The Inside Word

Gas Wars

In a country blessed with such an abundance of natural gas, the recent forecast by the Australian Competition and Consumer Commission (ACCC) of a significant shortage of gas in 2023 is diabolical.

In August, the ACCC forecast that 1,981 petajoules (PJ) of gas would be produced next year in Australia’s east coast (that’s everywhere except WA and NT) and two thirds of it would be exported overseas as LNG under long-term contracts, potentially leaving Australia short of gas.

But surely Australian homes, businesses and manufacturers who use gas as a feedstock to make things like fertilizer should be supplied first? Emotive headlines and great social media click bait, but it’s obviously not quite this simple, otherwise the problem would have already been fixed – by someone, somewhere.

Australia’s east coast gas market certainly has a major structural problem. Too little gas is being produced close to the demand, which is in NSW and Victoria where it’s widely used in manufacturing and to heat homes. Actually, NSW produces almost no gas and the cheap plentiful supply in Bass Strait is running out. Exploration to find more is way too difficult given environmental regulations.

Which leaves Queensland. Thanks to the vision of the Beattie Government in the noughties, Queensland has developed an enormous gas export industry, providing tens of thousands of jobs and decades of royalties to help build those ubiquitous schools and hospitals. In the current 2022-23 financial year, Queensland Treasury says it will bank $1.626 billion in gas royalties. With the way energy wars are playing out in Europe, that may be a little on the low side.

And then there is a new problem adding to the structural dysfunction in Australia’s gas market. As we ramp up efforts to move to renewable energy, the demand for gas, which was predicted to fall during the next 10 years, is going in the other direction.

More not less gas is being used by our electricity generation system. Everybody knew it was going to be needed to plug the gap when it’s night time and the breeze is gentle, but nobody seems to have thought deeply enough about what happens as we phase out coal-powered generation. As our aging power stations come to the end of their life and reinvestment is uneconomical, they start to fail. If renewables were shouldering the load this would be okay. But they are not, which is where gas is having to plug an even bigger gap than apparently anybody foresaw.

This has happened in Victoria recently. Gas powered generation had to step into the grid not just to firm renewables but to provide baseload energy, everybody was caught short, and the price went through the roof.

The Victorian Minister blamed Queensland because it was exporting too much Australian gas. She neglected to mention that the Queensland gas projects were always set up for export, for gas to flow north to Curtis Island. There was never a requirement for the exporters to invest in sending gas south to supply the domestic market. The pipeline capacity is constrained so it’s not even possible for Queensland gas to reliably flow to Victoria when its needed.

So, as the Queensland LNG exporters pulled out all stops in June, July, and August to make sure Victorians were kept warm and snug, most citizens wouldn’t have realised that it was coal seam gas that was stopping their feet from getting cold. This is the very same resource that is so bad their State Government on their behalf had to enshrine a ban on its exploration in Victoria’s constitution.

While the Albanese Government is working hard to ensure an affordable and reliable domestic gas supply, the only real solution is the development of new gas fields in Victoria and NSW.

Activism has made sure the public won’t let this happen and talk of capping the price of domestic gas means import terminals in the southern states won’t be viable, so no solution there either. It’s unlikely that anybody will consider investing in additional gas pipeline infrastructure or storage, given the unrelating drive to renewables.

There might be many long, cold, and expensive winters in southern Australia until renewables and batteries can cope without gas. Presumably voters are willing to go on this journey because Australia needs to play its part in fighting global warming. However, the export demand for Australian gas is unsatiable, not everybody is willing to suffer cold feet to help the planet.

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