‘Sims exposes gas ban madness: States fuelling price hikes’

September 16th, 2016

‘Sims exposes gas ban madness – States fuelling price hikes’

That is how the Australian Financial Review has characterised comments by the chairman of the Australian Consumer and Competition Council, Rod Sims, over the past two days.

In a speech in Darwin, Mr Sims took aim at recent anti-gas development policy decisions taken by the Victorian and NT Governments  — and the justification for those policies.

Environmental considerations were important, but they ought be approached on a case-by-case basis, not swept up in blanket moratoria, Mr Sims said.

“This is particularly pertinent to the Northern Territory given the prospective gas projects are likely to be spread across the vast landscape and potentially represent different levels of risk.”

It is not the first time Mr Sims  and other eminent economists  and public office holders have decried these political decisions, designed to protect the ruling (Labor) Party from Green political interests threatening to undermine their share of the popular vote.  Former respected Labor Federal Cabinet Ministers Martin Ferguson, Gary  Gray, Craig Emerson and Greg Combet have all questioned the way State Labor Governments have adopted dubious dogma and put the broader public and economic good second to a tactical political defence .

Encouraged by countless scientific reports calling the industry safe, industry, business and unions have been calling for greater strength from governments on this issue for the past two years.

As they have warned, this is a big issue for Australia, which has taken its cheap-energy advantage for granted over recent decades.

As the AFR said in its editorial column, rising prices are unwelcome for consumers, but there is much more to this situation.

“There is a broader issue than mere heartburn for retail and industrial gas users. It complicates an already fraught landscape in the national electricity market.”

This is the very issue now being examined by a specialist task force created as a result of collaboration by Federal and State Ministers in the Coalition of Australian Governments Energy Council.

The COAG Energy Council is pressing ahead, despite the refusal of the Victorian and NT Governments to play ball, preferring to leave the future in the hands of those who are determined to put an immediate end to fossil fuels of all types – without providing any economically credible plan to show this can be done without incurring job losses in the hundreds of thousands and major loss of living standards for average Australians.

In his speech, Mr Sims said natural gas was a major opportunity for the NT itself, but also for the Territory to play a part in helping ease tightening supply in East Coast markets.

“However, for the Northern Territory to realise its potential, it is imperative we have some onshore gas development.”

Mr Sims was not so rude as to dismiss environmental concerns.  However, he did directly question blanket ban responses.

“While we do not purport to weigh in on the debate surrounding the environmental issues, we consider that policymakers need to consider the costs or benefits of projects on a case-by-case basis.

“This is particularly pertinent to the Northern Territory given the prospective gas projects are likely to be spread across the vast landscape and potentially represent different levels of risk.”

It is highly relevant that he is choosing to make this speech today in Darwin, where the newly installed NT Government has announced its own policy of stalling natural gas development while it conducts yet another review of the safety of hydraulic fracturing (fracking), a process safely used in South Australia since the 1960s and in North America since the 1940s.

The  NT move is a result of a policy adopted in the political battle which preceded the Territory election last month.  The policy was adopted despite a thorough investigation of the issue in the NT, conducted by Dr Allan Hawke in 2014/15, which found there was no justification for a moratorium on hydraulic fracturing and that the risks were manageable.

A positive from this week’s decision by the new NT Government to proceed with the HF moratorium is that it has not ruled out exploration work.  As noted by the NT News in its editorial comment this means that oil and gas companies can continue working to determine if potential resources are in fact quality sources for possible future development.

However, the decision to proceed with the moratorium does cast a shadow over the mooted billion-dollar pipeline project to link the NT to the east coast gas network.

Mr Sims acknowledges the pipeline project could help ease pressure on east coast supply.  However,  the pipeline proposal needs new sources of onshore gas and those sources need to be able to use HF in order to make them economically attractive to justify the hundreds of millions of dollars of production investment which will be necessary.

The NT policy move and the Victorian ban, come at a time when there is a “critical need for more gas supply in the east coast, particularly in the south”, Mr Sims says.

“Without this supply it is clear that gas prices must increase, which will damage commercial and industrial users and increase household energy bills.”

So why not just bring on more supply from Bass Strait, or from South Australia’s Cooper Basin?  It is not that simple, as Mr Sims notes:

“Traditional sources of supply face increasing costs and challenging decisions about potential field expansions in the current economic conditions.  In the absence of tiemly additional investment, there is potential for a significant reduction supply..”

As the CEO of the Australian Petroleum Production and Exploration Association, Malcolm Roberts, has noted, the capital being invested in exploration has “fallen off a cliff” in recent times – possibly due in part to the lack of confidence in political will to engage anti-fossil fuel activism and educate communities about the need to manage a sensible transition to greater use of renewable energy.

All of which leads us to the real punch-line from Mr Sims:  In this tightening market,

“…many commercial and industrial users are going to find it extremely difficult to sustain their businesses”.

And that is precisely what the gas industry has been telling all Governments, including that in Victoria, for the past three years.  And it has not been the industry alone, as we have noted previously

As for Victoria, Mr Sims said it was curious that a State which had sourced much of its prosperity in the second half of last century from Bass Strait oil and gas was now placing a blanket ban on all exploration and development.

In the 1960s and 70s Bass Strait oil drove economic activity in Victoria and helped balance Australia’s large import bill with important export income.  Gas was delivered to onshore customers at such low prices it was enthusiastically embraced by industry, business and consumers, to the point where it has long underpinned a successful, profitable manufacturing sector.

The profitability – and therefore viability – of that sector is now under threat.  Gas consumption has increased, especially in the high-employment manufacturing sector in Victoria and NSW, but its sources of supply are shrinking.  This has two effects – it pushes prices up and it creates supply continuity concerns – particularly for big users such as those in manufacturing, small business (hospitality) and some agribusinesses such as dairy, pig and fish farming.

As Mr Sims and others have noted previously, Australia needs more gas to fill the anticipated supply shortage, and to put downward pressure on prices.

As the AFR says:

“Alternatively, there is a real chance the lights will go out.”

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