Why NSW is a linchpin state as 'the markets' decide the future of gas | RenewEconomy

Why NSW is a linchpin state as ‘the markets’ decide the future of gas

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Trade, investment and divestment decisions, the province of the markets, will ultimately reshape the energy landscape.

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gas–imagesThe Australian Government professes a let-the-markets-decide guiding principle in its new national energy blueprint, the Energy White Paper 2015. When it comes to Australia’s fossil fuel mainstays of coal and natural gas, however, will that amount to the old Chinese curse of ‘be careful what you wish for’?

Trade, investment and divestment decisions, the province of the markets, will ultimately reshape the energy landscape. As will the market-driven march of better, cleaner and smarter energy technologies. Official policy less so, and this means very uncertain market consequences for coal and gas.

When the Total Environment Centre’s business sustainability program, Green Capital, began preparing for its current ‘What About Gas?’ forum series in mid-2014 it was a very different market scenario for gas especially. To appreciate how different, it’s important to take a broad view of what constitutes the ‘market forces’ that apply.

Traditionally energy economists and policy-makers have been mono-dimensional, locked in the supply and demand equation and its price and security implications. But one of the benefits of adopting sustainability principles and systems thinking is the ability to see and incorporate diverse ‘market forces’ at work. These are social, environmental, ethical, scientific, technological and political as well as financial.

In the past six months international market prices for gas have been dragged down by plunging oil prices and an emerging supply glut. Gas companies have been forced into big financial write-downs, job shedding, capital spending reductions and face increased takeover activity. Witness Royal Dutch Shell’s $90 billion swallowing of BG Group, with major implications for coal seam gas (CSG) production and exports in Queensland and potential flow-through up and down the eastern seaboard. That’s mainly traditional supply and demand stuff.

During the same period governments have changed in Victoria and Queensland. A re-elected Baird Coalition Government in NSW received a strong warning from voters, especially in rural and regional areas, that it needs to listen to the community on CSG. Tasmania, Victoria and NSW have all extended restrictions or moratoriums on onshore gas exploration or production. The gas industry has faced a series of environmental controversies at NSW sites in particular. Community-based campaigns like Lock The Gate, Land Water Future and the Better Planning Network have been building strength.

Other relevant ‘market forces’ are the lungs of people living in polluted big cities in China and India, which may be good for gas and bad for coal; falling prices for solar panels and battery storage which are fuelling the international advance of renewable energy (except in Australia); energy efficiency innovation which is advantaging electric appliances over gas ones in both cost and carbon emission terms; global climate policy which comes to a diplomatic crunch point in Paris this year; superannuation and other investors switching their assets to cleaner alternatives; and much more.

Thus the ‘market forces’ that affect our energy future are a most diverse and complex cocktail. On deeper reading, the latest Energy White Paper unintentionally highlights a large dose of huffing-and-puffing powerlessness at the federal level of government in Australia when it comes to energy policy. National energy policy-makers are caught between the might of the international energy markets and the on-the-ground reality that most of the development decisions sit with state and territory governments.

The Energy White Paper also seeks to further mask the Australian Government’s weakness by all but ignoring one of the biggest international challenges for energy policy and markets alike, climate change. Energy policy devoid of sound climate policy reflects failure by successive governments to achieve some measure of strategic unity, a policy dystopia.

This relative inability for Australian officialdom to control the energy agenda is most interesting in regard to the future role for gas in the fuel mix. To many it is clear that thermal coal for energy generation is now in structural decline, and clean technologies like wind, solar and energy efficiency are on the rise. Gas, however, is more ambiguous and still may have a substantial bridging role in an orderly but accelerated transition to a low-carbon economy.

The Australian Government desperately wants more development of gas fields and exports, seeing an enduring economic windfall for Australia. At the economic level the markets may yet prove them right over the longer-term, or not. But the Energy White Paper sounds almost whiney in bemoaning delays to this cherished development dream: ‘Some states have unnecessary regulatory and planning barriers and moratoriums that prevent much-needed supply.’

Amid significant chaos in the market broadly defined, NSW is now the linchpin state for the future of ‘unconventional’ natural gas exploration and production in Australia, from coal seams in the immediate future and longer term from vast shale deposits.

Decisions to be made over the next one or two years by the second-term Baird Coalition Government are likely to have a critical flow-on effect to other jurisdictions that are wrestling with gas policy in the face of deep community resistance. Where will onshore gas drilling be allowed, using what techniques, under what planning conditions, and with whose say-so in regard to access to land? And also what gas will be available to the domestic market and what will flow to exports?

In Queensland, where the vast majority of Australian CSG reserves are located, the unconventional gas industry already is deeply embedded. This includes a $70 billion investment in three of the world’s first ‘LNG from CSG’ export plants that are all opening in 2015. Other states, meanwhile, look confused and directionless on the future of gas and inconsistent policy outcomes are likely.

NSW has a lot less onshore gas potential than Queensland, but apparently a lot more than Victoria. It is the epicentre of community angst about all fossil fuel expansion, coal and gas, with a focus on the implications for the integrity of agricultural lands, water resources, biodiversity and human health and amenity versus promised economic benefits of jobs and investment.

NSW does have leadership form. It was nearly four decades ago in 1979 that NSW first revolutionised environmental planning law in Australia, creating a modern planning code, the EPA, the Land and Environment Court and giving rise to the community-based Environmental Defenders Office.

Getting gas right for NSW is a big job for two Ministers. The new NSW Minister for Planning Rob Stokes, formerly the progressive Environment Minister and an environmental planning lawyer by profession. And the ongoing Minister for Resources and Energy, Anthony Roberts. Depending on what they come up with, they may yet have more impact on national energy policy for gas at least than their federal counterparts appear to wield.

*Murray Hogarth is senior adviser to Green Capital, which is hosting the ‘What About Gas?’ business breakfast series – Sydney April 22 www.whataboutgas.com 

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