Friday, August 3, 2018   

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The east coast gas market has gone from 'dire' to 'very challenging'. Further improvements rely on moratoria being lifted.

Just as the energy debate was in danger of being fossilised in a debate about coal, the competition regulator reminds us that a more rational approach by state governments towards onshore coal is one of the simplest ways of bringing retail electricity prices down.

 

Coal will be a big part of our energy mix for decades to come. The MRC would welcome the construction of new coal generation plants, and strongly supports the extension of the working life of existing ones, providing public money is not needlessly put at risk.

Let’s not forget, however, that Australia is on track to becoming the world’s largest exporter of natural gas, as well a coal. The gas market, like the coal market, has been badly distorted by poor government decisions. As the Menzies Research Centre found in its report on the energy market last year, moratoria on specific technologies inevitably lead to higher gas prices, reduce investment and job creation, and decrease state government tax and royalty revenue.

They ignore the economics of demand and supply, are not technologically neutral, and place pressure on the energy system in a way that reduces reliability and affordability. At the margin, they also impact sovereign risk for owners and operators of major projects. They affect decisions on locating commercial operations in Australia because they raise energy affordability and reliability issues.

The Australian Consumer and Competition Commission’s report this week is a reminder that federal policy errors by Labor are only one of the causes of the omni-shambles we used to call the National Energy Market. 

Federal energy minister Josh Frydenberg’s frustration in trying to restore order in the market is that the federal government has its hand on only a handful of the levers.

It is timely to remind ourselves that while the Rudd-Gill-Rudd administration’s reckless Renewable Energy Target laid the groundwork for today’s energy crisis, it was state Labor governments in South Australia and Victoria who allowed Northern and Hazlewood to die. In South Australia it was more like assisted suicide.


The good news in the ACCC’s latest report on the East Coast Gas Market is that the situation has moved from “dire” to “very challenging” since the ACCC reported in September 2017. It is testimony to the

August 3 podcast - MRC
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power of the capitalist spirit that new suppliers have entered the market, despite the many obstacles administrators tried to place in their way. The supply has increased, and so has completion, albeit to a limited degree. As a result, prices for gas supply in 2019 have remained in the high $8 to $11/GJ range. That will still be punishing for businesses and consumers, but considerably less so than the $20-plus/GJ offers nine months ago.

The ACCC finds positive signs of change in government policies around new developments, particularly the Northern Territory Government’s lifting of its ban on fracking.

The Victorian government is releasing more offshore and gas exploration blocks, but has retained its ludicrous ban on onshore gas exploration.

Hopefully the election of a Liberal government in November, should Victorian voters so decide, will lead to the opening up of onshore gas exploration. The gas reserves under Victoria have huge potential, and much of it can be extracted by conventional means.

The ACCC finds state government policy in Victoria, NSW and to a lesser extent in SA, a barrier to the availability to lower-cost gas in the southern states.

“While recognising the improvements to policy settings that have occurred recently, we continue to urge state governments to adopt policies that consider and manage the risks of individual gas development projects, rather than implementing blanket moratoria and regulatory restrictions,” the report says.

The debate about the risks of fracking should be over by now. Like the moral panic over GM crops, there is no empirical evidence to back the apocalyptic claims of those who opposed it.

Fracking is a mature technology, fully embraced by other advanced economies, notably in the United States, where fracked gas is extracted safely, to the delight of customers, who enjoy energy prices a fraction of those in Australia.

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2019 by Menzies Research Centre