Future Gas Strategy: Federal Government backs gas to 2050

In a welcome announcement for the Australian gas industry, the Federal Government has released its Future Gas Strategy (the Strategy) which contemplates gas supporting the Australian economy during the energy transition through to the year 2050 and beyond.

The Strategy recognises the balancing act that is required between achieving emissions targets and maintaining secure and affordable power supply to meet Australia’s energy needs. Although the reduction of emissions remains necessary, the Strategy states categorically that natural gas is needed to achieve net zero under all credible scenarios, and confirms that gas will be relied on as a transition fuel to provide firm power supply as Australia’s energy mix adjusts to the progressive closure of coal fired power generators and the development of alternative renewable energy sources.

The Strategy is intended to guide policymaking over the long term but there are some immediate actions arising from the guiding principles that will impact onshore and offshore gas proponents in the short to medium term. It is evident that some of the actions are aimed at removing obstacles to the development of gas projects that have arisen in recent times (either as a result of policy interventions or challenges to key approvals), further demonstrating the government’s commitment to supporting the gas industry and improving the gas supply outlook.

This article provides an overview of the Strategy and the actions flowing from the guiding principles, and considers the implications for the Australian gas industry.

Overview of the Strategy

The Strategy has been formulated following extensive public consultation and draws on detailed analysis of data regarding gas supply, consumption, and emissions set out in the Future Gas Strategy Analytical Report.

There are six key principles adopted in the Strategy that will guide policy actions moving forward:

1. Australia is committed to supporting global emissions reductions to reduce the impacts of climate change and will reach net zero emissions by 2050.
2. Gas must remain affordable for Australian users throughout the transition to net zero.
3. New sources of gas supply are needed to meet demand during the economy-wide transition.
4. Reliable gas supply will gradually and inevitably support a shift towards higher-value and non-substitutable gas uses. Households will continue to have a choice over how their energy needs are met.
5. Gas and electricity markets must adapt to remain fit for purpose throughout the energy transformation.
6. Australia is, and will remain, a reliable trading partner for energy, including Liquefied Natural Gas (LNG) and low emission gases.

The commitment to maintain security and reliability, both domestically and for international trading partners, as well as the focus on new sources of gas supply, is positive news for the Australian gas industry. Decarbonisation does, however, remain a technical and operational challenge and proponents will need to consider how to reduce emissions whilst maintaining or increasing existing exploration or production activities.

Action plan

The Strategy details a number of immediate actions arising from the guiding principles with the actions grouped based on certain objectives. We have detailed below the relevant objectives and associated actions, with a focus on the actions that we consider most relevant to the Australian gas industry.

Action 1: Prevent gas shortfalls

The risk of a domestic shortfall in the Australian gas market has existed for some time and is already being managed through other Federal policy measures including the Gas Market Code, the Heads of Agreement between the Federal Government and Australian LNG exporters, and the Australian Domestic Gas Security Mechanism (ADGSM) (noting of course that the ADGSM is a measure of last resort and has not been triggered to date).

Nevertheless, given the continuing risk and further analysis completed as part of the Strategy, the Federal Government intends to implement other actions to improve gas supply as follows:

• continue investing in pre-competitive geoscience data;
• update Commonwealth retention lease policies to encourage more timely development of existing gas discoveries and consider a firmer ‘use it or lose it’ policy;
• reframe any future Commonwealth offshore exploration acreage releases to focus on optimising existing discoveries and infrastructure in producing basins, prioritise energy security, and align with net zero emissions targets;
• work with gas producers under the Gas Market Code exemption framework to increase gas supply committed for future domestic supply; and
• continue to work with state and territory governments to improve the efficiency of the regulatory regime.

These actions are only stated at a high-level and there are no additional details about how or when they will be implemented.

It is promising though that the Federal Government is willing to explore the exemptions under the Gas Market Code given relief from the imposed gas price cap will be critical to encouraging investment and bringing on new domestic supply.

Any changes to the Commonwealth retention lease policies could, however, present commercial challenges for offshore operators if they are forced to advance to production or risk losing offshore petroleum tenure. The Productivity Commission previously identified that a strict ‘use it or lose it’ policy could be counter productive and compromise investment in exploration if proponents felt that their tenure rights were at risk of being diluted.¹ The effectiveness of this action will ultimately depend on the detail of any changes imposed.

Action 2: Reduce gas-related emissions

The actions aimed at reducing emissions are similarly high level, with the Federal Government relying on other policy measures including the existing Safeguard Mechanism, decarbonisation sector plans and its Future Made in Australia Agenda to reduce sectoral gas demand and gas emissions, including through electrification options for fuel gas used in gas compression and liquefaction.

The other specific actions include:

• working with regulators and industry to reduce and, where possible, eliminate venting and flaring of gas, unless required for safety purposes;
• applying technology neutral approaches to data acquisition in Commonwealth waters to minimise the use of marine seismic surveys where possible.

Any changes to gas venting and flaring requirements could have immediate operational impacts for gas proponents, particularly if the venting and flaring is not required for safety purposes.

Action 3: Support households and businesses through the transition to net zero

Energy prices have been under the microscope due to supply pressures and the cost of living crisis, so any affordability challenges will be subject to targeted intervention. Relevant to gas proponents is the continued commitment from the Federal Government to the Gas Market Code as a form of targeted intervention to manage gas prices. At this stage, there are no specific actions regarding changes to the Gas Market Code, other than the reference to statutory reviews to ‘refine or strengthen aspects’. The Federal Government will of course need to balance any changes to the Gas Market Code against its objective to improve gas supply, including through exemptions to the gas price cap.

Action 4: Empower First Nations people to benefit from the transition to net zero

The specific actions include clarifying consultation requirements for offshore petroleum and greenhouse gas storage activities as part of the broader three-year review of the offshore environmental management regime. Ambiguity and uncertainty regarding consultation requirements has been a serious issue for major gas projects following recent court decisions, particularly Santos NA Barossa Pty Ltd v Tipakalippa [2022] FCAFC 193 (explained in our previous alert here). The failure to comply with these requirements can result in substantial delays and additional costs for gas projects so it is important that the consultation requirements are clear to enable industry to readily comply and be confident in the validity of any project approvals obtained.

Action 5: Promote geological storage of CO₂ and support our region’s transition to net zero

There has been some mixed messaging from different levels of government regarding carbon capture and the role it would play in the energy transition. The Strategy has now made clear, at least at a Federal level, that carbon capture and storage will be supported for the purposes of decarbonisation, specifically recognising that the gas industry can assist with the permanent and safe storage of carbon in geological formations.

The specific actions include:

• continuing to release offshore acreage for greenhouse gas storage.
• finalising the review into the offshore regulatory regime to realise opportunities associated with the geological storage of CO₂ for Australian industry and trade partners;
• growing clean energy exports and connecting Australia to new clean energy supply chains through the Hydrogen Headstart and Regional Hydrogen Hubs programs; and
• establishing a new initiative on regional cooperation on transboundary carbon capture and storage which will provide options for energy security and carbon management solutions for our regional partners.

Action 6: Updating the Strategy

As a final catch-all position, the government has flagged that the role of gas as part of the energy transition will continue to be monitored and the Strategy updated as required. This could include updating existing policy levers such as the Gas Market Code, the Heads of Agreement or the ADGSM. Each of these levers has had material impacts already on the Australian gas industry and any future changes will need to be carefully scrutinised.

¹ Productivity Commission, Review of Regulatory Burden on the Upstream Petroleum (Oil and Gas) Sector (April 2009) at 91-95.