The changing landscape of the natural gas landscape in Australia

The landscape for natural gas projects in Australia has changed a lot in the past six months, with an expected shortfall of gas this winter.

So, what happened?

In December last year, the Australian Government placed a temporary 1-year price cap on domestic natural gas sales to combat rising energy prices.

The legislation also included a “fair pricing provision” for gas projects going forward, which created much uncertainty in the industry.

From this uncertainty, new projects and new gas supplies have stalled, and there are real fears now that there will be a gas supply shortage on the East Coast of Australia.

Earlier this month the Australian Energy Market Operator (AEMO) produced a report that highlighted the potential gas shortfall in winter given the lack of gas supply on the east coast.

With gas supply shortages on the horizon, the industry was further challenged with the “Safeguard Mechanism Climate Bill” that was announced on Monday.

This legislation targets some of the largest industrial emitters of carbon, which includes gas developments, that are likely to use carbon credits and offsets to reduce their carbon emissions.

So, what does this mean for the domestic gas industry?

We think the ongoing uncertainty could contribute to major supply shortages of gas in Australia - a view which is also held by the Australian Competition and Consumer Commission.

As a result, our view is that gas projects that take a carbon reduction approach will have a big advantage over the competition.

We think that only time will tell what happens to the Australian natural gas industry but we think that companies looking to produce gas for use in Australia will need to place a premium on low-carbon production.

We have two companies with gas exploration projects in Australia, Top End Energy (ASX:TEE) in the Beetaloo basin in Northern Territory and Elixir Energy (ASX:EXR) in Queensland.

We think that future gas supply shortages present a great opportunity for both companies with exploration programs on the horizon.