Exports to blame for high gas prices

Mark Ogge addresses the meeting in Wollongong on September 15.
September 20, 2013

Research by The Australia Institute has found Australian gas prices are set to double over the next few years — not because there is a gas crisis, but because gas companies are exporting Australian gas for much higher prices, driving up the price of domestic gas.

Mark Ogge from The Australia Institute explained this research in a speech to a meeting of Stop CSG Illawarra in Wollongong on September 15.


Gas prices in Australia have been low for a long time, about $2 to $4 a gigajoule. About 10 years ago, the price of gas in Asia started to rise because of industrial development and the price shot up to about $16 a gigajoule in Asia.

So the big international gas companies thought: “If we can take this gas we've been selling in Australia for $4 a gigajoule and sell it in overseas for $16, we're going to make heaps of money.”

To do that, they need to build export facilities. The gas is liquified to make it smaller and easier to export, and in order to do that it is refrigerated.

Four of these huge refrigeration plants are being built in Curtis Island near Gladstone, in the World Heritage area. The dredging they are doing to build this infrastructure is killing dugongs, turtles and dolphins.

Four huge projects have been approved in Queensland, one was approved recently and three are already under construction. The smallest one is Gladstone LNG [liquefied natural gas] project, headed by Santos who own 25% of it and other big gas multinationals own the rest.

Australia is currently the fifth-largest LNG natural gas exporter in the world; Qatar is the biggest. By 2020, we're on track to overtake Qatar as the world's largest natural gas exporter.

There are many more facilities planned to be built to export the gas. No matter how much gas they find, they can just expand their LNG export facilities, either on Curtis Island or elsewhere. There won’t be gas left over for NSW, because there won’t be a surplus — they can export it for a much higher price.

The problem is that a whole lot of community groups around the country have stopped them in their tracks. People looked at what was happening in Queensland, which was all approved before anyone knew what was going on, and they’re saying we don’t want to be a part of this.

In response, the gas companies have whipped the issue up into a panic. They are calling it a crisis and said we wouldn't have any gas for energy.

The manufacturing industry is worried because they are being told they will have to pay two or three times the price for gas if they want their contracts renewed.

The gas companies ignored the fact that export is what is driving up the prices, and pointed the finger at activist groups.

Now they are offering a solution that won't work. They are saying the solution is to drill more gas. But they're already struggling to meet their contracts to export as much gas as they've committed to, and make those massive projects profitable. Even if they do, they can just expand their export facilities.

Gas companies are saying that we need gas for energy in NSW. In fact, electricity demand in NSW has been dropping, and so has gas demand.

There is no reason for the gas companies to sell gas to Australian companies for a lower price when they can get a much higher price overseas.

The entire east coast gas field is one market. So they'll say: “NSW doesn't have its own gas, so we need our independent gas.” But it's all one market, so if gas doesn't come from Victoria it can come from Queensland or NSW. It doesn't make sense to divide it into individual states. It's a bit like saying NSW doesn't produce any cars so there is a car crisis.

The other line that you will hear a lot is that we need a gas industry in NSW for jobs and for royalties so the state government can build schools and hospitals.

The industry says it created 100,000 jobs last year and contributed a lot of money schools and hospitals in the state.

There are about 13 million jobs in Australia. The mining industry in total employs about 2% of the Australian workforce, the coal and gas industry each employ less than half of 1% of the Australian workforce.

They are very small employers, and this is at the peak of the gas construction boom that is going to drop by a third when they go into operation. So they don't provide many jobs.

What they say is that “That's direct jobs, but we provide many indirect jobs.” It's true, there are indirect jobs from the gas industry, but every industry provides indirect jobs. If every industry counted the indirect jobs the way the gas industry does, there would be 130 million jobs in Australia.

Recently, APPEA [Australian Petroleum Production and Exploration Association] have put out an advertising campaign called “Our Natural Advantage”. They claim in those ads that they created 100,000 jobs last year. The Australian Bureau of Statistics said in the whole oil and gas industry in Australia last year there were an additional 9372 jobs. So they've multiplied that figure by 10.

These are not necessarily new jobs anyway. The manufacturing and agricultural industries train people up. The gas industry doesn't train anyone but they need very skilled labour, so they poach that labour from other industries by paying wages that other industries can't afford. So they're not offering jobs to the long-term unemployed, they're taking skilled labour from other industries.

In terms of royalties, in Queensland — where there are big projects going full bore — they are estimated to collect $450 million a year. That will add 1% to the state's coffers. That's a very big price to pay for turning Queensland into a pin cushion.

There are multiple solutions to the shortage of domestic gas. We can switch to alternatives, renewable energy of all description is constantly coming down in cost — at the same time as gas prices is rising.

If they continue to build new gas plants, they are locking in gas infrastructure for the next 50 years which will keep us dependent on volatile gas and coal prices.