Boosting gas production a “false solution” to confected crisis: report

The federal government push to unlock more of Australia’s unconventional gas resources, and build massive pipelines to transport it, has been called out as a “false solution” to a non-existent problem, in a new report by the University of Melbourne’s Climate and Energy College.

Titled Short-Lived Gas Shortfall, the report – by authors Tim Forcey and Dylan McConnell – seeks to shine a light on what it sees as a confected gas supply crisis, and the knee-jerk responses to this from federal government, that do nothing to solve Australia’s very real crisis of sky-high gas prices.

Commissioned by the Wilderness Society and published on Thursday, the report traces the findings of the Australian Energy Market Operator’s latest annual gas report, which led it to forecast shortfalls in gas supply, starting in 18 months time.

Despite AEMO’s forecast shortfall being “very small” – it’s the “black sliver” illustrated in the pie chart below – and the modelling behind the forecast being less than robust, the warning was quickly cooked up as a “gas supply crisis” and eaten up by a federal government looking to justify its support of expensive new gas fields and pipelines in Australia’s north.

Indeed, by late April, an audibly excited Malcolm Turnbull told Brisbane radio that the government was considering using the Northern Australian Infrastructure Fund to subsidise gas pipelines in northern Australia, as well as underwriting the plans of Indian coal giant Adani to build a rail line from its proposed Carmichael mine.

But as the report’s authors – and a number of other analysts, including RenewEconomy’s David Leitch – have pointed out, there is not much to get excited about. Particularly considering AEMO itself has since revised its figures and more or less closed the gas supply gap it forecast.

“AEMO modelled a scenario that produced a tiny-tiny-nearly-imperceptible imbalance between forecast gas demand and supply,” explains Forcey.

“A lot of people right up to the Prime Minister got excited, more excited than they should have because AEMO’s gap has already disappeared. Just 11 days after AEMO called ‘shortfall’, AEMO then reduced their demand forecasts,” Forcey said.

“That gap everyone got excited about is already gone! It was a short-lived shortfall.”

Taking that into account, says the report, “AEMO’s suggested new pipelines and new (expensive) gas fields appear to be false ‘solutions’. …These massive fossil-energy infrastructure investments are not needed to address a supply shortfall that is very unlikely to occur.”

Not only that, but building new LNG pipelines and unlocking expensive new gas fields would do nothing to reduce the wholesale price of domestic gas, say Forcey and McConnell.

“Gas sources are expensive to produce, and in any case, in the ‘seller’s market’ that now prevails, domestic-wholesale gas prices are linked to international benchmarks,” the report says.

It points out that before LNG exports started from Gladstone in January 2015, eastern Australia had nearly the cheapest gas in the developed world at below $3 per gigajoule.

“But wholesale gas prices have tripled … to above $9/GJ now. Gas buyers are now saying suppliers are quoting $20/GJ and higher for long-term contracts.”

Meanwhile, it adds, Australian gas production has more than doubled from about 700PJ a year from before 2014 to 1900PJ in 2017.

Add to this the argument that gas-fired generation in the electricity sector is “inconsistent with Australia’s long term climate change objectives”, and possibly redundant in light of falling costs of renewable energy and storage technologies, and there is little left to recommend spending on gas.

Even its role as a ‘transition fuel’ is now in doubt, with AGL Energy becoming the latest major energy market player to declare that big baseload gas would be “skipped over”, as the NEM moved from ‘big coal’ to ‘big renewables.’

The “more useful message” for consumers, concludes the report, “is that the wholesale price of gas has increased significantly and is unlikely to return to the low prices previously known.

“Therefore, AEMO and governments should focus on informing Australian energy consumers – ranging from home occupants, to commercial building managers, to large industries – of the cost-effective actions they can take to respond to rising energy costs.”

The report also recommends that efforts to “reduce gas industry opacity” be pursued by Australian governments, “particularly around gas reserves, facility production capacity, future development plans, and LNG export contracts and commitments.

“Greater industry transparency would help to improve the usefulness of AEMO’s planning,” the report says.