Lessons from the energy crisis of an energy exporter

Abstract

The Eastern Australian gas crisis of Winter 2022 was particularly perverse in that it briefly saw wholesale prices exceed those for spot liquefied natural gas (LNG) imports into North Asia and twice triggered the Gas Supply Guarantee Mechanism. This paper provides an analysis of the drivers behind this crisis that reveals how grids such as the National Electricity Market (NEM), during a renewables build-up coupled with a coal phase-down with ageing coal-fired capacity, will continue to be vulnerable to seasonal shocks and wide intra-day spreads in the medium term. We also highlight how the role of gas in enabling further uptake for renewables is not to be taken for granted, drawing on lessons from intermittency in other regions, and that only through rapid decarbonisation of the electricity sector can we begin electrification of direct use sectors. Within the Eastern Australian context, this calls for more flexible gas supply and investments to mitigate transportation bottlenecks as the regions’ centre of supply shifts towards Queensland in the years ahead. We conclude that in the absence of a game-changing development in the sector, such as clear policy to support significant new developments in domestic production, we expect structurally higher domestic prices and seasonal domestic shortages that will create an overhang on LNG exporters, complicating their already uneasy relationship with the domestic market.