Opinion Pieces

Australia is the Saudi Araba of natural gas, yet we will shortly need to import gas.

June 24, 2019

Gas prices must come down, but gas reserves are not the answer.

This week, I received a letter from AGL telling me that our family’s gas bill has increased by eight per cent.  At the same time, Australia’s wholesale price of gas increased from around $10 a gigajoule to $12 a gigajoule. This may not seem like much, but remember that in 2014 prices were around $3 a gigajoule. 

The cost of these elevated prices go way beyond consumers paying more for gas.  High prices act as a constraint on manufacturing and mining investment, add pressure to cost of living and drive up electricity prices. And while the Big Stick legislation has significantly reduced prices from their 2017 peak, supply constraints continue. 

Some think an obvious solution to all of this is a domestic gas reserve.  After all, WA has one and they have the cheapest gas prices in the country; and it is not as though Australia is not producing enough gas.  In 2010, Australia exported about 1,000 PetaJoule (PJ) of LNG earning $9.5 billion; by 2018 it was over 3,600 PJ earning nearly $43 billion in export earnings.  So why not divert some of this gas to our domestic market if the costs of high gas prices are so far reaching?

There is an old saying that smart people learn from their mistakes, but it is the really clever ones who learn from other people’s mistakes.  Domestic gas reserves were first implemented during the energy crisis of the 1970s and, they made the problem worse.  The ultimate in virtue signalling – sounds good, does bad. 

According to the University of WA economist Kelly Neill, WA domestic gas reservation policy costs about $410m a year.  It materially impacts the incentives for exploration for new reserves thereby reducing supply in the long term. Not to mention the unintended disincentives it creates, like when the WA government opposed the construction of the transcontinental pipeline because it would undermine its reservation scheme.  As Margaret Hall, Head of Energy for the Seven Group pointed out: “The core issue is getting more gas into the market.” 

The big gas suppliers have not always done the right thing. That is why this government introduced the domestic gas security mechanism.

However, The Fraser Institute, a Think Tank that surveys people’s impression of governance issues for investment in different jurisdictions recently ranked Victoria in line with Libya and Iraq. Think about that for a moment: international mining investors think the civil wars of Iraq and Libya are about as dangerous as investing in Victoria. 

Higher prices are meant to encourage more supply, but that is not happening.  The ACCC points to the ongoing campaign by some states to constrain supply as creating the problem.

Instead of encouraging more supply into the market the Victorian Government is doing the opposite.  Its production fell from 430 PJ in 2017 to under 350 PJ in 2018.  This is simply an attempt to appeal to inner city Green voters.  As no less than 15 scientific reports have made clear there is no science that backs up the substantive claims made by green lobbyists.  Barack Obama encouraged the US gas sector, believing it to be the best way to reduce greenhouse gas emissions both there and around the world. 

Jason Falinski MP

The NSW Government has only been slightly better. It has approved the 100 PJ Port Kembla import terminal, and after an eight year “go slow” of the Narrabri approval process things now appear to be moving. But even still, it will be ten years since the beginning of this project before it produces any gas.

In the middle of a drought regional areas are looking for ways to diversify their local economies protecting local jobs and businesses.  All of which is being put at risk by taxpayer funded lobby groups that demand we believe in the science of climate change, but are only too happy to ignore the science of innovative gas extraction. 

Australia is the Saudi Araba of natural gas, yet we will shortly need to import gas. 

Driving down the price of gas is a positive for wage and job growth, helps hard working families, diversifies the economiesof country towns, and reduces global greenhouse gas emissions. We need to listen to what expert agencies such as the AER, AEMO ACCC and the Productivity Commission are all saying,  and none of them are talking about domestic gas reserves.  

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