An inquiry where the answers are already known

November 10th, 2014

It’s a well-known fact that New South Wales only produces around 5 percent of the gas needed to fuel homes and businesses across the State, with the remainder coming from interstate gas reserves.

It’s equally well-known that New South Wales is facing gas shortages as a result of the forthcoming expiry of existing wholesale supply contracts.

As reported earlier this year, a gas supply cliff is looming:

NSW has a number of gas supply contracts maturing from 2016-2018. At any other time in history, a cliff-edge in NSW contracted gas supply would be solved through contractual renegotiations between gas producers, resellers and industrial consumers. However, unlike other states which produce surplus gas, NSW produces only five percent of its own gas. As Queensland’s Liquefied Natural Gas (LNG) projects simultaneously come online, much of the existing domestic gas contracts from Queensland and South Australia are also scheduled to expire, thus creating a gas supply cliff in NSW.”

Ahead of the expected release of the NSW Government’s gas industry policy and the response to the NSW Chief Scientist’s landmark report into the State’s Coal Seam Gas industry, the NSW Upper House has decided to hold an inquiry into the ‘availability of supply and the cost of gas and liquid fuels’.

The Select Committee will be chaired by Shooters Party MLC Robert Borsak, with Greens MLC and strident anti-CSG campaigner Jeremy Buckingham as his deputy.

The terms of reference for the Inquiry make for interesting reading:

1) That this House notes ongoing concerns regarding the availability of supply and the cost of gas and liquid fuels in New South Wales. (2) That a select committee be established to inquire into and report on gas and liquid fuels supply, cost and availability in New South Wales, and in particular:

(a) the factors affecting the supply, demand and cost of natural gas and liquid fuels in New South Wales;

(b) the impact of tight supply and increasing cost of natural gas and liquid fuels on New South Wales consumers, including manufacturing, agriculture, energy production, small business, public services and household consumers;

(c) the commercial conduct of gas producers and the operation of the international and domestic gas markets;

(d) the adequacy of Commonwealth and State cooperation in gas market regulation;

(e) the possible regulatory responses to protect New South Wales gas consumers from adverse market fluctuations and failures;

(f) the impact of closures of liquid fuel refineries and storages in New South Wales; and

(g) any other related matter.

While points (a) to (f) in the terms of reference look fairly straightforward, it is the inclusion of the ‘any other related matter’ that threatens to turn this inquiry into a sideshow of monumental proportions, giving industry opponents the opportunity to make unsubstantiated, inexplicable claims about the industry and give voice to any number of conspiracy theories.

The fact that the committee is due to report one month ahead of the 2015 NSW State Election is no coincidence either – the challenge will be for the Committee to make it an inquiry based on fact and evidence rather than allowing the process to be hijacked by opponents of responsible development of natural gas resources in the lead up to the election.

It’s not the first time that the NSW Parliament has examined the State’s gas industry – an Upper House Committee examined the CSG industry in 2011, while in 2013 the Lower House State and Regional Development Committee initiated an inquiry into downstream gas supply and availability.

That inquiry, which is yet to report, took public submissions from a wide cross section of the community.

They make for interesting reading – and highlight the propensity of industry opponents to try and steer debate in a direction to suit their own purposes.

For example, even though the terms of reference relate to downstream supply availability and network infrastructure, Lock the Gate submitted that:

“Even though large areas of NSW would be covered in CSG infrastructure, with enormous negative impacts on agriculture, water and the environment, the increased CSG mining would be very unlikely to result in secure a gas supply for NSW, or keep gas prices down.”

It’s almost certain that Lock the Gate will use the cut and paste method to build their submission for the current inquiry – making the same claims without any evidence or backing.

If the Committee is looking for a good place to start its examination of the State’s gas supply and price issues, they just need to catch a lift to Level 7 at State Parliament and check in with the NSW Parliamentary Library’s Research Service, which recently released a comprehensive briefing paper titled A tightening gas market: supply, demand and price outlook for NSW.

Among other things, the paper finds that:

“New South Wales was the fourth highest consumer of natural gas in Australia in 2012-13 at 162 petajoules (PJ). Growth in natural gas consumption has remained relatively subdued in New South Wales, increasing by 13 per cent between 2002-03 and 2012-13.

On a per capita basis, New South Wales is the lowest consumer of natural gas (at 21.8 GJ/annum in 2012-13) when compared with the other States and the Northern Territory. Western Australia had the highest per capita consumption in 2012-13 at 289 GJ/annum.

The manufacturing (50 per cent in 2012-13), electricity generation (25 per cent) and residential (16 per cent) sectors account for the majority of gas consumption in New South Wales; although consumption in the manufacturing sector, in absolute terms and as a proportion of State consumption, has been declining over the last decade.

The influence of Queensland LNG developments on demand and supply conditions in the eastern market is expected to be significant because of the scale of the projects being developed which will demand around 1500 PJ annually; exceeding the combined capacity of existing LNG projects in other Australian markets.”

And goes on to make the important point that:

“Coal seam gas (CSG) developments in New South Wales have the potential to supply more than half of current New South Wales domestic demand within the next five years. The CSG industry is regulated by the Office of Coal Seam Gas and the Environment Protection Authority; recent regulatory reforms, including the Strategic Regional Land Use Policy, have slowed the expansion of the industry in New South Wales.”

On the looming and likely shortages of supply for New South Wales, the paper says:

“If production in Queensland and South Australia is prioritised for export, there will be flow-on effects to New South Wales with potential daily shortfalls of 50 to 100 TJ over winter peak demand days from 2018. BREE and the Department of Industry (2014) recommended that unnecessary impediments to supply be removed to overcome any potential shortfalls in the coming years.”

The best way to address the expected shortfall is to accelerate the development of extensive gas reserves that exist in New South Wales.

Let’s hope that the Borsak/Buckingham Committee makes that a reality.

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