The Strait of Hormuz closure, clean energy transition, and power-hungry AI boom have collided to make energy security the top priority globally. Simultaneously, great power competition between the United States and China is expanding to global energy supply chains, adding another layer of complexity that Australia and others must navigate.
Despite all of this, Australia stands to benefit from this shifting order.
Like China and the United States, Australia is an energy superpower, rich with both renewables and fossil fuels. But shifting energy policies and priorities has left Australia on the brink of a domestic gas supply shortfall, slowed its transition to renewable energy, and strained relations with our most important partners in the region.
Without a more decisive strategy, Australia risks becoming a passive spectator in the Indo-Pacific’s energy landscape.
Now is the time for Australia to start shaping the new energy order. Other superpowers are moving decisively in this new environment and, unless Australia acts now, it could be left behind.
China’s response to the Iran conflict has been to double down on electrification, maintain its coal-fired security backstop, and build its reserves of oil to buffer supply shocks. Beijing is also aggressively expanding its electric vehicle and green tech exports to root out any overseas competition for these growth sectors.
The United States is pursuing a strategy of ‘energy dominance’ focused on producing abundant domestic supply. This would deliver affordable energy to Americans, win the AI race with China, and expand energy exports to bind allies closer and detach them from rivals like Russia and Iran.
Australia does not need to copy either model wholesale. Both strategies have shortcomings — China’s strategy requires massive state subsidies and the US’s strategy neglects renewable energy. Australia’s own energy statecraft should reflect its energy superpower status.
Australia should be one of the most attractive destinations in the world for energy investment — across gas, renewables, and new industries like green iron and hydrogen.
Without a more decisive strategy, Australia risks becoming a passive spectator in the Indo-Pacific’s energy landscape. The risks are twofold: our traditional influence as a coal and natural gas exporter could erode as countries look elsewhere for supply, and we could miss the window of opportunity to grow our clean energy exports.
So, what should an energy superpower do?
First, a superpower should maintain and extend its advantages wherever possible. Australia should be one of the most attractive destinations in the world for energy investment — across gas, renewables, and new industries like green iron and hydrogen.
Instead, projects are being held back by sub-optimal taxes and red tape — the Productivity Commission’s recent inquiry found that Australian regulators are incentivised to be overly risk averse, in part due to poorly drafted legislation. The Productivity Commission also found that Australia has fallen behind its peers in international rankings for ease of doing business and regulatory efficiency.
This is frustrating investors and putting our growth and climate targets at risk.
Second, a superpower should eliminate its vulnerabilities. The Iran conflict has exposed Australia’s vulnerabilities in securing liquid fuel (petrol and diesel) supply. Fixing this means cutting demand through electrification, expanding strategic reserves, and maintaining some domestic refining capacity.
It also means doing more to boost supply to the domestic market to keep prices stable during global supply disruptions, such as through a gas reservation scheme. High energy prices have hurt Australian industry and held back growth in new sectors like critical minerals processing.
Third, a superpower should be a reliable partner to its allies. Allies need the confidence that, if they have demand, Australia has supply.
Right now, reliability is invaluable. Australia is emerging as one of the only reliable, high-volume natural gas exporters in the region. Russian exports are heavily sanctioned, Qatari exports are being held hostage in the Strait of Hormuz, and the United States’ export infrastructure is concentrated in the Gulf Coast, adding 10 extra days in transit to reach Asia compared with shipments from Darwin.
In this environment, many consumers will pay a premium for reliability if Australia can act quickly.
This strategy could anchor Australia’s position as a strategic partner in the Indo-Pacific. In practice, this would involve working with partners like Japan and the United States to build a regional energy security alliance.
The message behind this alliance should be simple and clear: Australia and its allies will meet the region’s current energy needs and support their transition to clean energy. Fossil fuel supply to the region would steadily and predictably decline as demand is replaced by investments into new clean tech, and the region would chart a mutually beneficial course for the clean energy transition. In doing so, the framework could cover the full energy supply chain: critical minerals, natural gas, hydrogen, batteries, data centres, and even emerging products like low-carbon cement and fertilisers.
But this strategy requires fixing some domestic issues first.
The social license for extending the life of some of our traditional energy exports must be improved. Exorbitant domestic energy costs have sparked an unproductive renewables-versus-coal blame game, which can only be fixed by unlocking new energy supply and scaling up battery storage. And government must work harder to reduce regulatory burden.
Get these domestic settings right, and Australia can do more than just keep up with a changing energy order — it can shape it.