Australia is Getting the World Cooked on Gas
Bart Shteinman - Politics & Economics
Say what you will about Scott Morrison, but Australia’s marketing-trained Prime Minister certainly deserves recognition for his linguistic ingenuity. To those perplexed by the government’s decision to subsidise the natural gas industry, despite its oft-proclaimed ‘technology-neutral approach’, the PM explained in a televised interview that,
“Well, Gas has chosen itself!”
Yes, gas is so self-evidently the fuel of choice that any other alternative need not be considered. For years, we have been sternly told that public investment in renewables ‘distorts the market’ and is nothing more than a ‘handout to greenie rent-seekers’. Indeed, Australia’s Federal Energy Minister, Angus Taylor, instructs us that solar and wind are a “mature technology” and so should grow-up and fund themselves. But gas, a mere 120 years young, is due many more spoonfulls of loving subsidy.
At the risk of imperilling our bountiful “gas-fired recovery”, let’s try and separate the hot air from the hard reality. Natural gas has four key uses in the Australian economy, electricity generation in gas turbines, use in buildings for appliances and heating, use in manufacturing for thermal power and petrochemicals, and for export through liquified natural gas (LNG). Going by the rhetoric of the day, one would assume our own economy is the main outlet for our gas supplies. Going by facts and figures, on the other hand, reveals a slightly different picture.
Over 75% of Australia’s total gas supplies go towards the LNG export sector, rather than local gas users. This is also true for the populous East Coast Market, where much of the political focus lies. There, just 465 out of nearly 2000 petajoules is retained for domestic residential, commercial and industrial users. This makes the almost exclusive political focus on ‘unlocking new gas supplies’ somewhat strange, given the strong likelihood it will end up being burnt somewhere else.
Indeed, far from an ‘environmental lockup’ of shale and fracking reserves, the LNG integration of Australia’s east coast gas has seen an explosion of gas extraction. Australia’s gas used to be sourced as a cheap by-product of oil drilling in the Bass Strait off Victoria. The reason so many of our homes and factories were hooked up to gas was as a way to recycle this waste energy.
The post-2015 building of LNG terminals meant that Australian consumers suddenly had to bid for gas alongside hungry energy users in Asia, driving up local prices. This wasn’t helped by the fact that Australia’s East Coast Gas market (in contrast to Western Australia) is the only major gas basin in the world not to have a domestic reservation policy, to keep some of its supplies for locals.
It is not controversial to say that exporting liquified natural gas has been an economic disaster for Australia, and a financial disaster for the LNG sector itself. Santos, Origin and Shell (with other overseas partners) spent $80 billion building three different east coast LNG terminals near Gladstone, Queensland. The investment was underwritten by supply contracts with overseas buyers, which bound the exporters to supply a fixed quantity of supply for an agreed price. Despite Queensland’s lax approach to environmental regulation, the industry vastly overestimated the availability of new gas reserves, and vastly underestimated the cost of fracking unconventional gas from the Bowen and Cooper Basins. Santos has written-off $8 billion in losses on its investments since 2014, and this year alone saw $20 billion in write-offs by the gas industry. Despite being the world’s largest exporter of LNG, Australia collected just $600 million in 2018 from its gas sector (a third of which is owned by foreign governments), compared to Qatar’s $26 billion.
But much of the pain has been passed on to Australians, as LNG exporters hoovered up local supply to meet their contracts, inflating the domestic price of gas by over 300%. It also hit their electricity bills, as gas power plants are a key price setter in the national electricity market (especially in South Australia).
Today, Australian users consume 21% less gas than they did before the LNG export boom, and 59% less in the electricity sector.
In return for bailing out these multinational companies, Australians have been shamelessly price-gouged by the gas cartel. While global prices collapsed due to Covid-19, Australian consumers were still paying twice as much for their own gas as foreign buyers. Rod Sims, the technocrat who chairs the Australian Competition and Consumer Competition, said as much when remarking that he was “yet to hear a compelling reason from LNG producers as to why domestic users are paying substantially higher prices than buyers in international markets.” To corrupt a line from Thucydides, the strong charge what they can and the weak pay what they must.
The pursuit of a gas-fired recovery belies the fact that the Australian economy does not actually have a need for any new gas reserves. Already developed basins in the east coast and north of Australia could meet the current 465 PJ of domestic demand through to 2030, if such gas was reserved for Australians. Open Cycle Gas plants, of which the government is proposing to build more, contributed just 1.8% of the National Electricity Market’s generation in the year to April 2020. Moreover, they are a severely outdated means of protecting the grid from black-outs, proven by their failure to even turn during the infamous 2017 South Australian blackout, the January 2020 blackout in Western Australia and the August 2020 blackout in California. Excluding hydro-dominated Tasmania, every state and territory has - or is now developing - utility-scale batteries to more cheaply and reliably serve the digital grid of the future.
While the government is focusing on the upcoming closure of the Liddell coal power station in NSW, their own advice disputes the case for subsidising a new one fired with gas. According to AEMO, the independent operator of the electricity grid, NSW does not face any prospect of a supply shortage for 10 years. The owners have given 8 years of notice that the plant is closing, 5 of which the government spent furiously trying to keep the nearly 50-year-old plant open. While the plant has a stated capacity of 1000 MW, the government’s own inquiry into the plant predicted a shortage of less than a quarter of that. Even more awkward for those wishing to impose a polluting and expensive new power plant is that 400% of that gap has already been announced since the inquiry was completed. Far from increasing, AEMO sees gas-to-power declining by two thirds between now and 2030 as Australia moves to an electricity system dominated by renewables. If gas was ever truly a 'bridge fuel' to a renewable future, we have very clearly already crossed it.
Despite the assertive claims of the government and opposition alike, gas is hardly crucial to Australian manufacturing either. Fewer than 1% of Australian manufacturing jobs are in gas-intensive industries, and the cost of gas was less than 0.5% of total inputs industry-wide. Two-thirds of manufacturing gas is used in handful of facilities that employ only 4,000 on the East Coast (for context, manufacturing employs 965,000 people in Australia). Nor could Australia ever be globally competitive on the price of gas, the government’s ambitious target price (A$6-7/GJ) being twice the average gas price in the U.S. Rather than piping gas down their throats, we could follow the direction of industry, which has cut its use by 12% since 2014 and has asked the government for financial assistance transitioning to renewable electricity.
Our homes have even less need for gas. No doubt, if anyone today were to propose piping in asthma-inducing gases into our homes, for multiples of the cost of cleaner electric alternatives, they would be labelled either dangerous or deranged. Across Australia, homeowners and builders have realised that the only thing gas is good at cooking and heating is our planet. Air-conditioners, water heat-pumps and state-of-the-art induction stoves are far more efficient and cost-effective at serving our modern lifestyles, even in climates far colder than ours. Were we to spread the benefits of modern electrification to all households we could free up to a third (190 PJ) of domestic gas consumption. In doing so, we could simultaneously cut energy poverty and obviate the need for any further hazardous fracking. Pair that with Australia’s growing ubiquity of rooftop solar (already installed on 20% of free-standing houses) and one can see why the gas industry is nervously looking for government handouts.
Despite having drilled itself into this hole, the government and the gas sector seem content to delve deeper. The gas industry seems almost addicted to losing their shareholders’ money, with Australia having 22 more gas extraction projects in the pipeline. Were we to seriously light a match to Australia’s identified and prospective gas resources, it would emit 3 times annual world emissions, over a quarter of the globe’s remaining carbon budget.
Blazing at the front of this conflagration is the Narrabri Coal Seam Gas project, which proposes to frack the Pilliga forest with 850 gas wells, conditionally approved last month. That project would release 127.8 million tonnes of climate pollution, more than Australia’s annual transportation emissions. Even NSW’s Coalition energy minister expressed doubts about the “big gamble” of a project that its owner, Santos, itself books at a precise value of $0.
The biggest gamble of all, however, is the part that we aren’t paying attention to; methane leakage. It’s a rather odd omission of an emission, given that natural gas is almost entirely composed of the chemical compound, – which one might add heats our atmosphere at 8600% the rate of CO2 over 20 years. Indeed, if just 3% of gas leaks at any point of the gas network – be it the drilling, the piping, the refining, the liquefaction, the shipping or the burning – gas becomes worse than coal.
3% is as minuscule a room-for-error as it sounds, and we should be rightly sceptical of anyone who claims gas to be cleaner than coal. Indeed, BP has admitted that the oil and gas industry leaks as much as 3.2% of its gas. Leading climate scientist Professor Will Steffen, formerly the director of the Australian National University’s Climate Change Institute, believes methane leakages could be as high as 9%. The uncertainty lies in the fact that Australia does not even bother to systematically measure methane emissions from its economy. The concentration of climate-cooking methane in our atmosphere has exploded in the past decade, and as the world’s largest exporter of LNG, Australia carries an under-recognized share of the blame. That makes proposing a “gas-fired recovery” just as ridiculous and reckless as proffering a “coal-fired recovery”.
There you have it, “recovery” now means burning taxpayer money on a bankrupt industry that no one needs, while boiling the planet in ways we don’t even bother to track.
It’s here I might acknowledge that the gas industry has made one very profitable investment. That being the $1,748,790 in political donations to the Coalition and Labor Party in the two years prior to the last federal election. Indeed, the proposed site of the gas-fired power station is owned by a self-described "walking ATM" to the Liberal Party. With the Covid Recovery Commission stacked with current gas executives, and the Labor Party in open civil war over whether to support fracking subsidies, corruption may be the one reserve Big Gas will never exhaust.
Bart Shteinman is a founding editor of TheClimatized.
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