By 2017 east coast gas, added to growing Western Australian supplies, could create the world’s biggest gas export industry, worth $53 billion a year. Australia has many decades of gas, even without including the potential for shale gas. But, if this is true, how can we be looking at big gas price increases and possibly supply shortfalls within a few years? A new report by Grattan Institute, Getting gas right: Australia’s energy challenge, explains why.
Strong Asian demand and high prices are inducing Australian producers to export their gas. That means local consumers will have to pay higher prices. Within the next couple of years, gas prices for households on the east coast, particularly in Victoria, will rise by as much as $170 a year. Large industrial users of gas will come under pressure from equally significant price increases.
Gas presents other challenges, too. Infrastructure constraints plus commercial battles over prices mean there may be difficulties in getting gas to where it is needed on the east coast, especially in New South Wales. And the long-anticipated “dash for gas”, in which it acts as a transition fuel while electricity generation shifts over time from coal to low-carbon technologies, is not happening in Australia. Falling demand, rising gas prices and a renewable energy target that largely supports new wind energy mean new gas-fired electricity generation is unlikely to be required for at least the next decade.
With more than $160 billion forecast to be invested in LNG production, the export industry is good for the economy. Governments should therefore resist self-interested calls from some industries to reserve gas or cap prices for the domestic market. One reason that reserving gas is a bad idea is that there is no shortage of gas. The challenge is to ensure that the gas gets delivered to where it is required, and this means commercial buyers and sellers need to reach commercial terms on new arrangements. At present, the negotiations are made difficult by the immediate challenges on price, but deals are being done.
Capping prices for the domestic gas market is a very bad idea. It amounts to a tax on producers and a subsidy for domestic gas users. Protectionism of this sort may provide some short-term price relief for targeted industries, but it tends to mean inefficient businesses and less investment. Ultimately it leads to higher prices and damages the economy for us all.
In all this noise, government and industry both have vital roles in ensuring the market works efficiently. Governments must:
- Resolve the coal seam gas impasse in New South Wales, one way or another. Industry, environmentalists and the community need real clarity.
- Create a more transparent gas market that includes new trading hubs such as Wallumbilla in Queensland and a gas price index that provides clear information to all players.
- Remove barriers to efficient supply by freeing up trading of pipeline capacity, and moving towards elimination of joint marketing arrangements as the market matures.
Industry, for its part, must ensure supply can flow. There is no shortage of gas, but infrastructure may be physically unable to meet growing demand in the short term. Gas producers must respond to the needs of their customers or political pressure will push governments to intervene.
With global gas resources likely to last at least 200 years, the International Energy Agency has described the next decade as the “golden age of gas”. Australia is well placed to reap the commercial benefits, but has further to go to create an affordable, reliable and sustainable energy sector.
*Tony Wood co-wrote the new Grattan Institute report Getting gas right: Australia’s energy challenge with Lucy Carter.
It would be better if the Australian vehicle fleet moved away from petroleum and onto gas. It seems absurd that our foreign exchange is eaten up purchasing overseas oil, when we’ve got this huge gas reserve.
Ahh, the pictorial visual imperative! Illustrating an article about gas with an image showing a string of oil wells shows that someone doesn’t know much about the subject.
So you don’t see any issues with gas prices having negative impacts on everyday people? These neoliberal policies certainly are an issue when married to uncritical journalism that doesn’t examine and dig deep very well. Your unstated agenda, as with all neoliberal ideals, is that investment and wealthy people’s activities/interests and bottom-lines, are the MOST important thing in society, including economic activity and the interests of overseas activities and wealthy people/industries.
As usual the disadvantages and lived experinces of everyday people are not a high priority and just left up to the unimaginative and equally non-critiqued trickle-down effect…so much data now supports that these policies and theories are not accurate or truly occurring to extents that help everyday people, local communities or lower-classes of citizens.
This issue directly affects poorer people because some of us (like me who is a single parent been shifted onto Newstart Allowance) we only have so much money and all main living expenses are rising to levels we cannot afford to pay AND raise our children…and yet neoliberal policy also preaches low social expenditure – so costs go up and up with the intersts of wealthy people in the fore, and the effects on poorer people or those who cannot participate in the workforce and capitalism as much, are deemed irrelevant.
This artilce demonstrates both that journalists believe such doctrine and do not do their job in critiquing and examining such issues – and that governments are failing in their obligation to manage the intersts of ALL their citizens. This is highly unjust and a grave concern. Governments like to impose strict obligations on Centrelink customers, anyone vulnerable, but no one holds governments, their policies or the media to their own social responsibilities in relation to the “social contract.”
BTW Maybe writers and artilces should have their personal interests etc publicised when their artilces are published so we can understand how their interests in the subject interact with the information they offer…it would make a good policy for Crickey maybe, especially with uncritical articles like this one that gives the impression of non-subjective “fact” but which has certain values and ideologies embedded in what is presented as “information”?
Tony, The problem I have is understanding why Australians should have to pay a single cent for gas. The production from North West Shelf & Pluto +the expected production from Gorgon, Wheatstone and Ichthys absolutely dwarf domestic consumption, and in my opinion production licences should be conditional on supplying free domgas. A tax on producers yes, but a very small one and at least we’d get something back for allowing the mostly foreign investors to extract & export our resources. [Declaration of interest, I work for one of the foreign oil companies 🙂 ]