Victoria’s days of gas dependence are fading

The Victorian government recently announced impending legislation that will ban unconventional onshore gas development. Gas users are concerned this ban will cause gas prices to continue rising. With these concerns in mind, this article reviews the role of gas in this Victoria.

Ever since Esso and BHP’s 1965 Barracouta gas field discovery in Bass Strait, Victorians have put gas to good use in their homes and other buildings, in industry, and in electricity-generating power stations. Through the 1970’s, Bass Strait oil and gas discoveries continued. Encountering gas can sometimes be a nuisance for oil producers, however in Victoria’s case prudent regulators ensured that excess supplies of Bass Strait gas weren’t simply burned offshore, but rather were preserved for a future generation or two.

From the 1970’s and into this century, Victorian gas users continued to enjoy access to some of the cheapest gas in the developed world, even as oil prices skyrocketed. Unlike oil, which can be easily loaded onto a ship and traded around the world, Victorian gas couldn’t physically leave the country. Though the Victorian gas industry built interstate pipelines and developed sales in Tasmania, South Australia, New South Wales, and all the way to Queensland, a buyer’s market remained.

In more recent years, gas developers identified huge deposits of coal seam gas (CSG) in Queensland. Unfortunately for those developers, CSG does not come with any high-value crude oil, isn’t cheap to produce, and there was no domestic gas market available to match the scale of these deposits. Nevertheless, companies such as Santos and Origin, along with overseas investors, spent more than $60 billion on facilities in Gladstone Queensland to liquefy CSG at minus 160 degrees Celsius so that their gas, like oil, could be loaded on to a ship and sold overseas. Nearly overnight, eastern Australia’s energy world changed as the decades-old gas-buyer’s market switched to the advantage of the gas seller.

Now, gas buyers across eastern Australia, whether they are wholesalers such as AGL or ordinary residential gas users, are feeling the pinch. Gas-sellers hold the whip hand and can argue that gas can be had only at higher prices. Otherwise their gas, like oil, will go overseas.

One argument for opening up Victoria to onshore gas development is that surely any new development will drive gas prices back down. However this idea is debatable because the heydays of the 1960’s are gone. New gas supplies will inevitably be more expensive for developers to produce. And if the economics are right, gas will continue to flow north from Victoria to ensure the export plants in Queensland have all the gas they need to meet overseas contractual supply commitments.

Fortunately, there is some good news for “rusted-on” Victorian gas users. Our research confirmed that renewable-energy-harvesting heat pumps, often known in Australia as reverse-cycle air conditioners, can heat homes and other buildings at a fraction of the cost of burning gas. In Australia’s various but relatively-mild climate zones, heat pumps can also be used to economically heat water. With the inclusion of an induction cooktop, energy savvy Victorians are opting to renovate and build new homes that have no connection to the gas grid whatsoever.

This transition is known as “economic fuel-switching”. It comes with the benefit of saying good-bye to the gas bill forever. An all-electric home is an especially good fit for those looking to reap the greatest benefit from their own rooftop solar electricity or to power their home with 100% renewable energy.

Indeed, across all sectors, the volume of gas used in eastern Australia peaked four years ago in 2012. With increasing competition from wind, solar and energy efficiency measures and with no carbon price to favour gas over coal, very little gas is being used to generate electricity in power stations such as those found in Newport or Laverton. Some industries may also respond to higher gas prices by implementing efficiency measures or switching to electric alternatives.

The Australian Energy Market Operator (AEMO), responsible for planning aspects of Australia’s energy systems, forecasts that gas consumption in eastern Australia will continue to go down. Where previously AEMO planners were concerned that exporting gas overseas might lead to local shortages, with gas demand now falling AEMO has withdrawn those concerns.

Those that wish to secure a supply of gas, can, in a sense, recover it from homes and other buildings all over Australia as those buildings are sealed from draughts, better insulated to retain heat, and warmed by renewable-energy-harvesting heat pumps.

Like coal, gas was once seen as a strategic economic advantage for Victoria. However local gas prices are now linked to the export market. Fortunately, many gas users feeling the pinch of rising prices can turn to cheaper alternatives.

Tim Forcey is an Energy Advisor at the University of Melbourne Energy Institute.