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Sep 26, 2017

Gas crisis: warning! warning! warning! Um, what comes next?

Gas companies should be careful - the Prime Minister really will use a gas reservation. He will, you know! Don't try him! And what does the competition regulator think of all this?

Bernard Keane — Politics Editor

Bernard Keane

Politics Editor

If only we could power the electricity grid with warnings. Back in mid-March, the Prime Minister warned gas exporters that the Commonwealth has “tremendous powers” including “the ability to control exports” which would be used if they didn’t provide sufficient gas for domestic consumption rather than exporting it. And then, dissatisfied with their response, in April, he announced a “Australian domestic gas security mechanism” a week after warning gar exporters he would intervene in the market. In June Malcolm Turnbull announced that he had “finalised tough new regulations in the gas sector.” Then, yesterday, there was considerable media speculation — indeed, there had been for several days — that he was was poised to “pull the trigger” and impose a gas reservation, having received a report from both the Australian Competition and Consumer Commission and the Australian Energy Market Operator that there would be a domestic gas shortfall in 2018 and 2019.

At just after 1pm yesterday, the Prime Minister, flanked by the Treasurer and Energy Minister Josh Frydenberg, strode into the media room in the government offices in Sydney and… issued yet another warning.

Turnbull could have just released the AEMO and ACCC reports, or Frydenberg and Morrison could have done it, but to deploy the authority of the office of the Prime Minister to issue yet another warning made little sense. Especially if you read the AEMO and ACCC reports. Both came to similar conclusions: the east coast faced a shortfall of at least 60-odd petajoules of gas next year, but in a worst case scenario over 100 PJ. Things only marginally improved in 2019, according to AEMO. These numbers, Turnbull noted, represented a significant worsening compared to preliminary advice he’d received.

But more to the point, the ACCC thought his repeated warnings hadn’t prompted enough action from gas companies. “While the LNG projects have taken some steps to supply more gas into the domestic market, it is unclear to the ACCC why we are not seeing more of it and why such significant volumes of LNG are forecast to be sold on the international LNG spot markets in 2018,” the report said. So, how many warnings do the companies need? 

The point of the media conference, instead, appeared to be to bag Labor. In a relatively short media conference — just 5 questions including one about Barnaby Joyce’s absence and one about space — the opposition was mentioned 13 times and 3 times we heard about “Blackout Bill” — which is now being mocked in the media and may soon end up disappearing into the graveyard of failed catchphrases. 

At least, unlike on electricity, the government actually has a policy while blaming Labor, even if it appears to consist of repeatedly warning that it really will use the Australian Domestic Gas Security Mechanism if the companies aren’t careful. That leads to some considerable irony. Last year, back before neoliberalism had died and there was no energy crisis, the Coalition had rather a different view of gas issues. Far from gas exports being a terrible threat that Labor had irresponsibly allowed, Frydenberg was lauding LNG exports. “We are now on the verge of becoming the world’s largest LNG exporter,” he boasted in June last year. “Importantly, our LNG export capacity will continue to ramp up,” he declared, in words Frydenberg might now regret. And the problem back then was that Labor was hampering exports

I call on the Labor Party to reconsider its attack on the successful policies that have attracted over $400 billion in investment into Australia’s resources and energy industry, which has helped make Australia the largest exporter of LNG in the world by 2019-20.

What was Labor’s attack? Its proposal for a domestic gas reservation. “It will kill investment, destroy jobs and ultimately lead to less gas supply,” Frydenberg warned. Now, technically, Labor’s east coast gas policy was a national interest test, not a reservation. But for Frydenberg, that was a distinction without a difference. “No one should be fooled by Chris Bowen when he tries to differentiate between a national interest test and a gas reservation policy. The ACCC couldn’t have been clearer when it stated in its report that gas reservation policies include “export controls…such as a national interest test”.

As yes, the ACCC. In its April 2016 inquiry into the east coast gas market, it expressed opposition to any gas reservation policy. Lest there be any doubt about its view, it did so under the heading Gas reservation policies should not be introduced. What does the ACCC think of that now? “There is some risk that the LNG projects could respond to this scenario by reducing their gas production rather than selling gas to domestic users. There are multiple factors feeding into the issue of insufficient gas supply in the East Coast Gas Market, and while it may be possible for export restrictions to address or mitigate a supply shortfall in 2018, further steps are likely to be necessary in the medium to long term to address the underlying problem of lack of gas supply and diversity of suppliers.”

It’s not just politicians who have tailored their views to the times.

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15 comments

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15 thoughts on “Gas crisis: warning! warning! warning! Um, what comes next?

  1. Roger Clifton

    There has been a remarkable silence on the subject of alternatives to gas. We might be able to dodge the issue this time around, but the clock is ticking.

    Sometime between now and the year 2100, we will be required by international law to shut down all of our gas fields and use something else. Before that milestone, we will need decades of R&D to create and install the alternatives to gas. The new sources of energy must supply more than just our current electricity, but also to convert all of our heating/cooling, cooking, petro-chemistry, furnaces, smelters and cement kilns. Then there’s the synthesis of fuels for all of the flying, sailing or rolling things that have not yet been electrified.

    There is something else we must not dodge. We have to provide an alternative backup to the renewables for when the wind doesn’t blow and the sun doesn’t shine.

    1. graybul

      Have heard a quiet whisper Roger; that Barnaby and ‘Nat(s)’ are stockpiling tallow as they move to corner market . . . . shhhh!

      1. Roger Clifton

        Tallow, eh? I know they traditionally made candles from tallow. If we had enough, we could fire a boiler. Yes, we could power the entire eastern grid, given enough tallow. And gas, of course.

        Thanks for the tip.

    2. Will

      You raise fair questions, Roger, but your constant refrain – Let’s go nuclear. Nuclear! – is as singularly uninspiring as the Olivia Newton-John ditty it’s reminiscent of. The thing that will see fossil fuels, if ever, outlawed by international law will be proper appreciation of the unacceptable cost of their ‘externalities’ (ala Gittens in yesterday’s SMH). That is, factor in the pollution, health, carbon costs, etc, and fossil fuels are already less than competitive.

      So, how do you put a price on the cost of all the actual and prospective externalities of nuclear fuel, both current and future, factoring adequately for accidental or intentional containment breach risk stretching out for tens or even hundreds of thousands of years? You simply can’t – you’re talking costs – material and social – too large to ever even contemplate.

      Of course our society must change to phase out fossil fuels. But that’s surely the smarter price to pay. The only source of nuclear fuel we should ever contemplate is one at least 150 million km away.

      1. Roger Clifton

        Will, my comment at the start of this thread pointed out our remarkable silence on the issue of replacing natural gas. Entirely replacing it.

        The silence is peculiarly Australian. It is as if our overwhelming abundance of gas (still undeveloped) has somehow sapped our will to give up this powerful stuff while we still can. Every conscientious discussion on climate change and its cures seems to contain the escape clause, “and gas”.

        Many seem to believe that we can run the smelter next door on the output from a modicum of solar panels, as long as we are allowed to back it up with a smidgen of gas. Just a smidgen. Not so much that we have to say it out loud, just enough to turn our fantasy into baseload. And since we are getting access to unlimited gas, we don’t have to waste too much money on the solar panels. We can continue business as usual, as long as we are using some renewables. And gas.

        “And gas”. That is the refrain, and it is a refrain that will condemn us when we are judged by our survivors. Meanwhile the measurements of change and the costings of cures are being done by the international community. We may one day wake up slowly to realise that the international ships blockading our LNG ports are of a type that has no funnels.

  2. zut alors

    Apart from tinkering with the Marriage Act John Howard also led the government which presided over Australia’s biggest gas export deal with China in 2002. The deal locked in the supply for 25 years….we have 10 years remaining.

    Perchance the Coalition has conveniently forgotten this stroke of export wizardry
    which compounds our current shortage. Or, as with everything, the 2002 deal was likely Labor’s fault ie: they somehow forced Howard, with his comfortable Coalition majority, to commit our LNG.

  3. old greybearded one

    Fair dinkum. Well do I remember the trumpeting about the gas deals. Surely it would be profitable to ship LNG top the south east given the higher prices. Is it possible th bastards have created this shortage to drive up prices, like they do with power?

    1. Duncan Gilbey

      Barnaby Joyce was interviewed on RN this morning and stated the gas companies are essentially exporting gas to themselves in some cases, then on-selling to the spot market.
      The government deserves an absolute kicking over this. The owners of the gas (us) are getting three fifths of five eighths of not very much while the resource companies are raking it in.

  4. Dog's Breakfast

    Ross Gittins on energy policy yesterday, and Peter Martin on the ‘gas shortage’ today, nail all the obfuscators and fools that led to this mess.

    What I would really like to see is export controls, price regulation (along the lines that no gas sold onshore can be a higher price than any existing export contracts), and then when they squeal, whinge and bitch about it and then offer the immortal words ‘sovereign risk’, immediately nationalise the bloody lot.

    If you think that sounds drastic and extreme, it is a mere portion of the drastic and extreme stupidity that led us here, the ultimate neoliberal wet dream.

  5. tqft

    From the ACCC report
    “The ability of gas to be transported from Queensland to the Southern States will depend on whether the LNG projects are able to gain access to pipeline capacity at reasonable prices. ”
    I would also ask whether the pipeline capacity actually exists. It is a substantial amount of gas that needs to be moved – 50 PJ/per annum is about 140 TJ/day – dead flat no peaks or troughs in usage – eg No electricity peaking and No winter demand spikes 😉
    See http://gasbb.com.au/ (this site is run by aemo) to get an idea of pipe sizes. Can the producers actually get that gas to Moomba for further distribution South without new pipe? Be worth asking aemo etc that question.
    For many years a Wallumbilla-Newcastle has been proposed but there never has been enough demand to justify the cost and pay for it. Such a pipeline goes nearish to Narribri and Pilliga on it’s way to Newcastle, past Liddel power station site.

  6. klewso

    “Danger. Danger. Budget emergency Will Robinson” … Lost in Space?

  7. AR

    Some just seem to be perfect for ignominy and in the case of the Rodent, whether xenophobia, pissing away the surplus structurally, those whizz gas deals and his crowning polished turd achievement, banjaxing the Marriage Act, “the evil he did lives on long after him”.
    I’m going to be really, rilly pissed when he finally dies if there is a state funeral, a’la Packer.

  8. klewso

    Is this “Don Quixote” Turnbull’s “game changer”?
    Tilting at “gas companies”, Shorten/Labor and the states – for ratings?
    ….. The states on behalf of those companies – to try to get the states to access more land for the companies to exploit so that they can extract more gas, to export greater volumes; to make up for their short-sighted bum deals, on which they developed their business model, before prices sank below the water table?

  9. Wallywonga

    I think the series Utopia was less successful this time around, because reality has become more blackly funny than fiction.
    There is a supposed crisis in gas supply looming, that I have been reading and hearing warnings about for 12 months, with predicted dire short term impact on many businesses.
    The govt’s sole economic strategy is that business expansion and success will save our economy.
    Turnbull huffs and puffs at the LPG companies with as much impact as a centenarian blowing out birthday candles.
    Am I missing something?

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