19 January 2013
Gas boom won't keep the home fires burning
The Australian
AUSTRALIA is about to become an extreme case of the paradox of plenty - a gas-rich country that cannot supply its domestic needs.
And the response so far from state and federal government is policy paralysis.
When the three industrial behemoths now under construction on Queensland's Curtis Island start exporting liquefied natural gas over the next two years, Australia's earnings from gas exports will more than double.
But the prices paid by domestic consumers are forecast to either match this - or triple - as the plants hoover up all the available supply.
For millions of east coast gas consumers, it may even be a case of cold showers and camp ovens because there will be no gas available at any price.
The $60 billion investment in these plants and their related infrastructure has created thousands of new jobs, but for businesses and households on the eastern seaboard they also mean heightened energy insecurity, with gas supply contracts expiring just as the new exports begin.
AGL chief executive Michael Fraser warned last April that these plants would operate "like a giant vacuum cleaner for the east coast gas market", but since then state and federal governments have stood by and watched the train wreck unfold.
Major industrial users report they are unable to secure new contracts with major producers because all available gas is contracted for export markets.
Brickworks managing director Lindsay Partridge, who runs 40 plants across the nation, told Inquirer the company did not have gas supplies for its east coast operations from 2015, and he called on governments to intervene.
"If there's no gas available for domestic consumption the governments - state and federal - will have to step in and make it available, otherwise it will be political suicide not to. It is the same as if they failed to supply electricity. In two years time they will have no choice," Partridge says.
Another major industrial user, who asked not to be named, has been unable to secure new contracts with domestic producers Santos and Origin for the past two years.
The effects of Australia's looming gas crisis will intensify the wrenching structural changes Australia is already experiencing as a result of the mining boom.
The latest round of job shedding announced this week by Boral and Bluescope Steel reflects the reality of life in the slow lane of the two-speed economy, where a combination of the high dollar and an investment drought in non-mining sectors is the main cause of woe.
But the prospect of rapidly rising energy prices adds a whole new dimension to Australia's manufacturing economy.
The likely price impact would be far greater than the carbon tax and it would skew local energy supply towards cheaper, but carbon-intensive, coal. Completely at odds with federal government policy.
To address this vexed problem, Labor has adopted a strictly hands-off policy, believing market forces will come to the rescue. Ironically, the Coalition supports a domestic reservation policy as practised in Western Australia, the US and several other gas-rich countries. This means requiring industry to supply a set share of available gas resources to the local market.
Coalition governments in NSW and Queensland are yet to develop policies on these issues, which are a source of considerable disquiet among some of their federal colleagues.
Labor also has its dissidents, including Australian Workers Union national secretary Paul Howes and several federal MPs who called for a reservation policy in a caucus committee report on the mining boom.
After being pressurised and frozen at minus 160C, the methane gas extracted from a vast network of pipelines stretching across 20,000 sq km of southeast Queensland will be shipped from Curtis Island, near Gladstone, through the Great Barrier Reef Marine Park to export markets in Asia.
Australia's annual exports of LNG, mainly from Woodside's North West Shelf fields, amount to about 20 million tonnes or 50 per cent of total gas production. But within the next two years production from the Queensland plants will more than double.
When new LNG plants in Western Australia are added in, annual export volumes are on track to increase fourfold over the course of this decade to more than 80 million tonnes. Cost blowouts for LNG developments in Queensland and Western Australia will intensify the supply pressures and may make resource companies reluctant to develop the nation's gas reserves in the future.
And a further setback for the industry is the move by a coalition of green groups in the US to mount a legal challenge against funding for Australian projects by the government-owned EXIM Bank.
The Centre for Biological Diversity says EXIM failed to take into account the effect of the plants on threatened species such as dugongs and turtles, contrary to US environmental laws.
However, Resources Minister Martin Ferguson is confident market forces will prevail. He says Australia's abundant reserves of shale gas can be brought to the market at a far lower cost than building a new LNG plant, but the question is one of timing.
"Shale gas adds a new dimension," says Ferguson. "Small reserves of shale can be brought on at far smaller cost than an LNG plant. That can change the nature of the supply debate.
"The current glut in the US goes back to the fact that the investment stream occurred when prices were $11 a gigajoule. With prices now at $2-$3, gas is being flared."
Asked whether these new supplies might also be shipped offshore, he said: "You are going to get a combination of export LNG plus domestic."