The gas industry is working a scam on the people of NSW, in collusion
with other business lobby groups and federal and state politicians. It's
trying to frighten us into agreeing to remove restrictions on the
exploitation of coal seam gas deposits. Failing that, the various
parties want to be able to lay the blame for an inevitable jump in the
price of natural gas on the greenies and farmers.
According to the gas
lobby, the manufacturing lobby, the Business Council, federal Industry
Minister Ian Macfarlane and former Labor minerals and energy minister
Martin Ferguson, we have a looming gas supply crisis in NSW and must
unlock our local coal seam gas resources if we're to avoid shortages and
the price hikes they bring.
NSW Minister for Resources and Energy
Chris Hartcher, at whom most of lobbying is aimed - his government
boasts of "the toughest coal seam gas controls in Australia" - must
fully understand the deception, but seems reluctant to expose the
dishonesty of his Coalition and business mates.
The problem, we're
told, is NSW produces only about 2 per cent of the natural gas its
households and industrial users consume. And when facilities for
liquefying and exporting gas start operating within a year or two,
producers in Queensland and Victoria will switch to exporting their gas
to gain the higher foreign prices.
So NSW is facing a massive
shortage of gas, which will cause a big jump in gas prices and threaten
the jobs of thousands of people working in gas-dependent industries. The
obvious answer, we're told, is for NSW to fill this supply gap and
avert the price hike by urgently developing its own supply of coal seam
gas.
There's just one problem with this neat story: it reveals -
or exploits - an ignorance of how markets work. The lobbyists' faulty
logic is ably exposed by the Australia Institute's Matt Grudnoff in his
paper, Cooking up a price rise.
For many years, the prices paid
for natural gas by consumers on Australia's eastern seaboard have been a
lot lower than prices paid in other countries. The absence of plants to
liquefy the gas so it could be exported meant our market was cut off
from the world market.
We had no liquefaction plants because we
didn't have enough gas to make them profitable. What's changed is the
advent of fracking, which has enabled us to begin exploiting our
extensive deposits of coal seam gas.
The development of
"unconventional" gas in Queensland has progressed to the point where
it's become economic for three liquefaction plants to be set up near
Gladstone. When those plants start operating in a year or two, the
barrier that separated our eastern seaboard gas market from the world
market will disappear and the era of low gas prices will end.
Grudnoff
estimates the wholesale price of gas will double or treble from between
$3 and $4 a gigajoule to the world "netback" price of $9 a gigajoule.
"This is because Australian gas producers will have the option to sell
to the Japanese, who are willing to pay $15 a gigajoule," he says.
The
difference between $15 and the netback price - also known as the export
parity price - is the cost of liquefying the gas and transporting it
overseas. If you're as ancient as I am, this should remind you we've
already been through a similar process of the low local price rising to
the high world price when the Fraser government introduced export-parity
pricing for oil in the late 1970s.
The percentage rise in retail
gas prices paid by households will be a lot smaller than the rise in the
wholesale price. Estimates by Hugh Saddler, of the energy consultants
Pitt & Sherry, suggest Sydney retail prices will rise by 11 per cent
to 18 per cent - roughly twice the rise caused by the introduction of
the carbon tax.
The point is, wholesale and retail prices will
rise to the new export parity price throughout the eastern seaboard. In
Queensland where the frackers have had an easy ride, and in Victoria
where the present moratorium on fracking seems likely to give way to an
unrestricted regime, just as much as in NSW where the frackers are given
a hard time.
Because of pipelines between the states, how much
gas a state produces has nothing to do with the prices its households
and businesses pay. According to the gas lobby's logic, the coming
ability of producers to get much higher prices by exporting their gas
should produce shortages of gas for local users in Queensland and
Victoria, not just NSW.
In truth, there will be no shortages of
gas in any state, just a requirement to pay the higher, netback price.
There's no reason producers would prefer to sell to foreigners if locals
are offering to pay the equivalent price.
With the advent of
fracking and access to higher prices, it's not surprising gas producers
are desperate to extract as much coal seam gas as possible as soon as
possible. But their argument that increased production in NSW could hold
down NSW gas prices is economic nonsense.
Any new gas producers
in NSW won't be willing to sell to locals for anything less than the
equivalent price they could get by selling to foreigners. That's the
scam.
