Gas-led recovery anyone?
High gas prices are threatening to inflict serious economic damage on manufacturing, even if the pleas of manufacturing lobby groups like the Australian Industry Group about “apocalyptic” gas prices are — forgive the pun — somewhat overheated. There could yet be a very real hit to growth in coming quarters as gas prices surge so high the Australian Energy Market Operator has been forced to step in and impose a $40 a gigajoule price cap up and down the east coast.
The cause lies not with the gas market or even, particularly, the global surge in gas prices — although that’s important — but the ongoing failure of our coal-fired power system on the east coast.
In May nearly 30% of coal-fired power capacity was offline due to increasingly unreliable, ageing power stations suffering major faults. Now the difficulty of accessing coal — also enjoying a a super price surge that is generating colossal windfall profits for coalminers — is further undermining coal-fired power. Origin Energy — which is enjoying big profits from its LNG exports — announced that it was struggling to source coal for its Eraring plant in NSW.
Eraring is fed directly by a coalmine operated by Centennial Coal, but production problems have required Origin to try to source coal elsewhere — in a seller’s market. Production problems have also occurred with coalmines hit by — irony alert — climate crisis-induced flooding earlier this year, further squeezing supplies.
Once touted by climate denialists as the only baseload worth considering, coal-fired power is now the Achilles heel of the east coast electricity network — expensive and increasingly unreliable.
That means we’ve had to turn to gas, especially with winter arriving with a blast in the east. It means we’ve had to default to the original Australian decarbonisation plan from the 2000s — gas as a “transition fuel” between coal and renewables.
That plan was never implemented because gas prices, driven by international markets, made it increasingly uncompetitive against renewable energy, the costs of which have plummeted over the past decade. Even as Scott Morrison was touting a “gas-led recovery” in 2020, his own energy agencies were predicting a declining role for gas in our electricity production because it was so expensive.
Now we’ve been forced to turn to gas despite its cost, because coal is so unreliable and we’ve wasted a decade underinvesting in, and often demonising, renewable energy and the infrastructure required to support it. Even the companies prospering from high gas prices, like Origin, are copping it from the other end — Origin has had to significantly downgrade its profits forecasts and ditch its market guidance for the moment while it works out what to do at Eraring.
There’ll be no escaping the impacts for businesses big and small alike, which will in turn feed through into lower economic growth over the course of the year. And no escape for households, either. Rug up.
we are paying for 10 years of LNP denial and intransigence.
That plus general incompetence and wilful negligence.
As much as I celebrate the election result, it’s disappointing the LNP won’t be wearing the results of their short-sighted energy policies 🙁
WA had an ex-journalist Labor Premier a few decades ago who legislated a 15% share of gas from new projects to be reserved for WA use, not exported. The mining industry spewed big time about that and said it would destroy the industry, but he held firm, and it didn’t. A display of leadership notably absent elsewhere. Also, isn’t it interesting that sunshine and the wind are getting cheaper all the time? And don’t need mining or pipelines, and don’t contaminate or use groundwater. And have no toxic emissions – which kill six million people every year, according to the WHO. Also, so-called natural gas is actually methane, with an 80 times greater atmospheric heating effect than CO2. If only 3% of mined methane escapes unburnt into the atmosphere, from the well head, your stove and everywhere inbetween, then it effectively is the equivalent of coal at warming the planet. Many gas systems lose 5%, measured by satellite. Calling methane ‘natural gas’ is part of the greenwash bulldust used by this trillion dollar + industry to get it accepted and paid for by us. Gullible us.
As drastic says, it is possible to legislate to save Australian industry from super profit making gas producers.
There is no good reason whatsoever why the domestic price should be set to the international market price and the gas producers have even had the hide to raise domestic gas prices above the international price when they were miffed that their existing contracts prevented immediate increases in the international price when it was rising.
The Australian government is allegedly a sovereign government. While gas companies will protest, the Australian government should simply legislate now to replicate the arrangement in WA, with a suitable percentage of gas produced available to local industry and homes at cost plus a reasonable profit. There will be huffing and puffing and pious companies deploring retrospective legislation but none of them is in a position to abandoned Australian natural gas just because a proportion will be taken out for the domestic market, since that will only make their position worse internationally. The Australian government simply has to declare an emergency and legislate to deal with it. Even the High Court will recognise that ultimately the Australian government must be able to take such action. No Governors or Governor General is available to sack the Government on behalf of the British monarch on behalf of which Australian governors act.
If Bernard thinks this is wrong, he can explain why existing one-sided commercial agreements should stand in an economic emergency.
Considering Qatar has a much better setup in regards to their gas – see their profits as against Australia’s – and still the “big oil” companies keep doing their biding it is all bullshit that “big oil” will not play ball.
WA with its 15% for home use should have been a given in any agreement that the Federal government agreed to. Same with any energy fuel plus make them pay proper taxes!
The reason that WA doesn’t have this problem is because of its gas reservation policy (a certain portion is sold to the local market at agreed prices, not market prices). Time to do the same for eastern states gas.
Naaaaah………..
The time to do that was ten years ago.
Why so recently?
It should have been written in the granting of exploration & drilling permits – domestic reserve, first then export – rather this back-to-front Queen of Hearts idiocy.
Yes. Who would ever have imagined that the Eastern states letting their gas policies be dictated by the energy companies would result in policies that benefit the producers and crucify the consumers. What an amazing turn up!
And Labor must relentlessly prosecute the climate criminals now cowering on the diminished opposition benches for all the reasons we have become trapped in this energy/climate/economy horror. They must do so continuously up to calling the next election.