Experts have called claims of an impending gas crisis a “rope-a-dope, billion-dollar bait-and-switch”, threatening exorbitant prices unless land-owners allow exploration.
Yesterday’s announcement from east coast gas companies guaranteeing supply demonstrates there never was any crisis — at least not one of availability.
“We have adequate supply,” said energy analyst Dr Liam Wagner, senior economics lecturer at Griffith University. “They’re not actually accessing what they have. It certainly boosts the price.”
And he should know. Wagner has provided advice and modelling on Australia’s gas market as a trader and quantitative analyst in the energy industry.
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“There has been a complete lack of co-ordination between state, federal governments and energy providers,” he told Crikey. “It’s a mess.”
Wagner says the states want to move away from being responsible for electricity, abdicating their responsibility to provide essential services.
“If you were to say ‘we simply don’t have supply so you’re going to have to pay exorbitant fees for gas unless you allow exploration’, it’s a rope-a-dope, billion-dollar chicken,” he said.
Gas companies began liquefied natural gas exports from eastern Australia a few years ago, but disappointing coal seam gas yields from Queensland and ambitious export contracts led companies to buy up South Australian and Victorian gas previously used by manufacturers, power stations and retailers.
Professor John Quiggin, Australian Research Council Laureate Fellow at the University of Queensland and board member of the Climate Change Authority, told Crikey the crisis emerged because of government policy and “blocked investment at every turn”.
“All of this is about culture war point scoring,” he said. “It has no notion of anything resembling policy.”
“Everyone knows that we will, sooner or later, need a carbon price. That means that no one will invest in, or spend substantial money maintaining a coal-fired power station.”
Quiggin says the gas problem could be addressed with an emissions intensity scheme, “which is what everyone except the government wants”.
“If we had a carbon price, gas would be more appealing than coal,” he said. “We’d have a lot more use of existing gas to protect our investment in gas-fired stations.”
Dr Richard Denniss, chief economist of the Australia Institute, told Crikey that for the gas industry, everything was going to plan.
“It took 10 years and $60 billion building three enormous gas liquification plants in Gladstone with the specific goal of increasing the domestic price to Asian levels,” he said.
Indeed, the industry is frustrated prices aren’t even higher. Just as it had succeeded in linking the Australian gas market to the world, global gas prices fell.
“The plan was always for manufacturers to pay even higher prices,” said Denniss. “Bizarrely, the unpopular high prices of gas is being used as an excuse to do more unpopular fracking even though the latter will do nothing to fix the former.”
The only way to reduce prices is to limit the amount of gas that can be exported, Denniss says, but that would impact the industry’s ability to recover the $60 billion they spent on export infrastructure.
“The low world gas price means they need their export plants working at full capacity year round to have any hope of recovering their investment,” he said.
“There is no case to build new gas-fired power stations now renewables and storage are so cheap. But if we used the gas plants we already have, electricity prices would be lower.”
Wagner told Crikey there is a potential crisis in the making — but not one of supply, rather the “potential withdrawal of capacity”.
“The whole incentive and market structure for the electricity market, at both wholesale and retail generation levels needs to be reassessed,” he said.
“Gas may be cleaner than coal, but remember there are all these other emissions created to get it to the power stations in the first place.”
“Additional ‘fugitive’ emissions from methane leakage in gas fields and transport aren’t understood well. The emission of methane (coal seam gas and natural gas) has a far greater effect on the environment than CO2 does — around 20 times more, in fact.”
Then there is the enormous environmental cost of drilling. “It is like figuratively fracking an Aero Bar where each bubble is filled with methane. I don’t think we understand the science well enough,” Wagner said.
The industrial process of turning gas into a power source is incredibly expensive.
“The cost of input to factors of production are double — if not triple — what gas and electricity used to be for energy,” Wagner said.
He says it is essential for Australians to understand the social benefits of the grid and advocates against privatisation. If anything he believes the government should “re-nationalise” the power grid.
“The grid has an enormous social benefit,” Wagner said. “As more people go ‘off-grid’ the price of energy increases significantly for renters, public housing residents and particularly those in lower socio-economic areas because they would be amongst the few still having to buy off the grid.”
Australians pay for the grid by the volume of energy pushed down power lines. Energy companies would have the same capital costs with fewer people using the grid, driving up prices, costing more for people who can afford it the least.
“It’s a Catch-22. Yes, we should all have solar panels, yes, we should have storage in the network, but it should all be connected so that panels and batteries can provide support for local communities.”
Wagner also says demand-side energy management is being stifled.
“Access to transmission rights are being constrained nationally,” he said.
The economist said providers should be able to hook their extension cable from wind or solar farms into the grid, but this is not currently occurring. “Australia has the highest solar irradiance in the world and we have less solar panels than Germany, it’s an absolute joke,” he said.
As for the challenge thrown down by Elon Musk over the weekend that he could supply all of South Australia with Tesla Powerwall generated batteries, Wagner say it would be a “massive win for the company and proof of concept”.
Pity we have to import a solution, given we’ve already developed — and exported — one of our own. CSIRO pioneered technology is keeping the lights on in the PJM (Pennsylvania New Jersey & Maryland market) in the north-east United States through a spinoff company called Ecoult.
“They’ve deployed boatloads of the stuff,” said Wagner. “It’s being bolted onto wind farms to smooth out power transmission and provides a form of spinning reserve.”
It is sad that renewable energy technology born in Australia is good enough for the American market, but not our own.