Here are a few problems with hailing gas as a cost-of-living saviour

Given high natural gas prices have directly contributed to the cost-of-living crisis, it is perhaps no surprise that gas supply is also shaping up as a key concern for votes.

The Coalition has flagged a new gas strategy intended to "dramatically increase the supply of domestic gas" by cutting regulatory approval timelines to bring new projects to fruition sooner.

One project likely to be targeted for a faster approval under the Coalition's strategy is Woodside's proposed North-West Shelf (NWS) extension and the associated Browse gas project.

However, with an estimated cost of more than $35 billion, the NWS/Browse project faces market realities that could materially impact on its financial viability.

Woodside is likely to require sustained demand for liquefied natural gas (LNG) well beyond 2050 to earn a sufficient return given the project's very large upfront capital costs.

However, this remains uncertain, with demand in established LNG markets either falling or soon expected to peak.

In Japan, Australia's largest LNG buyer, demand has fallen 25 per cent over the past decade alone and is expected to continue falling under the Japanese government's energy plans that see a larger role for renewable energy.

Japanese LNG buyers are now increasingly selling LNG to third countries, with third-country sales in FY2023 larger than the amount of LNG imported from Australia.

South Korea and Europe have similarly seen declining demand, with LNG imports falling by almost 5 per cent in Korea in 2023 and by 19 per cent in Europe in 2024. LNG demand from both regions is expected to decline over the next decade.

With these markets weakening, LNG demand growth is shifting to price-sensitive emerging markets.

China is widely expected to be the key LNG growth market, but recent government policy has sought to prioritise domestic gas production and pipeline imports over LNG.

At the same time, China is limiting the role of LNG in the country's energy mix, with renewable energy - rather than gas and LNG - displacing coal in the electricity sector. This reflects both the high cost of LNG and China's breakneck rollout of solar PV.

In 2024, China installed a staggering 277 gigawatts of solar PV capacity (several times larger than the total generation capacity in Australia's National Electricity Market).

The high cost of LNG also led to Pakistan reversing plans to switch from coal to LNG power.

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Meanwhile in south-east Asia, new gas power plants have been delayed due to contracting disputes and issues with negotiating power purchase agreements (again, due to the high cost of LNG).

At the same time, LNG markets will soon see an unprecedented wave of new supply that will outstrip demand and intensify competition between suppliers, pushing down prices and lowering LNG returns.

This may impact on Woodside's ability to sell LNG from the NWS extension. Australia is historically a higher-cost LNG exporter (for new developments), while Qatar, the world's lowest-cost producer by a significant margin, is likely to have increasingly large volumes of uncontracted LNG looking for end buyers.

According to the International Energy Agency (IEA) , the LNG supply glut is likely to persist until 2040 unless prices fall to US$3-5 per million British Thermal Units (about half of the cost of new supply) to make LNG competitive with coal, and there is a slower rollout of renewable energy in emerging markets.

In other words, LNG exporters and new project proponents are effectively relying on a 'Goldilocks' transition: not too fast (with renewables take-up eliminating any role for gas); and not too slow (with coal generation remaining in the energy mix).

Woodside also faces challenges around its proposed carbon capture and storage (CCS) project to sequester emissions from the carbon-intensive Browse gas fields, which must be net zero under Australia's Safeguard Mechanism.

IEEFA analysis shows that global CCS projects have a long history of underperformance and failure. Australia's largest and longest operating project, Chevron's Gorgon CCS facility, has fallen well short of its carbon capture targets.

During 2023-24, it captured only 30 per cent of emissions from the Gorgon field, equating to an effective carbon price of more than $200 per tonne.

Any CCS underperformance would directly increase carbon offset costs for Woodside, leading to lower returns from the NWS extension and the Browse development.

It could also increase demand for carbon credits, pushing up carbon credit prices (given Australia's relatively thin carbon markets), and leading to higher carbon offset costs for Woodside and for other companies subject to the Safeguard Mechanism.

Given Woodside's relatively poor shareholder returns over the past decade, and uncertainty around LNG market demand, it would be wise to be wary about the NWS and Browse project.

For voters in the upcoming election, pledges to increase gas production as a solution to the cost-of-living crisis should be viewed with suspicion.