Almost immediately after Resources Minister Madeleine King unveiled her plans for an expansion of our gas industry, the sniping began, the battle lines already drawn.
On one side is the federal government, with seemingly conflicting ideals of reducing carbon emissions while kickstarting a rebuild of our manufacturing sector, arguing that more gas is needed for the energy transition.
And on the other are the Greens and other environmental groups, forcefully advocating to keep natural gas in the ground.
But given natural gas will be needed as a transition to green energy, the politicking is merely a distraction, a sideshow to the real conflict that has plagued our economy for more than a decade and which can be distilled into a simple question.
Instead of worrying about keeping gas in the ground, can we keep enough of what we produce in the country?
What’s left of our energy intensive industry is groaning under the weight of exorbitant gas prices.
If history is any guide, Australian governments have repeatedly emerged bruised from encounters with multinational energy exporters.
A brief history of gas export punch-ups
The Turnbull, Morrison and Albanese governments have all been forced to confront the gas industry head on during the past six years in an effort to shore up domestic gas supplies and keep costs down.
The Australian Competition and Consumer Commission has delivered a series of scathing reports on the behaviour of our gas exporters and the concentration of market power that they’ve amassed.
On each occasion, the gas industry has brushed aside the criticisms, arguing the problem is that too many states have restricted access to abundant gas reserves, that more supply will ensure lower prices.
But it’s an argument that ignores the bleeding obvious. Why, if we are already the world’s biggest seaborne exporter of liquefied natural gas, are we paying more than consumers in countries to which we export?
The price disparity at times has been so great that it is now economically feasible to buy Australian LNG in Japan and ship it all the way back home. In fact, the first LNG import terminal is nearing completion in Port Kembla.
Where does all our gas go?
As the resources minister pointed out in her Future Gas Strategy, Australia now provides 20 per cent of the world’s gas needs. And yet, we are plagued by domestic shortages.
Japan is our biggest export market, taking around 40 per cent of all shipments. China is the second biggest buyer, taking a little under a quarter, with South Korea and Taiwan accounting for most of the rest.
The domestic shortfalls are a result of government mistakes and industry overreach.
The federal and Queensland governments failed to put into place adequate safeguards to ensure supply when the global gas giants began to exploit the new coal seam gas fields. And the exporters committed more gas to exports than they could access after they ran into extraction issues.
For the first five years, the entire industry was a commercial disaster, with billions in investment being written off, as Australians watched their gas prices treble.
That all changed when Vladimir Putin’s invasion of Ukraine sent energy prices soaring, delivering windfall gains to the exporters. But again, it has come at a cost to the nation.
Fuelling up inflation
Gas is a crucial element in electricity generation. Given it is the fuel used during energy shortages – with its ability to quickly fire up and turn off – it determines the ultimate price of power.
Household finances and industrial users have been smashed in recent years after being subjected to massive price increases as a direct result of the escalation of global gas prices.
That, in turn, has been a major driver of our inflation problem, underpinning the Reserve Bank’s decisions to raise interest rates on 13 occasions.
So acute were the resulting problems in the electricity market, that the regulator two years ago, in an unprecedented action, was forced to suspend trading.
Both the Turnbull and Morrison governments threatened the gas exporters with export controls in an effort to maintain adequate supplies for the Australian east coast.
The Albanese government, meanwhile, was forced to impose a $12 a gigajoule emergency price cap, which unleashed a torrent of accusations from the industry about government interference in a “free market”.
The price caps ended last December. But according to the ACCC, despite all this intervention, Australia will be facing gas shortages from 2027 on.
More gas? Or more at home?
Despite our status as a major supplier, Australia has lagged competitors such as Qatar and Norway when it comes to generating government revenue.
Next week’s federal budget should outline the extent to which the Petroleum Resources Rent Tax captured some of the windfall gains from the recent export bonanza that plumped the profits of each of the major consortia. But in the past, the PRRT has failed dismally when it comes to tax collection.
Industrial users, meanwhile, have been amongst the hardest hit by soaring gas prices and shortages. Some industries have no alternative but to use expensive gas – until hydrogen can be produced at low enough cost – causing a spate of collapses such as plastics group Qenos.
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Only in Western Australia are gas producers subject to any kind of export control. The state’s reservation policy ensures that all new offshore fields must allocate 10 per cent of produced gas to the domestic market. Onshore gas supplies are dedicated to the domestic market.
That’s ensured, not just an adequate supply of gas, but lower prices for business and consumers.
If the federal government is serious about resuscitating Australian manufacturing and minerals processing, it will need to be accompanied by a policy that ensures adequate supplies of low-cost energy.
In the short term, that will require a serious overhaul of the east coast gas export industry and not merely a push to exploit more gas fields.