Why Australia’s LNG industry is the poster child for how to secure our energy future

For Australia, disruption around the Strait of Hormuz is a sharp reminder of our exposure. A country built on trade and dependent on open sea lanes remains vulnerable when those arteries come under pressure.

When instability in the Gulf disrupts global oil markets, Australians feel it immediately at the bowser. That impact at the bowser reflects movements in global crude prices. Domestic gas markets, by contrast, have been relatively stable, supported by domestic production.

Depending on your perspective regarding the future use of oil and gas, the lessons being learnt are very much in the eye of each beholder. Some will take this crisis in oil supply as a reason to accelerate efforts to decarbonise the global economy. Others will argue it shows Australia should move faster to develop its own reserves and strengthen energy security. The reality is no such dichotomy exists – it is both.

I say this as a former Labor treasurer and minister for energy in Western Australia and now as a director of Woodside Energy and Rio Tinto. Australia needs to decarbonise because competitiveness demands it. But it also needs to recognise that resources, including gas, remain strategic assets in a more contested and less predictable world. And gas, because it has lower emissions than coal, is particularly suited to achieving several energy goals.

The resources sector is already moving to decarbonise. The drivers are commercial. In Australia, the safeguard mechanism places a constraint on emissions. Globally, policy settings are increasing the cost of carbon. For companies competing internationally, reducing emissions is about maintaining margins and managing risk.

At the same time, Australia cannot lose sight of the role it plays in our region. Australia has long punched above its weight because it is a reliable supplier of what the world needs. We have abundant minerals and energy, backed by stable institutions and a strong rule of law. These are the foundations of investment and geopolitical influence.

That matters in a world where energy and resource security is back at the centre of geopolitics.

When Australia relies on partners for essential imports such as refined fuel, the response should be to recognise that those same partners rely on us for essential exports. Interdependence built on real economic value creates resilience. The war in the Middle East confirms, again, that Australia is not only blessed by our abundance of resources but also by our geo-strategic location. We are our own island nation, with proximity to our main trading partners in Asia, and Australia needs to be doubling down on these advantages.

As our Prime Minister sought to embed our relationship with Singapore to ensure the flow of petroleum fuels to Australia, so we should also be embedding this relationship in the strongest way we can by ensuring our own products continue to be, and increasingly are, a vital part of the energy and resource mix of our regional trading partners. When you rely on trading partners for the flow of essential products such as refined fuel, it is an obvious response to ensure your partners can continue to rely on you for other essential products.

That brings us to liquefied natural gas.

WA made a deliberate decision to become a globally significant supplier of LNG. The bedrock for the initial development of the LNG industry was the North West Shelf, where government played an active role to incentivise the enormous investment required through provision of critical infrastructure and attractive tax incentives to underpin multibillion-dollar investment of capital into WA.

Indeed, the North West Shelf began with agreement to develop the domestic gas pipeline to the population centres of Perth and the southwest of WA. This provided the infrastructure, demand and cashflow to then underpin the successful development of the mighty North West Shelf LNG project and export industry, which for several decades was Australia’s biggest resource project. Similar principles underpinned subsequent LNG investments in Pluto, Gorgon and Wheatstone – with commitments to supply the domestic market under WA’s gas reservation policy.

It was these large capital-intensive investments that established Australia as a leading LNG exporter. In little more than a generation, a new industry was built. It created highly skilled, well-paid jobs, strengthened public revenues and deepened relationships with key partners including Japan, South Korea, China and India.

WA embraced these investors and, as a result, has access to domestic gas that provides 30 per cent of the state’s energy generation versus 2 per cent in Victoria. WA also has a much lower emissions intensity in its power sector than Victoria, which is still heavily reliant on brown coal. And that is before we even get to South Australia, with 71 per cent of power generation coming from renewables enabled by the other 27 per cent coming from gas, providing that firming support.

It is this investment in LNG export capacity in Australia that has given rise to a domestic gas industry that has so advantaged Western Australia.

Yes, it also required the WA government of the day to underwrite domestic demand via a “take or pay” contract and some assertive policy response from the Carpenter Labor government around a gas reservation policy, but it was the economics of exporting LNG that underwrote the development of those gas fields to which a domestic reservation policy could be applied.

Australia’s role as a strategic energy partner, and therefore its global influence, grew with its LNG industry. That role remains. The global energy system is not moving along a single path. Demand for renewables is growing, but so is demand for oil and gas. Different economies are moving at different speeds, with different constraints. The idea of a single, linear transition does not reflect reality.

This fact is confirmed by S&P Global in its thought leadership report, released amid the war in the Middle East. This report highlights that it is not realistic to manage the energy transition against a single objective. The report notes that in 2025 “demand for oil, gas and coal reached new highs. So did demand for solar photovoltaics and wind energy. Renewables continue to grow faster than hydrocarbons, but the overall share of renewables in the total energy mix remains small. There are no signs of decline in demand for hydrocarbons in the near future. In short, energy addition continues globally.”

As we tend to hear more often, the energy transition is now evolving into an energy addition. Increasing amounts of energy are needed, and the world now has an increasingly efficient and diverse way to fill that demand. The simple reality is that while electrification is increasing, so is demand for oil and gas. Hence a multidimensional energy future driven by different demands and fuels is the reality and will be overlaid by the geopolitical reality we are seeing playing out in energy markets right now. The idea of one single pathway to net zero is not the reality the world is experiencing.

Woodside’s Scarborough project will soon add new supply into a global market that needs more energy. Its gas has been contracted into key overseas markets and will also support domestic industrial development, including fertiliser production in WA. Some of those partners have taken equity interests in the project. LNG does not just generate export revenue. It supports industry, strengthens relationships and carries strategic weight.

That is why future resource development opportunities such as the huge Browse gas field off the northwest coast of Australia matter. Browse is a large and strategically significant resource for Australia that has the capacity to provide new domestic gas and LNG exports. In a more competitive world, leaving such assets idle carries a cost.

There is, however, a growing tendency to blur together issues that should be kept separate.

Higher transport fuel prices are being presented as evidence of excessive profits in Australia’s gas sector. That link does not hold.

Automotive fuel prices in Australia are driven by global oil markets. When supply is disrupted, prices move globally. Australia is a price taker. The price at the bowser reflects international crude prices, refining costs and distribution margins. It is not set by domestic LNG activity.

The same confusion appears in the tax debate.

The petroleum resource rent tax is being disingenuously compared with beer excise, with claims Australians are being short-changed. The truth is that once you account for company taxes and royalties, the gas sector pays more than eight times what is paid in beer excise.

Comparisons with countries such as Norway and Qatar are also common. These overlook a basic point. In those systems, governments are equity owners. They take a direct share of revenues because they also take on a direct share of risk and capital investment. They also heavily subsidise exploration.

Australia has taken a different approach. Projects are funded by private capital and returns are taxed through company tax, royalties and the PRRT. The Australian taxpayer is not required to contribute to the massive capital cost to find and extract the gas and turn it into LNG. That model has supported decades of investment, production and public revenue.

Lifting comparisons from fundamentally different systems with different investment rationales and presenting them as evidence of under-taxation in Australia is misleading.

The more important point is this. The existence of an export-scale LNG industry underpins domestic supply and the broader contribution of the sector to Australian industry.

Mischaracterising how that system works risks weakening one of the few areas where Australia has a clear competitive and strategic advantage. I suspect this is the point of those who seek to make these mischaracterisations: undermine confidence, increase costs that lead to fewer investments and the decline of the industry.

Australia’s resources sector is world class. It is decarbonising because it must remain competitive in a world where the prices are set by markets, not by companies. But it also remains one of the country’s key sources of strategic leverage.

Iron ore has underpinned the industrialisation of our region. LNG has supported energy security. Both have contributed enormously to Australian prosperity.

The current crisis in the Middle East should serve as a reminder. Resources are not just commodities. They are instruments of national strength.

Australia’s gas, its LNG capacity and its role as a trusted supplier are strategic assets. This is the moment to build on them and ensure Australia is more deeply embedded in the energy and resource supply chains of the partners whose support we may one day need in return.