The problem with gas: why it's so expensive and we risk of running out of it
Gas prices have gone through the roof, and now we're hearing we could run out of it.
So how did we get here?
It is by no means certain we will have shortages, but even the possibility – in a country with extraordinary energy resources – is a mess that could and should have been foreseen.
What for most of its history has been just a local gas industry in eastern Australia has been transformed in recent years by the creation of an export market in liquefied natural gas (LNG). Three plants at Gladstone in Queensland now sell two-thirds of the gas produced to Asia.
It has been the major reason the price of gas used for heating, cooking and electricity has roughly tripled – the international price sets the domestic price.
As this developed, the industry aggressively pushed to access untapped wells using unconventional methods such as fracking for coal seam gas. It sparked a backlash that brought together unlikely bedfellows – farmers, environmentalists, tub-thumping conservative broadcaster Alan Jones - and led to bans in some states.
In NSW, the amount of land available to the industry was significantly reduced. In Victoria, which barely has an onshore gas industry, a bipartisan moratorium covers both fracking and traditional means of extraction. The Northern Territory, said to have enough gas to service the country, is holding an independent inquiry into the issue.
The companies essentially just want more gas (and for the government not to hit it with an effectively designed resource rent tax in the May budget). It is unclear what, if any, concessions they will be prepared to make.
- Where does climate change fit into this?
Good question. While some people try, the debate over energy cannot be divorced from the need to cut greenhouse gas emissions.
Gas is a fossil fuel, but demand for it has been on the rise because it is seen as a transition fuel in the shift to clean energy. It can provide electricity 24-7 while producing roughly half the greenhouse gas emissions of burning black coal.
There has been a widespread push for a bipartisan policy - including an emissions intensity scheme, a form of carbon trading - to drive investment in the new power plants needed. And it has been widely assumed this would initially lead to a shift from coal to gas-fired power.
But those assumptions are based on the idea that gas would be much cheaper than it is today. It is now pushing up power bills, and electricity wholesale prices are double what they were a year ago.
It is now quite likely gas-fired electricity may be bypassed. If you look across the country, South Australia has an obvious short-term need for it – both its coal generators have shut, so it relies on wind, gas and a limited connection to Victoria.
But unless there is a dramatic policy rethink, it is difficult to see gas power being competitive in other states.
The Prime Minister likes to say the energy debate needs to be stripped of ideology. He's right, of course. Coal and gas will continue to be part of the mix for years ahead. But there is mounting evidence that the cheapest and most flexible option may involve a combination of clean energy, battery and hydro storage, improved energy efficiency and more sophisticated grid management at times of peak demand.
These technologies have the happy bonus of being best equipped to do what scientists say is necessary - deliver a more rapid cut in emissions than is currently planned.
