In September 2020, Prime Minister Morrison announced his plan for Australia’s “gas-fired recovery”, along with government funding for new natural gas projects. He believes this gas-fired recovery plan will provide affordable gas. First, this will reduce electricity prices, says his office. Secondly, this cheap gas would boost manufacturing. That is because 225,000 jobs in manufacturing industries require gas as a feedstock or fuel source, he explained.
Eastern states are the focus
The focus of the plan is Australia’s eastern states. That is because states like New South Wales (NSW) and Victoria are major economic centres. However, they face future shortages in gas supply and high prices currently. Therefore, the government plans to fund natural gas projects to supply more gas to eastern states. Consequently, this should bring gas prices down there. That is the view of the federal government.
What funding is involved in the gas-fired recovery plan?
The 2021 budget
In May 2021, the Australian government announced its federal budget. This set aside money for the gas-fired recovery. Explicitly, the government assigned AUD $58.6 million to expand the natural gas industry. This included AUD $32 million for a new gas storage and processing facility at Golden Beach in southern Victoria. Plus, it will provide further funding for the expansion of the South West Victorian Pipeline.
On top of this, the budget included money to develop the Wallumbilla Gas Supply Hub in Queensland. Finally, the government allocated the rest of this money to support Squadron Energy’s gas import terminal. This is located at Port Kembla, New South Wales.
The 2020 budget
In October 2020, the government handed down its 2020 budget. This included AUD $52.9 million funding to provide more natural gas for the domestic market. Specifically, AUD $28.3 million went to developing five strategic gas basin plans, or geological areas with natural gas underneath the ground. First, the government planned to allocate this money to the large Beetaloo Basin in the Northern Territory. Then, it will provide funds to the North Bowen and Galilee Basins in Queensland.
The PM made further promises before the budget in September 2020. The government plans to fund more pipelines, Morrison explained. However, this would only be the case if the private sector did not invest in them.
The Beetaloo Basin
In January 2021, the federal government released another AUD $173 million to fund the Beetaloo Basin project. This is a shale gas reserve in the Northern Territory. This brought total funding to AUD $224 million. An important part of the project is helping companies find more gas in the basin. Therefore, the government allocated AUD $50 million specifically to support exploration activity. It expects companies to perform this exploration before 30 June 2022.
The Kurri Kurri gas plant
In May 2021, the government announced AUD $600 million for a new gas-fired power plant at Kurri Kurri. This is in the Hunter Valley, NSW. The government-owned plant will shore up electricity supplies in eastern states, claims the government.
Other NSW projects
The government has also promised more money for other gas projects in NSW. For example, the state and federal governments will provide AUD $83 million to build the Tallawarra B gas plant. This money will go to the Chinese-owned EnergyAustralia to build the plant near Wollongong. Specifically, this funding is about 25 per cent of the cost.
As mentioned above, the government will also help fund Squadron Energy’s gas import terminal at Port Kembla, New South Wales. Billionaire Andrew “Twiggy” Forrest owns this. The AUD $30 million will also help the company build a new gas plant on the same site. Therefore, this brings total gas industry subsidies to date in NSW to AUD $723 million.
What are the problems with the gas-fired recovery plan?
Gas has not helped the economy
In May 2021, the policy think tank Australia Institute released a report. It stated that “the gas industry effectively made no contribution to the economic recovery, so far”. In fact, jobs in the direct gas sectors of mining and supply fell from 2020 to 2021 by 11.6 per cent and 9.1 per cent, respectively. But, there were not many jobs in the gas industry to begin with. This is because the gas industry employs very few people in relation to other sectors. Therefore, to boost jobs, gas is not the right industry to invest in, argues The Australia Institute.
Manufacturing jobs
One of the aims of the gas-fired recovery plan is to boost manufacturing jobs. However, this has not happened. That is because the government overestimated how much manufacturing relies on natural gas, says The Australia Institute. Specifically, sectors that use gas as a feedstock only employ about 14,000 workers. That is less than two per cent of the total manufacturing industry. In other words, this is just 0.1 per cent of all jobs in Australia.
The gas-fired recovery is not realistic
In April 2021, the Australian Energy Market Operator (AEMO) suggested that the gas-fired recovery was not realistic. That is because it predicted Australia’s main electricity grid would not use more gas. Furthermore, gas would not become cheaper, as PM Morrison has claimed.
Moreover, Australia’s largest electricity companies agreed with this assessment. Instead, it is more likely that electricity from renewable energy will increase, according to AEMO and the companies.
Gas demand is on the decline
AEMO noted in 2020 that gas generation in the country’s main grid fell to its lowest levels in the decade – it declined by 23 per cent. This owes to the fact that large wind and solar projects have replaced the need for gas. This is in addition to rooftop solar power.
Furthermore, AEMO predicts that gas consumption in the grid will fall another 40 per cent in 2021. On top of this, gas-fired electricity might completely disappear by 2038. That is because renewable energy technologies have become cheaper. Therefore, natural gas cannot compete with them in most cases.
Gas will remain expensive
Eastern Australia no longer has cheap gas underground. That is the Grattan Institute’s estimation. This is due to the gas being expensive to produce. This includes new projects, such as the Narrabri coal seam gas field in NSW. It is otherwise because the gas is far away from major users. Therefore, it will be expensive to transport. For example, that is the case for NT’s Beetaloo Basin shale gas fields. So, the gas-fired recovery will supply gas at least double the price of what the government hopes. That is the view of the public policy think tank. Consequently, gas prices in Australia’s eastern states will remain high.
Gas is not compatible with net-zero
In May 2021, the International Energy Agency (IEA) released a roadmap of how the world can reach net-zero emissions by 2050. The IEA explained which energy sources humans should use to avoid terrible climate change effects. Specifically, there can be no development of new fossil fuel sources, said the agency. That includes natural gas. Consequently, the roadmap suggests global gas use will drop by 55 per cent. In its place, about 66 per cent of energy use will come from renewable sources by 2050.
Stranded assets
The issues listed above show that a gas-fired recovery is not a good idea. Firstly, it is a disaster for the climate. Secondly, it is not cost-competitive. Therefore, it is likely to lead to “stranded assets” where the government will not make its money back on investments in gas infrastructure. This is because Australia will simply not need this infrastructure, as the country will turn to cheaper renewable energy sources. Moreover, as other countries look to use less-polluting fuels, this also puts Australia’s LNG export industry at risk.