Historically, state governments are upbeat if they sense a potential development project that could employ people and lower prices for a widely used commodity – especially if private enterprise is willing to take the risk and pay for that development.
Natural gas is just such a commodity.
For a century, it has been enthusiastically embraced in every mainland State in Australia. It still is in WA, SA and Queensland. But in recent years, something has changed in Victoria and NSW – two States with substantial resources – and the most to lose by failing to develop them.
Both NSW and Victoria have big manufacturing sectors which are heavily dependent on natural gas, affordable energy, or both.
Victoria and NSW have millions of residential customers and tens of thousands of agricultural and hospitality businesses reliant on gas and accustomed to getting it at some of the lowest prices in the world.
The customers are still there, but supply is now challenged and pricing has risen accordingly. As our long-serving supply sources in Bass Strait (offshore Victoria) and the Cooper Basin (onshore SA) become less abundant and more expensive to extract, gas is becoming more scarce and rising in price.
Lack of development of new supply is the key problem. The service demand is not diminished; in fact it is increasing in terms of numbers connected to a gas network, at a rate of 100,000 a year, with total service numbers now above 5 million.
These factors have the effect of tightening supply and pushing prices up – something repeatedly confirmed by the Australian Consumer and Competition Commission in the past year.
Falling reserves have put upward pressure on prices. Increased demand from electricity generators since the closure of coal-fired power stations in SA and Victoria and the intermittent nature of wind power have made gas prices jump about sporadically – and made big users of gas very jumpy about supply and price.
The gas industry started warning of the coming crunch seven years ago. But instead of addressing the problem, successive governments in Victoria and NSW have made it worse, buying back licences and stifling exploration in their earnest desire to appease enviro-activists.
Victoria piled bad decisions on top of poor policy, and introduced what is understood to be the world’s only ban on natural gas exploration and development.
Most recently, it has commissioned a $42 million taxpayer-funded study into the Victorian gas resources.
Judging by the way the Government received the first progress report, it is determined to find that Victoria does NOT have economically attractive onshore gas resources.
It said the first progress report demonstrated that the gas industry had ‘overcooked’ the potential.
It was an interesting reaction, given that Exxon had previously acknowledged that it was ready to invest $200 million to prove up an eastern Victorian gas field for which it had bought exploration rights.
Veteran Victorian journalist Robert Gottliebsen (The Australian) summed the situation this week in an article headed ‘Why is Victoria sitting idle on vast gas reserves?’
“Both Victorian (major) political parties, the Commonwealth Government and at least one member of the study committee know that it is highly likely that Victoria has immense gas deep in the ground under its lignite coal fields.”
So why is the Government so disinterested?
As we have noted previously, it is prioritising Green votes. And it is doing so against the advice of its own best environmental experts, who said natural gas extraction in both eastern and western Victoria would be “low risk”.
Then there is the $100 million loss of earnings lawsuit against the Government by Lakes Oil – one of the nation’s longest-standing oil and gas companies. It started its work in eastern Victoria mid last century.
Lakes Oil has permits to explore and produce gas in western Victoria, close to existing infrastructure. It has confidence of resource and customers lined up, but the Government ban has blocked it from developing the same type of conventional gas it has safely developed for decades.
Meanwhile prices rise, jobs are at risk and investment goes begging, to the detriment of Victorian citizens. And that in a State with a rich blue-collar manufacturing history.