The federal Australian government, in coordination with the state of Victoria, has approved the opening of five new offshore gas exploration blocks in the Otway Basin. The decision is part of the Future Gas Strategy (FGS), which affirms the role of natural gas as a necessary energy source for the Australian economy through to 2050. The newly released areas fall within Commonwealth waters and are governed by the Offshore Petroleum and Greenhouse Gas Storage Act 2006, which regulates the granting of licences.
A local response to anticipated shortfalls
The move comes as the Australian Energy Market Operator (AEMO) forecasts seasonal gas shortages on the east coast as early as 2028, followed by a structural deficit from 2029. Declining output from the historic Bass Strait and Otway fields is increasing pressure on regional supply, while pipeline capacity from Queensland remains limited. Developing new local resources in Otway would reduce reliance on imported liquefied natural gas (LNG) and the need for major new transport infrastructure.
The legal framework applied imposes an accelerated development logic, with tighter requirements on work-bids, exploration timelines and production licence conversion. The approach seeks to deter speculative licence retention and ensure timely use of resources in line with market needs.
Local opposition and political trade-offs
The initiative is backed by existing Otway producers, including Cooper Energy and Beach Energy, which already operate infrastructure connected to the Iona and Athena hubs. The Australian Energy Producers federation welcomed the decision as essential to domestic market stability. However, several environmental groups and coastal communities oppose the restart of fossil exploration in a region where gas will be banned in new residential buildings from 2027.
The Victorian government justifies its participation in the tender by citing energy security concerns. Despite a residential gas phase-out policy, the state executive argues that local industry and winter demand peaks require nearby resources to avoid supply disruptions. This tension between climate goals and energy realities fuels ongoing political controversy.
Economic and industrial consequences
The announcement could immediately influence contractual negotiations across gas-intensive industrial sectors. By projecting a potential increase in domestic supply, companies may seek more favourable pricing conditions post-2026. However, actual production from these blocks remains a medium-term prospect, subject to commercially viable discoveries.
Reactivating exploration activity in the Otway Basin also indirectly supports oilfield service companies, in a context where other major Australian projects are already straining capacity. This brownfield approach, with tie-back projects connected to existing facilities, addresses the need to reduce capital expenditure in an uncertain investment environment.
Geopolitical balances and market signals
For Canberra, maintaining a domestic production base in the south eases pressure on Queensland’s LNG export volumes used in contracts with Asia. The move aims to preserve Australia’s reputation as a reliable supplier, without introducing rigid gas reservation mechanisms. The FGS, Otway block release, and revision of the Gas Market Code together form a coherent signal to markets.
However, this strategy may face legal risks from climate-related litigation. NGOs have already indicated plans to challenge environmental approvals. The outcome could impact the regulatory timeline and influence investor confidence, depending on how the government enforces development obligations.
