ESSA

ESSA

The Energy Supply Myth: Why The Government’s Gas Lead Recovery Plan Is Dubious At Best


Benjamin Thompson

By

October 15th, 2020


In this article, Benjamin Thompson analyses the merit behind the gas lead recovery spearheaded by the Australian government, and realises there’s not much merit to be found.


The Morrison government has announced new measures to shore up domestic gas supply in Australia to help reduce energy prices in the hope that it will boost manufacturing employment and alleviate the pressures that households are facing. These reforms would be aimed at increasing gas production in the East Coast region by accelerating State and Territory projects, renegotiating the Australian Domestic Gas Security Mechanism, and purchasing a gas-fired replacement for the Liddell power station if the private sector does not commit to providing 1000 MW of new dispatchable energy by summer 2023-24. [1] On the face of it, this proposal looks good, but it is predicated entirely on the myth that Australia has a gas shortage.

Australia’s gas markets are divided into three regions; the Eastern gas region which covers all of our eastern and southern States and Territories, the Western gas region which covers Western Australia but is mostly focused on exporting production overseas, and the Northern gas region which covers the Northern Territory. [2] Furthermore, there are four types of gas markets which are run in Australia; the declared gas market in Victoria, the short-term trading markets across Australia, the gas supply hub at Wallumbilla and Moomba, and retail markets which are run by AEMO across all of Australia. [3] Now that you have a decent picture of Australia’s gas market, let’s get into some of the more exciting stuff.

The first claim the government has made is that there is a supply shortage in Australia and that with the right type of intervention, they will be able to reduce the price of gas by increasing supply. [4] Now, this might make sense given the situation of rising prices in the East Coast markets but that does not seem to be the case, in fact, natural gas production has risen more than the consumption of gas over the past 9 years, while exports of natural gas from Australia has gone up.

[5] Department of Industry, Science, Energy and Resources, Australian Energy Statistics 2020 Table A. Available: https://www.energy.gov.au/publications/australian-energy-update-2020

Furthermore, we have plenty of gas reserves in Australia ready for future consumption. Proved and Probable reserves across Australia is approximately 108 exajoules (EJ), to which about 39 EJ of that is connected to East Coast markets, not only that, the East Coast markets also have a further 30 EJ of sub-commercial Probed and Probable Contingent gas reserves ready for further use. Given that Australia’s exports and consumption takes up approximately 5 EJ of that, it would take over 20 years for us to eat through that supply – without us conducting exploration and development for further extraction. [6]

[6] For more details, the reader is referred to [1, Fig 2.]

It seems to be the case that supply is truly not the issue, we have plenty of gas then, so what is the problem? The problem seems to be rooted in the rise of natural gas exports from Australia to other countries, and the cartel-like behaviour in the East Coast markets. These issues are creating a mismatch between domestic supply and demand, which is hurting our consumers and businesses through higher prices. Not to fear, the Australian government already has the power to deal with this, by exercising the Domestic Gas Security Mechanism to restrict exports and ensure domestic demand is met, however, this has not been exercised by the Australian Government once. [8] It seems then, to fix our gas ‘woes’, we need to act using the regulatory mechanisms we have in place, not for the government to intervene in gas markets to help boost supply where none is needed.

Furthermore, the government has also made the claim that by reducing the price of gas through their proposed changes, this would help to boost investment into manufacturing and create new jobs for Australian workers. Unfortunately, this could not be any further from the truth. In Scott Morrison’s speech at Tomago NSW, he claims that 225,000 manufacturing jobs in Australia heavily rely on gas for their everyday activities, in industries such as food processing and beverage manufacturing. [4] However, the Grattan Institute begs to differ, claiming that these gas-intensive industries, only employ around 10,000 people, and of these 10,000 people, 6,000 of them are in Western Australian based facilities with ready to go access to gas at cheap prices. [8] Overall, this puts the proportion of manufacturing jobs reliant on gas at around less than 1%, with gas making up less than 0.5% to 2% of the input costs for gas-intensive sectors with a meagre 0.2% of input costs for the majority of the manufacturing sector, according to the Grattan Institute. [8]

Moreover, a gas lead recovery does nothing to address the concerns of climate change, rather it will make the situation worse. Given the recent bushfires, this type of proposed recovery is only going to set Australia back in reducing our greenhouse gas emissions and prevent us from meeting our international obligations set out in the Paris Agreement. Furthermore, the methane from the production of natural gas traps 86 times as much heat in the atmosphere as carbon dioxide and would pose further destruction of Australia’s environment through more intense bushfires and heatwaves across the country. [7] Not only that, with a trend towards solar storage and increasing our renewable energy capacity, these sorts of investments pose the risk of becoming stranded assets as a result of possible devaluations from shifts in market demand, resulting in a large waste of taxpayers’ money. [7] So why does the government say that solar and wind do not need any more subsidies but want to subsidise an industry which is arguably larger and more established? Instead, the government should be focusing on establishing an explicit price on carbon and a national clean energy target to foster the conditions of investment into our energy sector, rather than giving money to the fossil fuel industry who do not need taxpayers’ money.

Overall, the success of a gas-lead recovery seems very unlikely and is based on the mythical idea that Australia is running out of gas. These proposals at best seem like election marketing material, rather than based any sort of solid economic reasoning.

• References

[1] Corrs Chambers Westgarth. 2020. Understanding Australia’s Gas-Led Recovery Plan. [online] Available at: <https://corrs.com.au/insights/understanding-australias-gas-led-recovery-plan>

[2] AEMC. 2020. Gas Markets | AEMC. [online] Available at: <https://www.aemc.gov.au/energy-system/gas/gas-markets>

[3] AEMO. 2020. [online] Available at: <https://aemo.com.au/-/media/Files/About_AEMO/About_The_Industry/Gas-Market-Fact-Sheet.pdf>

[4] Prime Minister of Australia. 2020. National Energy Address – Tomago, NSW. [online] Available at: <https://www.pm.gov.au/media/national-energy-address-tomago-nsw>

[5] Department of Industry, Science, Energy and Resources. 2020. Australian Energy Statistics. 2020. [online] Available at: <https://www.energy.gov.au/publications/australian-energy-update-2020>

[6] Australian Energy Council. 2020. Gas In Australia: Where Is It Now And Where Is It Going?. [online] Available at: <https://www.energycouncil.com.au/analysis/gas-in-australia-where-is-it-now-and-where-is-it-going/>

[7] The Conversation. 2020. 4 Reasons Why A Gas-Led Economic Recovery Is A Terrible, Naïve Idea. [online] Available at: <https://theconversation.com/4-reasons-why-a-gas-led-economic-recovery-is-a-terrible-na-ve-idea-145009>

[8] Grattan Institute. 2020. The PM’s Gas Plan Will Misfire. [online] Available at: <https://grattan.edu.au/news/the-pms-gas-plan-will-misfire/>

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

Founding sponsors

 

 

Partner

Platinum sponsors

Gold sponsors

 

 

 

 

Silver sponsors

 

 

 

 


Affiliates