Macfarlane: Flood market with gas, but not wind or solar

The renewable energy industry is reeling from what it describes as blatant hypocrisy from Industry Minister Ian Macfarlane, who has called for the eastern states energy market to be “flooded with gas”, at the same time as calling for wind and solar to be curtailed.

Macfarlane was quoted in The Australian on Tuesday as saying that the eastern Australia gas market needs to be “flooded with gas” to bring prices down. Chief among his ideas are for more coal seam gas wells in NSW, and possibly a pipeline linking the eastern states with the large gas fields in northern Australia.

The renewable energy industry is dumbfounded, however, that Macfarlane should be arguing for more gas to bring prices down, at the same time as arguing for the renewable energy target to be cut so that the price of electricity sold by coal and gas fired generators could rise.

The electricity market is currently flooded with excess capacity – around 9,000MW according to Macfarlane this week – which has brought wholesale electricity prices down to record lows. The Warburton Review effectively concludes that cutting, or halting, the 41,000GWh renewable energy target would reduce the amount of capacity to be installed and allow electricity prices to rise, boosting profits for coal fired generators.

But while Macfarlane is arguing for supply to one market to be restricted to boost prices, he is pushing for supply in another market to be flooded to cut prices.

However, the ability of more gas production to actually make a meaningful impact is the subject of much debate. The only reason the gas price has risen – and that coal seam gas wells have been drilled – is the prospect of export parity prices as the gas is exported through the giant LNG terminals in Queensland.

Many analysts have argued that domestic prices were too low to support new development, and the proliferation of CSG only occurred once the prospect of accessing international markets and prices provided adequate economic incentive.

Even Origin Energy CEO Grant King has conceded that there is, now, no such thing as “cheap” gas.

“I can tell you that in the absence of CSG, gas prices in east Australia would be what they are going to be, because the gas would be pulled from pipelines from areas that have alternatives to export LNG,” he told RenewEconomy in an interview last year.

“So one of the premises that is flawed is that there was going to be cheap gas. What’s made the CSG industry viable is the LNG industry, because customers of the LNG industry is willing to pay a price to massively expand the resource base, and help grow the industry in Australia. You have to ask if there is any such thing as cheap gas going forward.”

Still, the argument from the Abbott government, while seeking to contain the development of wind and solar, has been to try and extract every tonne of coal, as Abbott has suggested, and every molecule of gas, as Macfarlane has suggested, while they can.

Even Environment Minister Greg Hunt was in on the act last week, saying in an Adelaide radio interview:  “The answer has to be that you can’t just leave it (gas) in the ground. If it can be safely extracted then that’s the thing which can reduce the pressure on domestic gas prices, whether it’s for gas consumption or electricity generation.”

Meanwhile, Macfarlane told a CEDA luncheon in Sydney on Wednesday that the Warburton review was a report to government not from government. One wonders then, why the government chose not to follow the statutory rules and have the Climate Change Authority conduct the review, rather than appointing a hand-picked panel from the Prime Minister’s office led by climate denier Dick Warburton.