Before its defeat in May 2022, the Morrison government made a series of fossil fuel funding pledges — pinning hopes on an economic recovery from COVID-19 on natural gas reserves. Furthermore, these reserves support a huge export industry.
It was no secret that the previous federal government supported the natural gas industry. For instance, in New South Wales, the government pledged to provide AUD $723 million to the gas industry. Likewise, the Australian government promised AUD $173 million to develop a new natural gas reserve in the Northern Territory. Another AUD $59 million was set aside in the 2021 budget for further gas projects. Finally, the government has allocated AUD $600 million to build the Kurri Kurri gas power plant.
In fact, between September 2020 and the May 2022 election, the Morrison government promised between AUD $1.3 billion and AUD $1.9 billion in funding for the gas industry. A further AUD $63m was pledged in indirect funding to support the expansion, according to analysis by Lock the Gate and 350.org. The new Labour government is now under pressure to clarify its status on these funding pledges for the gas industry and other fossil fuel projects announced by the previous coalition. It is highly likely some will proceed.
Yet, economic experts have trashed this funding for natural gas. For example, economist Nicki Hutley said gas no longer made financial sense in Australia. She is just one economist who has called on the Australian government to move on from gas reserves. Instead, “the government should invest in renewable energy technology”, she believes.
Australia’s natural gas reserves
In 2017, Australia ranked 27th in the world for the amount of natural gas per country. It had about one per cent of the world’s total natural gas reserves.
Where are Australia’s largest natural gas reserves?
Most of Australia’s conventional natural gas is in the North-West Shelf. This is located off the north coast of Western Australia. There are several so-called natural gas basins there. This includes the Bonaparte, Browse and Carnarvon basins. There are also other large onshore natural reserves, including the Cooper Basin in central Australia.
Australia’s unconventional gas reserves
The gas reserves that remain in Australia’s eastern states are primarily unconventional sources, such as coal seam gas (CSG). However, it is expensive to extract and produce.
Despite this, Australia’s use of coal seam gas continues to grow. Between 2017 and August 2022, the industry experienced an average 15.8 per cent growth year on year.
Emissions from untapped Australian gas reserves
Australia’s untapped gas reserves are a climate hazard. Specifically, they have the potential to release three years’ worth of global greenhouse emissions. That was the finding of a 2020 report from the Australia Institute. To obtain this result, the thinktank analysed untapped gas reserves. This is gas that the mining industry has not yet extracted.
These untapped gas reserves are located across Australia. We should not use all the gas in these reserves. This is because it will release an enormous amount of emissions. Furthermore, in recent years, scientists have discovered that natural gas leaks a lot of methane. This is a very potent greenhouse gas.
Gas reserves and climate goals
Specifically, more than 70 per cent of existing Australian conventional gas reserves must be left alone to give the world a chance to keep the average temperature rise below 2°C. That is the result of analysis from the Climate Council. Furthermore, any development of new unconventional gas reserves is not compatible with climate goals, says the organisation.
Australia’s natural gas production and gas supply
The previous government’s “gas-fired recovery” measures included funds for more gas production. This was to ensure a sufficient gas supply on the east coast of Australia, according to then Energy Minister Angus Taylor. If not, “the risk to the economy is too great”, he said in 2021. Also, industry and households would face higher prices, he added. This position has been continued by Labor, who argues gas is needed for “energy security“. These ideas require a closer look.
Australian gas production
Which state has the most gas production?
Western Australia produces the most natural gas in Australia. On the other hand, Queensland is the largest producer on the east coast of the country.
Should Australia continue its gas production?
The fossil fuel industry wants to continue to profit from Australian gas reserves. However, these future profits are not guaranteed in Australia. This is because Australia mostly uses natural gas to create electricity quickly during peak times when user demand for electricity is high.
But, Australia does not need natural gas to generate electricity. Already, solar and wind power can replace it, according to energy experts. This will be cheaper. Also, it will cause less pollution. Therefore, natural gas may not be commercially viable in a decade. Consequently, the government’s investment in continued gas production is a big risk.
Natural gas production leads to stranded assets
Namely, the government will not make its money back on the investment, say energy experts. This is because Australia will stop using the new gas infrastructure earlier than the government plans. Therefore, this infrastructure will become what is known as a stranded asset.
Does Australia have enough gas supply?
How long will Australian gas reserves last?
In 2019, Australia had over 20 years of natural gas supply available, according to the Australian Energy Council. Their estimate was based on how much gas the country uses. Therefore, Australia does not need to develop any new gas reserves, according to the council.
Gas will decline
The Australian Energy Market Operator (AEMO) manages and maintains the country’s electricity and gas systems. It predicts that Australia’s gas use will decline. This is mostly because we will not use it much in the future to generate electricity. By 2038, Australia will hardly use natural gas for any purpose. Therefore, the AEMO suggests that Australia should not build any new gas power plants.
The Kurri Kurri natural gas power plant
However, the Morrison government did not listen to the AEMO’s advice. Instead, it set aside AUD $600 million in the 2021 budget for a gas-fired power plant in Kurri Kurri, New South Wales. However, economic and energy experts criticised the plan. It makes “no economic sense”, according to them. Labor has since confirmed it will also support the plant with funding if it is powered by 100 per cent green hydrogen by 2030.
In 2021, Kerry Schott said a new gas plant “doesn’t stack up”. At the time, she was the chair of Australia’s Energy Security Board. Gas is an expensive power source, according to her. By comparison, renewable energy and batteries are cheaper. Therefore, the private sector will invest in these energy sources instead. Consequently, she called for the government to also invest in cheaper renewable energy sources. Also, a new gas plant would not decrease energy prices, said Schott.
The Kurri Kurri power plant is an economic risk
The Kurri Kurri gas power plant is a large economic risk, states energy market experts from the Victoria Energy Policy Centre. While the Australian government has set aside AUD $600 million to build the plant, it could cost more than AUD $900 million in reality.
The government argues that Australia needs the gas plant. This is because it will help to replace closed-down coal plants. However, in reality, closures will only create a small gap in energy reliability. Therefore, Australia does not even need this plant. That is the view of energy market authorities.
Instead, a new big battery project would be a better idea, says the Victoria Energy Policy Centre. Additionally, batteries could supply power much more quickly to Australia’s electricity grid.
Kurri Kurri: An unwelcome intervention
Environmental groups and energy companies have criticised the Kurri Kurri gas power plant, branding it unnecessary. Therefore, they say it is an unwelcome intervention by the federal government in the energy market. For example, the Australian Energy Council holds this view.
Specifically, the plant decreases private sector confidence. This is because companies cannot be sure what type of energy Australia will rely on. As a result, it makes it harder for them to know which projects to invest in.
Unconventional gas reserves and Australian exports
Traditionally, natural gas was a by-product of oil mining in Australia, and producing this gas did not cost a lot. For this reason, gas was cheap in Australia. However, this is no longer the case. Instead, gas is now an expensive fuel. This is explained by the fossil fuel industry’s increased gas production from Australian unconventional gas reserves. Since 2014, this is closely linked to the expansion of gas exports.
Coal seam gas: Industry expansion
Queensland led the way to mine more unconventional gas reserves, particularly coal seam gas (CSG). The reason was that companies wanted to export this gas. This is despite the high production costs for CSG. This is because the export industry began to exploit expensive Australian unconventional gas reserves due to the increase in the overseas demand for Australia’s gas.
How much gas does Australia export?
In 2019, Australia exported 77.5 million tonnes of liquefied natural gas (LNG), making Australia the world’s biggest LNG exporter. In comparison, second-placed Qatar exported 75 million tonnes. The country has held on to first place since then, exporting 78 million tonnes of LNG in 2020 and a record 80.9 million tonnes in 2021. By contrast, energy consultants estimated Qatar’s LNG exports at 77 million tonnes.
Wholesale gas prices linked to liquefied natural gas
However, Australia’s export industry has effectively linked wholesale gas prices to LNG export prices. In other words, international gas demand and supply influence local prices.
This is true for all states except Western Australia. That is because export companies are forced to keep some gas from Western Australian reserves for locals. This ensures that only domestic demand and supply influence local prices. On the other hand, east coast wholesale gas prices have increased sharply since 2015. Moreover, these two prices will be linked until exports stop. That is the view of Reserve Bank of Australia (RBA) analysts.
Unconventional gas increases contract prices
Additionally, large gas users in eastern states are now forced to pay more for their gas. The high production costs of Australian unconventional gas reserves are the main reason for this. East coast gas now mostly comes from unconventional sources. Therefore, gas producers have set higher prices in east coast supply contracts, says the RBA. This affects energy retailers. Likewise, it affects manufacturing firms.
LNG export industry’s stranded assets risk
As outlined above, new Australian gas projects will likely become stranded assets. The same applies to gas exports. This is because investors in LNG companies are worried about greenhouse gas emissions. Therefore, they may abandon these companies. Instead, they will invest in emissions-free technologies. In turn, gas export projects will become stranded assets.
Emissions targets endanger gas exports
Australia’s three current biggest LNG importers are Japan, China and South Korea. But, all three countries have net-zero emissions targets. To meet these targets, these countries must invest in renewable energy. Accordingly, they will thus reduce their gas imports.
Learn more about the emission targets of Japan, China and South Korea.
Renewable energy to boost the economy
Many organisations have proposed a green recovery for Australia. In other words, this is a plan to boost the economy with investment in renewable energy technologies. But, Australia could miss out on these large economic benefits with the government continuing to support the development of gas reserves. This is despite the International Energy Agency calling for an end to all fossil fuel projects. Instead, the agency foresees a global economy based on renewable energy.
Labor has said that gas is an important transition fuel as Australia moves to a net zero economy. However, a rapid transition directly to 100 per cent renewables is better for the economy and job creation than any new fossil fuel projects. Therefore, it is worth a look at the strength of renewables in these areas.
Renewables provide cheaper energy than gas
From 2020 to 2021, renewable energy battery prices fell. In fact, their cost fell by more than any other electricity generation or storage technology. That was the finding of a report from two important groups, Australia’s science body CSIRO and the Australian Energy Market Operator.
Moreover, solar and wind are the cheapest sources of “new-build” electricity. This means that these technologies are now the cheapest to build and operate. Additionally, solar and wind will continue to be the cheapest option. Therefore, renewable energy is Australia’s best choice for generating electricity in the future.
Renewables provide more jobs than gas
Australian thinktank Beyond Zero Emissions created its own economic recovery plan. Its Million Jobs Plan is based on investment in solar and wind power. Likewise, it focuses on energy efficiency. In just one year, these investments would create about 124,000 jobs. In fact, a green economic recovery would create nearly 200 per cent more jobs than a fossil fuel-led recovery, according to Ernst and Young.
Renewable exports are a safe long-term investment
Based on the above finding, WWF proposes that Australia becomes a renewable-export superpower. This would provide long-term value for investors. Therefore, many investors see an opportunity in renewable energy. Specifically, in 2021, 65 per cent of Australian investors said that they would increase investment in renewables. Best of all, renewable exports are a ready-made replacement for the LNG export industry.
For example, Japan and South Korea have set targets to transition to green hydrogen use. Namely, they will use more of the fuel in transport over the next twenty years. Consequently, this creates a potential market for Australian green hydrogen companies. As a result, the Western Australia government expects national low-emissions hydrogen exports to increase in value to AUD $2.32 billion by 2030.
Manufacturers turn away from gas
Manufacturers themselves want to move on from expensive natural gas. For example, in 2020, the Australia Industry Group made a submission to the government. This group represents more than 60,000 businesses. It highlighted that manufacturers mostly just use gas to create heat, specifically as boiler fuel or to provide relatively low-temperature heating. Therefore, the industry body called on the government to help manufacturers replace gas boilers with electric heat pumps. It said this would help businesses “cut costs and allow them to lower emissions”.
This should be the larger goal of Australia’s economy. As outlined above, renewable energy can help the country achieve this. While, on the other hand, natural gas is an expensive fuel. Not to mention, it has an enormously damaging impact on the climate. Furthermore, gas exports hurt both Australian consumers and companies. Therefore, the Australian government should resist the attraction of our gas reserves. Gas simply does not make economic sense.