The Petroleum Legislation Amendment Bill 2020 concludes the moratorium on petroleum exploration and production on 1 July 2021, allowing exploration and development of onshore gas reserves that will boost Victorian energy supplies.

The decision to lift the moratorium is the right one. Not only for business owners, but for all Victorians who in such uncertain times cannot afford to be hit with more unnecessary costs.

Conventional versus unconventional gas

Conventional gas is trapped in naturally porous reservoir formations that are capped with impermeable rock. When intercepted by a well, gas is able to move to the surface without the need to pump.

In contrast, unconventional gas is formed in more complex geological formations which limit the ability of gas to be extracted without techniques such as hydraulic fracturing (commonly known as ‘fracking’) where a mixture of water, chemicals and sand is pumped into the rock to fracture it and allow the gas to escape.

Conventional gas is a proven technology with significantly lower environmental risks than fracking, which the Victorian Chamber does not support.

High prices, limited supply

Victorian businesses have been struggling with record-high gas and electricity costs, limiting their ability to hire staff and invest. In some cases, the business’ continued operation is threatened.

Prior to 2015, Australia’s East Coast gas market was not closely linked to international markets. For many years industrial customers enjoyed stable and relatively low gas prices of between $3–4 per gigajoule (GJ), rising to around $6/GJ by 2015.

In late 2015 liquefied natural gas (LNG) exports from Queensland commenced, transforming the east coast gas market. Exporters committed a large percentage of available gas supply to the higher priced international gas market.

Gas production failed to expand fast enough to meet this increase in gas demand, creating a domestic gas shortfall. The price of east coast gas rose dramatically, especially for industrial and commercial consumers where prices offered to customers in 2017 exceeded $20/GJ.

Concern of the gas supply shortfall and increasing prices prompted the Federal Government to establish the Australian Domestic Gas Security Mechanism (ADGSM) in 2017. Under the ADGSM, Queensland gas producers are compelled to release gas into the east coast market if supply to the domestic market is assessed to be insufficient.

While gas prices have fallen since the introduction of this mechanism, with commercial and industrial customers now facing prices in the range of $8–12/GJ, this is still double to triple the historic price.

Gas supplies in the south-eastern states are also predicted to remain very tight with predicted supplies barely exceeding demand over the next three years.

While our traditional gas supplies from Victorian offshore gas fields in the Bass Strait are declining as these wells approach the end of their productive lives, the risk of gas shortfalls from 2024 remains a credible threat unless new gas supplies are found.

What has the Victorian Chamber has been calling for?

Since 2017, to ensure reliable supplies of affordable and clean electricity and gas, the Victorian Chamber has been calling for the removal of the moratorium on conventional onshore gas exploration in Victoria in conjunction with:

• A regulatory regime to manage the risks of individual gas supply projects on a case-by-case basis
• A domestic gas reservation scheme aimed at securing low cost and reliable gas supply for local industry and gas-fired generators
• An integrated national climate and energy policy.

Natural gas is an important fuel for our transition to lower emissions and achieving net zero emissions by 2050.

What does this mean for business?

The Victorian Government’s Victorian Gas Program has identified prospective onshore conventional gas reserves of between 128–830 petajoules (PJ). While production from these potential reserves would only contribute a small proportion of Victoria’s annual gas consumption of around 200 PJ, it will provide an important boost to local supplies which will help lower prices and prevent shortfalls.

Production of Victoria’s estimated resources could also generate more than $310 million annually for regional economies and create an estimated 6,400 jobs over the lifespan of these projects.

What next?

The Victorian Government now needs to work with industry and the Federal Government to bring more Victorian gas online and to lower energy prices through an integrated and long-term national climate and energy policy.

You can find out more about the Victorian Chamber’s policy on energy and climate change from our December 2019 Statement on Climate Change.