Gas users in Victoria are bracing for a supply crunch that regulators warn could hit as soon as this winter as production from historic fields in the Bass Strait dramatically tapers off.
Following a turbulent year in which gas prices had to be capped in Victoria, there are fears that supply shortfalls could inflict further pain on businesses and households in the years ahead.
Recent reports by the Australian Energy Regulator (AER) and the Australian Competition and Consumer Commission forecast that potential gaps in Victoria's gas supply could emerge from winter 2023.
The forecasts have sparked concerns from businesses, unions and charities that many big gas users could be forced to the wall amid price spikes and the spectre of supply interruptions.
"It's a pivot point," said Gavin Dufty, head of policy and research at St Vincent de Paul.
"There are gas supply issues and the further out you go the worse it seems to get."
Production entering 'steep decline'
Underlying the situation is a sharp reduction in the output from gas fields off Victoria's coast in the Bass Strait, where the southern state has traditionally sourced most of its supplies.
According to the AER's most recent state of the energy market report, production from Gippsland's legacy fields was expected to go into "steep decline" after 2022.
"Despite committed new supply … the largest reduction in Gippsland's legacy fields is forecast to occur prior to winter 2023," the AER report said.
"The depletion of these fields is expected to place immense pressure on the southern markets on peak demand days."
The AER noted that Victoria was increasingly having to rely on storage to cope with fluctuations in supply and demand.
However, the regulator also noted storage facilities were coming under growing pressure earlier in winter – when demand for heating is typically higher — and there was "an increasing risk of supply being insufficient to meet demand on peak days".
The Australian Workers' Union, whose members often work in manufacturing businesses reliant on gas, described Victoria's gas supply outlook as alarming.
Daniel Walton, the union's national secretary, said there was a real risk of gas shortages driving many companies out of business.
'There is no quick switch to flick'
Mr Walton lamented what he said was an avoidable problem, arguing Victoria had run out of time to bring on new supplies to avert a crunch.
"The real difficulty in terms of developing gas is there is no quick switch to flick to bring on new supply," Mr Walton said.
"There is a multi-year process that needs to be worked through for identifying and exploring fields and making sure there's gas there, then going through applications and environmental approvals.
"And then to develop the wells it take a long time."
Victorian Energy Minister Lily D'Ambrosio pointed out that Victoria was a net exporter of gas and that, in any case, there were enough supplies available nationally to avert any shortfalls.
Ms D'Ambrosio argued it was the big gas exporters — who all operated from Queensland — who held the key to a short-term solution.
Longer term, she said Victoria would turn to energy efficiency, electrification, hydrogen and bio-methane to cut its dependence on natural gas and drive down emissions.
"Victoria continues to produce more than enough gas for our own needs, with the excess exported to other states — particularly NSW," Ms D'Ambrosio said.
"Victoria successfully led the push for AEMO to ensure our national gas storage facilities have sufficient reserves ahead of winter and we will continue to advocate for a domestic gas reserve.
"Excess LNG supply could cover the potential shortfall identified by the ACCC report but we need LNG producers to play their part."
For Mr Walton, the risk of a gas supply squeeze in Victoria was especially baffling given the state's heavy dependence on the fuel.
Uncomfortable options: Vinnies
Mr Walton noted about three-quarters of Victorian households used gas for heating and cooking, while the state's heft as a manufacturing hub in Australia had been built on gas.
While stressing he sympathised with calls for gas users to switch to electricity where possible, he said it was not yet an option — or feasible — for many.
"We want to support good-quality Australian jobs now and into the future and we want to reduce our carbon footprint," he said.
"But if you sign up to the simplistic view that we can simply turn off gas overnight and that we will continue to have a manufacturing base in the country … that is not going to happen.
"We will see significant and catastrophic damage."
Mr Dufty said that although Victoria "should" scrape through 2023 without shortages, the outlook worsened significantly in the following years.
He said this raised uncomfortable questions about how government and industry would deal with any shortfalls.
Regardless, he said there were tough times ahead for consumers, who were already grappling with price hikes of up to 70 per cent for households and even more for businesses.
"If it catches up with us and we can't find solutions or pivot quick enough then we're going to have to work out how we manage that shortfall," Mr Dufty said.
"Do we request large commercial and industrial users stop production so there's gas in the system, or do we signal to households to say 'hey, over winter don't heat your house as much'?
"There are ways to manage it but that's got political implications."
Producers call for new supply
The Australian Petroleum Production and Exploration Association, which represents the oil and gas industry, said Victoria's predicament highlighted the need for new supply.
Chief executive Samantha McCulloch noted that import terminals to handle shipped liquefied natural gas were being built to overcome the shortages.
But Ms McCulloch said this made little sense.
"I think what we're seeing now is the legacy of years of bans and moratoriums on gas exploration and development," she said.
Ms McCulloch also claimed that price caps imposed by the federal government in December were exacerbating the problems, arguing the measures would deter investment in new resources.
"It has created a lot of uncertainty and made it difficult to supply the gas to the market, particularly when there's a $50 million penalty for failure to comply with rules that are essentially still being developed," she said.
Yaron Flicker, the managing director of Melbourne-based textile maker Flickers, said the tightness of gas supplies had left his business teetering on the edge.
Jobs, businesses to 'disappear'
Mr Flicker said his gas costs had risen from about $5 a gigajoule under longstanding arrangements to almost $10 a gigajoule in recent years.
He said he was now paying more than $20 a gigajoule and could only secure one month's supply at a time — costs and uncertainty he was having to pass on to his customers.
"Gas, electricity and water was roughly three to four per cent of my value-add for many years until the price rises of gas, water and electricity rose spectacularly," Mr Flicker said.
"Gas has now gone from its recent price less than a year ago of about 10 per cent of my value-add … it's now about 30 per cent, 35 per cent of my value add in a year.
"So, it's been crucial."
The 64-year-old said he was desperately hoping the Commonwealth's efforts to jawbone gas prices lower would start to deliver on their intended effects — more gas at affordable prices.
In the absence of this, he worried his business — one of the last remaining Australian textile makers — would not survive.
"The worst-case scenario is I'll close down and about 35 to 40 direct jobs will disappear and probably about 500-plus indirect jobs will disappear.
"I mean, that's a real possibility."
