Australia’s ‘gas shortage’ is a fiction

The Gladstone LNG port in Queensland.
March 25, 2017

According to the Australian Energy Market Operator (AEMO), electricity supply will be threatened as early as next year by “shortfalls in gas”, or failing that, households may face cuts to their gas supply

This absurd state of affairs is misleading because there is no gas shortage. As Sinead O’Connor sang of Ireland’s Great Famine, “I want to talk about the “famine” /
About the fact there never really was one.” As she related, “Meat fish vegetables / Were shipped out of the country under armed guard / To England while the Irish people starved.”

Australia has actually become one of the world’s biggest exporters of liquefied natural gas (LNG). We have plenty of gas — but it is being shipped overseas. In fact, gas companies are producing more gas than ever before.

Gas industry agenda

Talk of a “gas shortage” hides a more sinister agenda: the gas industry wants to be set free from the various state restrictions on fracking for unconventional gas such as shale and coal seam gas (CSG). In the vein of Naomi Klein's description of “disaster capitalism”, a crisis (real or manufactured) is the perfect opportunity for big business to impose its own wishlist as a “solution”.

Two factors are driving domestic gas prices up. First, the opening of the east coast gas network, via the Gladstone liquefied natural gas (LNG) port, to the export market, where prices are higher; and second, the fact that companies such as Santos signed export contracts for more gas than they could guarantee.

This is driving the desperate push by Santos and others to open new CSG and shale gas fracking fields in NSW, and the moves for a gas pipeline to connect the Northern Territory to Queensland. It is also the reason South Australia experienced rolling blackouts during a period of peak electricity demand this summer. ENGIE, the operators of the idle Pelican Point gas-fired power station, decided it was more profitable to sell its gas to exporters than to operate a power station.

When this is combined with the closure of the large brown coal generator, Hazelwood, in Victoria, scaremongers in the Coalition parties are talking up the prospect of blackouts becoming common in Victoria. Are they and AEMO right?

Under the current electricity market, blackouts are a real threat because generators are paid more for their electricity if demand rises relative to supply. In other words, they have an incentive to produce less electricity and get paid much more for it due to scarcity.

Combine this with gas plants being given incentives to sell their gas overseas, and it is possible that more rolling blackouts could occur on days of high electricity demand like summer heatwaves. This is not the greatest disaster imaginable, but a sign of a system not working and certainly a cause of discomfort.

While the talk of “crisis” is being flogged for all it is worth by the big businesses, which want to impose the “solution” of open-slather fracking, it is unlikely these will benefit ordinary Australians. Progressives should combine forces to impose a better solution. There are several potential avenues already on the table from state and federal governments.

Alternatives

A gas reservation policy, to ensure a proportion of gas is guaranteed to the domestic market, has been promoted by some. Despite Prime Minister Malcolm Turnbull approaching the gas exporters, cap-in-hand, to demand they allocate some gas to the domestic market, it is unlikely to be available at anywhere near the historical cheap prices. Gas power generation is already the most expensive in the grid.

South Australian premier Jay Weatherill, sitting at the exposed end of the electricity grid where any shortage will be felt most keenly, has proposed an array of measures including solar, large-scale battery backup energy storage, and (perplexingly) a new gas power station. They plan to use these to intervene to protect South Australia's interests in the National Electricity Market, a seemingly radical step.

At the same time, South Australia has introduced incentives for farmers to host gas fracking — landowners are to receive a 5% share of royalties generated from each well on their property. This could divide farming communities, which have so far been united against the gas industry.

The Hazelwood power station had supplied about a fifth of the state’s electricity generation capacity. The state government has now authorised an expansion to the Loy Yang B coal power station, while initiating a relatively ambitious target to source 40% of the state's electricity from renewables by 2025, and banning fracking outright. This has angered the gas exporters greatly and the federal government has been echoing their calls to reverse the ban.

Turnbull’s federal proposal for an addition to the Snowy Mountains hydro-electric scheme is possibly pie-in-the-sky. It is expensive, will take a number of years to build and needs the support of state governments. In operation, it would probably render the expensive gas power generators obsolete. It might please coal generators and would not hurt the gas exporters, as the pumped hydro system could effectively store coal power to use — instead of gas — in periods of peak electricity demand. On the other hand it is appealing to supporters of renewable energy because, if combined with strong renewable targets, it may provide energy storage for renewables instead of coal.

Do we need gas?

The elephant in the room is that Australia no longer needs to use any gas, not just in power generation but across the board — other than in a few specialised industries such as ammonia and plastics’ production. This should be cause for celebration: gas is expensive, dangerous and a major source of greenhouse gases.

Gas is methane, one of the most powerful of the common greenhouse gases. Over a 20-year timescale, its warming impact is more than 80 times that of carbon dioxide. Just a tiny percentage of leaking gas makes it as bad as coal for the climate — and it could easily be leaking that much from shoddy CSG wells.

The LNG that is exported takes a lot of energy to pipe, compress and ship — meaning customers, such as Japan, are not getting a “low emissions” fuel, but something comparable to coal, even without factoring in methane leakage.

But in most applications, a combination of energy efficiency and upgrading to electric devices can remove the need for gas. Certainly, no home need have a gas connection any more — if they can afford to pay to replace hot water, heating and cooking appliances.

Transition to renewables

A sensible climate policy would advocate not just a fast transition to renewable energy but a plan to get Australia off gas — both our exports and domestic use. Renewable energy can replace gas in power generation, whether hydro storage, batteries, or solar thermal. Many industrial processes can be replaced. Home energy use, typically highly inefficient and expensive, is an easy target for savings, both on reductions in household energy use and by avoiding the expense of maintaining a gas grid in parallel with the electricity grid.

We need a comprehensive program to reduce energy waste in all homes and workplaces. This should be done from the street level up, but with proper oversight and planning this time (learning from the failures of the Kevin Rudd government's home insulation scheme). Not only could household electricity use be slashed dramatically and solar power increased, it could be orchestrated with a planned and staged shutdown of existing gas reticulation networks, suburb by suburb and town by town.

These policies would create a significant number of jobs and would develop help depressed regional economies, as well as putting Australia on the road to meeting the Paris agreement on climate change.

Regardless of whether the gas crisis is all it is cracked up to be, we need these solutions.

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