Winston Churchill once said, “never let a good crisis go to waste”. The gas industry clearly agrees with him. It has taken a problem of its own making and turned it into a reason why Australians should ignore all their concerns about coal seam gas and let the industry drill wherever it likes. And if comments from our new federal Minister for Resources are to be believed, he has swallowed the industry’s spin hook, line and sinker.
Ian Macfarlane told a gas summit in Sydney on Thursday: ”Addressing the possibility of a gas shortage in New South Wales is one of the most important priorities.” But before you can solve a problem you first have to understand it.
Industry problem 1: In pursuing higher profits, the industry has constructed large gas export facilities near Gladstone in Queensland. The rest of the world is willing to pay much higher prices for gas than Australians on the east coast are currently paying. When the gas industry links the eastern Australian gas market to the world market, consumers will have to match the price producers will be paid if they sell their gas overseas. The result is likely to be up to a tripling of wholesale gas prices.
Industry problem 2: At a time when prices (and hence profits) are about to go up, new restrictions like the two-kilometre buffer zone around residential areas in NSW have been introduced. This is going to make it harder to take advantage of the new, more profitable price and extract more gas.
The industry’s “solution” is inspired. Blame the price rise on the new restrictions and claim that if governments get rid of the restrictions, that will put downward pressure on prices. Not only does the industry avoid the blame for any price rises, but it gets to redirect the public outcry as political pressure to remove the restrictions.
The only problem with the industry’s solution is that it does not stand up to even a small amount of scrutiny. Once the export facilities are up and running the price of gas for the east coast of Australia will be linked to the international price. The only thing that will change Australia’s gas price is changes in the international price.
Even if NSW removes all restrictions on CSG and allows gas wells all over Sydney and the rest of the state, this would only increase the world supply of gas by a relatively tiny amount — and would only lower the world price by the tiniest of amounts. More domestic production is not going to stop the wholesale gas price from tripling.
The industry has also claimed that the reason gas prices are going to rise is because all the cheap gas has been extracted and the only gas remaining will cost more to extract. It may be true that the cost of extracting gas is going to rise in the future, but that is not what is going to determine the price of gas. Again, the price of gas will be determined by the world price and that means the wholesale price could triple.
The industry has also attempted to link the restrictions in NSW to a future gas shortage, making alarmist claims about a gas “crisis”. The problem with this claim is that restrictions in NSW have nothing to do with the “shortage” of gas, which is not caused by a lack of supply but rather a massive increase in planned exports of gas. The industry is building facilities to send 1346 PJ of gas overseas. To put that in context, when these facilities are up and running they will almost triple world demand for Australian gas. A plan for a massive increase in exports seems like a strange thing to deal with a “shortage” of gas.
You have to admire the gas industry for its cunning in blaming the gas price rises that it created on the gas restrictions it wants to get rid of. The problem for our new Macfarlane is that the gas industry’s solution simply cannot solve the problem. Removing the restrictions on CSG extraction in NSW will not stop the wholesale price from tripling, nor will it stop the gas industry from exporting most of the east coast’s gas.
What the industry’s solution will do is put a lot of new CSG wells all over the state and potentially endanger the water supply and environment and put at risk productive farming land. Oh, and it will also make the gas industry a bucket load of extra profit.
*Matt Grudnoff is a senior economist at The Australia Institute and author of Cooking up a price rise
10 thoughts on “Macfarlane swallows spin from gas industry on drilling”
Mark Duffett
September 27, 2013 at 2:13 pmSo a senior economist says a lot of CSG wells will “potentially endanger the water supply and environment and put at risk productive farming land”. I guess that means that as a geophysicist I can say his arguments about gas price responses to supply and demand are bunk.
MJPC
September 27, 2013 at 3:35 pm“What the industry’s solution will do is put a lot of new CSG wells all over the state and potentially endanger the water supply and environment and put at risk productive farming land”
If what has happened in the US is any indication, the ‘potential’ goes to the ‘inevitably’. I got the impression from McFarlane news reports were that he wanted CSG mining in water catchment areas, which the NSW Government is against. I would suspect not because of environmental reasons, but electoral when the proletartiat see inflamable water coming from out of their taps.
Leave it in the ground, the risks are too great.
Dawson Colin
September 27, 2013 at 3:37 pmSure you could say price does not respond to supply and demand, as a geologist. What profession would I need to be if I wanted to point out the apocalypse that CSG has wrought in rural Queensland?
Owen Gary
September 27, 2013 at 3:59 pmIt’s an assault on water supplies around the planet, check where every major acquifer is in the world, and then check where all the CSG projects are?
You dont have to be a genius to figure it out. We are left with a choice temporary gas that will not be reserved for domestic supply and will be sold overseas or poisoned ground water that will end up in tributaries and water catchments. Less than 50% of the water and over 600+ chemicals pumped down these wells will not be returned to the surface (so it magically disappears into the netherworld)
Why do we need a (corporate payrolled scientist) to figure that out, at the end of the day it’s temporary gas or clean potable water??
Water the new gold of the future!!
Daveo11
September 27, 2013 at 4:02 pmThanks for a thought provoking article.
Mark Duffett (comment 1) what are the odds that anyone from the gas industry will rebut any claims written here?
Mark Duffett
September 27, 2013 at 6:24 pmDawson @ 3, you wouldn’t necessarily have to be any particular profession; what you would need to point out is an authoritative, peer-reviewed source. A good indication that a source is not authoritative is that it uses hyperbole like ‘apocalypse’.
Owen @ 4, ‘where’ is not just about longitude and latitude, it’s about lat, long and depth. Gas source formations are typically ten times the depth of aquifers, invariably with multiple impermeable layers separating them. Gas vs water is a false dichotomy.
Dave0111, I suspect not high, though they should.
Note I’m not necessarily disagreeing outright with Grudnoff (though weasel scare phrases like ‘potentially endanger’ do not inspire confidence). I’m just saying experts are dicing with their overall credibility when they make unsupported assertions outside their field. The main point of the article would have been just as well if not better made without the last paragraph.
Zeke
September 27, 2013 at 10:41 pmMark Duffett @ 6 “Gas source formations are typically ten times the depth of aquifers, invariably with multiple impermeable layers separating them. Gas vs water is a false dichotomy”
So, these “impermeable” layers are punctured by a long pipeline that has the potential to fail. Sounds to me like the gas industry no makes these layers no longer impermeable.
JohnB
September 28, 2013 at 8:37 amMark Duffett, the geologist, has clearly demonstrated that he is prepared to choose his facts in order to retain his professional(?) opinion.
That opinion flies in the face of the many reports which disprove his belief that gas and potable water supplies will remain separate, despite the intervening strata being punctuated by many drillholes, failure of only one of which will result in the situation which he pretends is impossible.
Why bother to study geology, Mark, if after doing so, you choose to deny or ignore the evidence which is before you?
This kind of blindness does nothing to enhance the reputation of geologists and their profession.
Owen Gary
September 28, 2013 at 11:22 pmMark [email protected] Most people are aware the drilling is done beneath the water table.
1.Gas will and does always leak and find its way into the water supply.
2.There is no science known that believes millions of gallons of chemically contaminated water pumped down a well in order to fracture it, returning only 50% of its water back to the surface will not contaminate the surrounding water???
I take it from your replies you havent heard of any leaks and contamination stories??
This process is criminally insane and the companies behind them should be booted out of the country with our politicians who are pushing this on their behalf thrown in the clink, whether your a greenie or not this is pure madness that will ensure a toxic future for our kids, that will render our arable land useless IT MUST BE STOPPED!!
Liamj
September 30, 2013 at 7:37 amAny rationalisation will do, no matter how flimsy, when one is already disposed to sell out. And Macfarlane is the perfect shill for Australias ‘loot it and leave’ class.