Almost a year ago Scott Morrison promised us a “gas-led economic recovery”. The Greens screamed in protest. Many, including me, welcomed it. Others were sceptical. Sadly, the last group was closest to the mark.
Our Prime Minister was going to get more gas out of the ground and build desperately needed gas pipeline capacity to deliver it. He said he’d establish an “Australian Gas Hub” in Queensland and “make sure Australians are paying the right price for their gas”. He said he’d “avoid any supply shortfall in the gas market with new agreements with the three east coast LNG exporters, making sure our gas exports don’t cause higher prices at home”.
The Prime Minister has done none of these things.
Just ask our manufacturers, who copped a seven-fold increase in their gas prices last week. That’s job destroying for businesses which by necessity, have an exposure to the spot market. Our manufacturers can’t compete without reliable and affordable gas. They use it to generate heat and electricity. Importantly, many of them use gas as a key ingredient to the things they make, everything from fertilisers for our farmers, explosives for our miners, the PPE which protects us from Covid-19, through to most of the things we use in our households.
The main drivers of the recent gas price hike were temporary and once they’re addressed, the spot-market price will normalise. But the combination of a severe cold snap and the loss of two coal-fired generator units exposed the vulnerabilities of our gas supply network. When demand spiked, gas producers were unable to deliver more gas. While manufacturers were calling their bankers to ask for more money, government silence remained deafening.
There was a chorus of calls for the export “trigger” to be “pulled”. This was a reference to the emergency option of initiating the Australian Domestic Gas Security Mechanism (ADGSM). The federal government established the ADGSM in 2017 in the face of angry community reaction to reports that consumers in Asia were securing Australian gas cheaper than Australians can. Technically, the ADGSM allows the government to force gas exporters to redirect their product to domestic customers if a supply shortfall is emerging.
Four years on, it has never been used. The ADGSM was designed to fail – as last week’s events show – because the government’s heart was not in it. As last week’s prices grew from $8 to $56 per gigajoule, the government argued the ADGSM is a “supply mechanism”, not a “price mechanism”. While this is technically true, the last time I checked, supply, demand, and price were intrinsically linked. The ADGSM is a side-show.
The real issue in our gas market is supply, or lack of it. This is despite our enormous endowment of economically winnable gas. We have enough gas to both export our heads off and to meet local demand. Earning export income can never be a bad thing, export earnings underpin our economy. We just need to tap the resource and build our capacity to deliver it to our household and industrial consumers. To achieve this, we need national leadership.
Environmental activists continue to demonise gas, exploiting poor community understanding of both the product and the way we extract it. Government red and green tape remain a problem too, despite numerous promises to do something about them. The network of pipelines which deliver gas to market are ageing, full, and often monopolistic. Last week, pulling the ADGSM trigger would not have helped because the pipeline which transports the gas from Queensland to the southern markets was full. New pipelines will not only expand supply capacity, they’ll also bring competition to the market.
The first priority should be an additional Queensland-NSW link. It will deliver more gas at more competitive prices. New pipelines will also facilitate growth in the fledgling hydrogen sector. They can transport both gas and hydrogen and will undoubtedly do the latter in the future. Among other things, they’ll deliver hydrogen to the new Kurri Kurri gas generator which will be engineered to run on hydrogen too.
Which raises another subject. By building the Kurri plant without keeping its other gas promises, the Morrison government risks exacerbating the supply-demand imbalance problem which raised its ugly head last week. Overcoming opposition to gas extraction won’t be easy. But the industry enjoys strong support from a number of crucial state and territory leaders. We only need a little more courage and urgency. The pipeline solution is easier.
The commonwealth must follow expert advice and underwrite gas pipeline projects. That exercise need not cost taxpayers a cent, but it makes a world of difference for proponents chasing the finance needed.
Let’s put downward pressure on gas prices, for both industry and households. Let’s improve electricity reliability by putting more gas generators into the system. Let’s use the firming power they provide to put more renewable energy into the grid. Let’s convince our leaders that it’s time to lead.