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A gas-led recovery is on the way

The COVID-19 pandemic hit the Australian economy hard. In the March and June quarters of 2020, GDP plunged 7.3%, placing the country into recession. While the economy has since partially rebounded, the government has developed a long term plan for a gas-fired recovery.
The economic benefits could be significant. A recent Ernst & Young report found that the oil and gas industry could boost the economy by over $350 billion and create 220,000 new jobs over the next 20 years if key projects are supported.
This will be delivered across three key areas. Of the measures outlined, some are well on the way with others yet to come.

1.  Unlocking supply

The ACCC has predicted a shortfall in natural gas supply in the southern and east coast states between 2024 and 2026. The gas led recovery seeks to unlock new projects and increase supply to avoid the predicted shortfall.

Setting new gas supply targets with states and territories
A new State Energy and Emissions Reduction Deal was signed between the Federal and South Australian government on 18 April. The agreement sets a gas target of an additional 50 petajoules per year by 2023, and 80 petajoules per year by 2030. There is also support for Project EnergyConnect, which will allow South Australian gas to be supplied to the east coast market.
Similar agreements are expected with other states and territories.

New agreements with the three east coast LNG exporters
A new agreement signed on 21 January 2021 commits LNG exporters Australia Pacific LNG, Queensland Curtis LNG and Gladstone LNG  to offer uncontracted gas to the domestic market first on competitive market terms before it is exported. It also reaffirms price commitments to keep energy prices lower.

Unlocking five key gas basins
The Federal Minister for Resources, Water and Northern Australia recently announced the launch of up to $50 million in grants to support exploration of the Beetaloo Basin in the Northern Territory. The grants are to be provided through the Beetaloo cooperative drilling program and are available to gas companies who are undertaking exploration before 30 December 2022.
The program is expected to deliver 10 additional exploration wells and bring forward $150 million in private investment.
The Queensland Government has also granted Santos an authority to prospect (ATP) over a 764km parcel of land in the Bowen and Surat Basins. The ATP contains conditions that any gas produced through the venture will be available to the domestic Australian market.

2.  Efficient transportation

The Government has allocated $10.1 million in the 2020 Budget towards the creation of the first National Gas Infrastructure Plan (NGIP).
The plan will identify priority pipelines and critical infrastructure, with a view to funding or subsidising key projects in conjunction with the private sector. The goal is to get Australian gas to consumers and purchasers more efficiently and economically.
As the consultation period on the NGIP only closed on 31 March, the project is yet to gather steam.
Related future projects include reforming the regulations on pipeline infrastructure to promote more competition within industry, and further improving pipeline access by developing a secondary pipeline capacity market.

3.  Empowering consumers

The third measure is intended to give consumers more bargaining power in setting gas prices.

Establishing an Australian Gas Hub
The government proposes to establish an Australian Gas Hub at the Wallumbilla Gas Hub in Queensland in order to deliver an open, transparent liquid gas trading system.
However, the Australian Petroleum Production & Exploration Association (APPEA) have warned that a Henry Hub-style Gas Hub (i.e., one that uses settlement prices at one gas hub to set the price for the entire market) may halt the gas led recovery. It submits that any reporting requirements should be fair and apply to both producers and manufacturers.
Industry Code of Conduct
A key promise was to develop a voluntary industry-led code of conduct by February 2021. This was intended to strengthen the bargaining power of buyers in pricing negotiations.
On 26 March, APPEA produced a draft Code in consultation with the ACCC and various manufacturers. It is now open for consideration by major customer representative groups.

What’s next?
The consultation period for key measures within the gas fired recovery plan closed on 31 March 2021. Government will now consider the input of stakeholders in its development of the National Gas Infrastructure Plan (NGIP) and establishing Wallumbilla as an Australian Gas Hub.
No doubt there will be further developments as the gas led recovery continues.

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