well, I think this is one of those ones where success will be in the eye of the beholder.
02:09That's for sure.
02:10Whether you're a producer or a buyer of gas.
02:14I mean, the real test is firstly making sure the domestic market is supplied.
02:18The second one is that I think is important, is that what we don't want to do is unintentionally give people a reason to continue to burn a whole lot of gas when we know that gas is a fossil fuel and we need to be getting off gas.
02:30That's why this is a really tricky position for the government to be in because we want to do both more or less at the same time.
02:36We don't want to run out of gas and have people freezing in their homes, for example, with the most extreme case.
02:42On the other hand, we don't want to find ourselves still using gas at the same level in 2040 or 2050 as we do today.
02:49So the real test in the short term is going to be have we made sure the domestic market has been supplied with gas and have the producers and the buyers more or less been happy with the outcome?
03:01Now, that's a very vague concept because both of them will have very different views of what price they need.
03:07And both of them have been shouting very loudly at the government and in public about what they think the price should be and what they would accept as a as a acceptable intervention by the government.
03:20This sort of mechanism is probably in the territory that most of them have been expecting already.
03:25The big question is going to be what it looks like over the next six months as they work it through, because it's not going to apply until new contracts are entered into.
03:34And that's going to be after 2030.
03:36The energy minister said new gas fields will be needed.
03:40Is that fair?
03:43I think that we are certainly in a situation where two things are going on.
03:49One is we are running out of gas in Victoria.
03:52We've got two ways of getting gas into Victoria.
03:55One is, sorry, is gas within the state of Victoria or close onshore or close offshore?
03:59And we haven't seen a lot of gas being developed in that sense.
04:03And so the idea, alternatively, is to transport gas from the northern states, particularly Queensland or even the Northern Territory, into Victoria.
04:12We currently have some pipeline capacity to do that.
04:15But it's not enough or it won't be enough as the current supply in Victoria runs out as it is.
04:21So the question is going to be how do we get gas into Victoria?
04:24And it's not obvious that this policy by itself is going to solve that problem.
04:30But new gas in Victoria would help.
04:32No one expects it's going to solve that problem.
04:34At the same time, in the longer term, those gas fields in Queensland themselves will start to face a potential long-term shortages.
04:42Whether or not a new existing gas producer, such as one of the big three producers in Queensland today, whether they would enter into any new 20-year contracts after the current contracts run out is an open question.
04:54Because it might be they don't see they've got enough gas to do that.
04:57Now, that's what got us, to some extent, into this problem in the first place.
05:01At least one of those LNG exporters entered into contracts to meet export contracts that didn't have enough gas in their new developing fields to supply.
05:10And therefore, they sucked gas out of the domestic market.
05:14And we don't want to see that happen again.
05:16Tony Wood, Senior Fellow of the Energy Program at the Grattan Institute.
05:20Thanks for speaking with us.
05:22Thanks, Jim.
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