There is gas under virtually every Australian state and territory. It is one of the country's massive natural comparative advantages. Yet a collective madness seems to have overtaken state governments whereby much of the gas under the continent cannot be exploited amid environmental scaremongering that has conflated coal seam gas extraction through fracking with normal conventional gas drilling.
The explosion in the development of natural gas over the past few years has put Australia on track to become the world's biggest liquefied natural gas exporter by 2017. Much of the gas has been developed offshore, but the massive increase in volume has meant that for the first time Australia is a big exporter.
This has put strains on the local market. Domestic Australian consumers are used to gas being priced for domestic consumption only, and so are now struggling with the increased price as domestic consumption competes with demand from abroad. Overall, this is still beneficial for Australia: the increase in price will be offset by the cheaper imports we will be able to buy from the rest of the world.
Yet this increase in price is not entirely the result of export markets or the gas-hungry Japanese energy sector after the Fukushima nuclear incident in March 2011 supercharged the demand for gas.
Instead, it is state governments that are driving up the price for Australians, following either effective or complete bans on fracking for coal seam gas in NSW, Victoria and now the Northern Territory. It is a simple supply and demand equation: there is no new available supply to meet a massive increase in demand.
In Victoria a permanent ban has been placed on both the extraction of coal seam gas, and extraordinarily, conventional gas, which comes with none of the safety concerns that accompany fracking.
Risks are manageable
In addition, NSW has an effective ban on CSG, but as
The Australian Financial Review said in August, at least NSW asked its chief scientist to assess the risks -- and found they were both manageable and likely to decrease over time. Victoria and the Northern Territory have opted for simple populism and banned exploration because a populist coalition of the environmental left and the farming right has mounted loud campaigns.
Now Australian Competition and Consumer Commission chairman Rod Sims has raised the stakes in the debate. What Mr Sims calls a "triple whammy", has hit the gas market in eastern Australia: the introduction of LNG, the fall in oil prices and "regulatory uncertainty and exploration moratoria are significantly limiting the potential for new gas supply".
In a speech in Darwin, Mr Sims has reinforced the fact that overall the problem with gas is a fundamental lack of supply, which, up until now, consumers in the south-east had been counting on being ameliorated by a supply of conventional gas coming from the Northern Territory.
Yet Mr Sims said that with the NT's recent ban and the others in the south-east, "it is difficult to envisage where new gas supply will come from in the short to medium term to alleviate high gas prices looming for gas uses in the south". Mr Sims was succinct, saying the high gas prices are being driven by a lack of gas and maybe the absence of a better regulatory regimes for new pipelines
And this costliness is a broader issue than mere heartburn for retail and industrial gas users. It complicates an already fraught landscape in the national electricity market.
Gas-fired electricity is far cleaner than coal, yet with state-based mandated renewable energy targets (RETs) in Victoria and South Australia, the lack of new exploration means that gas cannot be part of a clean energy mix. Ironically this means that coal powered-energy may have to be maintained to provide baseload electricity when the wind does not blow in South Australia or Victoria. Alternatively, there is a very real chance the lights will go out.
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