Malcolm Turnbull is back in national sheriff mode, bringing his tough guy swagger to warn gas companies they risk their “social licence”.
“I can say that the gas companies, I have no doubt, are very well aware that they operate with the benefit of a social licence from the Australian people and they cannot expect to maintain that, if while billions of dollars of gas are being exported, Australians are left short,” the PM, in full lecture mode, said this morning.
“It is not acceptable for Australia shortly to become the world’s largest exporter of liquefied natural gas, to not have enough gas for its own families and its own businesses.”
By the evening, he was in front of the cameras again, announcing the gas companies had given guarantees on supply for the domestic market.
His morning salvo was not unlike the scolding he gave the banks nearly 12 months ago as he resisted a royal commission, a fact Phillip Coorey points out in the AFR today.
Turnbull is yet again berating the states – mostly NSW, Victoria and Northern Territory – for blocking gas exploration. Last week, Victoria passed legislation banning onshore gas extraction in perpetuity.
On this front, you can at least say the PM’s view is bipartisan, since the Labor in Victoria and Coalition in NSW have both banned fracking and issued moratoriums in the face of overwhelming community opposition. But The Nationals’ future election prospects will be stung by the reawakening of this sleeping dragon.
As anyone who’s observed the fight over exploration on private farms properties recent years knows, the issue for many in regional Australia would say is the very essence of a social licence. Yesterday, South Australia made a commercially shrewd decision to share 10% of state royalties with landowners who open their land to gas extraction.
But if you believe the political pantomime of Turnbull’s meeting with gas company executives today, this issue has somehow magically snuck up behind everyone and that it is only now we need decisive federal action from the PM.
Turnbull’s intervention appears not unlike an Elon Musk tweet that can suddenly solve a major problem.
Warnings for years
People have been sounding the alarm on the nation’s gas shortage for years, but up until this point, the Turnbull government perhaps didn’t believe it as a serious enough problem to intervene.
If you want proof, here’s former federal MP Ian Macfarlane, Australia’s longest serving federal resources and energy minister, speaking to Business Insider in September 2014, warning that NSW needed to get cracking on developing its own gas reserves, because it was relying on imported gas, mainly from South Australia and Queensland.
He said (emphasis added):
“NSW can’t expect other states to subsidise its industry by selling gas to NSW at a discounted rate, thereby short-changing the people of their own states,” Macfarlane said.
He said at a federal level the government will have to take a “leadership role” coordinating discussions about creating a national gas market, including building a pipeline from the Northern Territory to the east coast.
“This proposal is unlikely to result in cheaper gas for the NSW market nor is it likely to be completed by the time NSW faces a gas supply crunch in 2016/17,” Macfarlane said.
One of Macfarlane’s solutions to the looming crisis for NSW was a $1.3 billion, 1000km pipeline between Alice Springs in the Northern Territory and Moomba in South Australia to create a national gas grid.
The Northern Territory’s former chief minister Adam Giles ended up turning the idea into reality in 2015 with the North East Gas Interconnector project, but sent the 622km pipe from Tennant Creek to Mt Isa in Queensland, rather than South Australia. Work on the project is currently progressing.
Almost to the day three years ago, Business Insider reported gas utility AGL warning that NSW was heading towards a supply cliff and could experience gas shortages from the winter of 2016 amid expectations that annual east coast gas demand would increase three-fold to around 2100 petajoules. A relatively mild winter meant it wasn’t an issue.
Incidentally, last winter, AGL warned its profits were taking a hit due to high gas prices.
Here’s AGL’s warning on rising power costs due to more expensive gas from an investor presentation last May:
Back in September 2014, BIS Shrapnel released a report warning the rising cost of gas will increase pressure on Australia’s heavy manufacturers, estimating that one in five big manufacturers would shut down over the next five years (i.e. to 2019) as rising gas prices ate away at margins.
And for anyone who missed it 30 months ago – 12 months before Turnbull put an end to Abbott’s leadership – here’s the killer line:
BIS Shrapnel also estimates a substantial jump in gas prices will cause a net loss to the Australian economy of about $101 billion and household gas bills will increase by more than a quarter over the three years from 2015.
So this was a forecast from nearly three years ago that a $100 billion truck was barreling down the highway to smash into the Australian economy.
At the same time, former AWU national secretary Scott McDine was also trying to raise the alarm, launching the union-backed lobby group Reserve Our Gas.
“Australia is the only nation on earth allowing exporters to extract our gas without restriction and sell it back to us at the global price,” he said at the time, warning that without the quotas Australians could be looking at a gas price of up to $18 a gigajoule. At the time the price was $3-$4.
Two years later, it was between $9.60 and $13.90 a gigajoule, depending on where you lived. And as Malcolm Farr pointed out last August, the fact that Australians were paying up to 65% more for local gas than when it’s exported to Japan (and all the additional costs LNG involves) was on the agenda a meeting of energy ministers at the Council of Australian Governments Energy Council, under federal minister Josh Frydenberg at the time.
Israel, Indonesia and Egypt all have domestic market quotas for local gas extraction. US gas exports have a public interest test so authorities can maintain a level of control over export volumes, to ensure LNG demand doesn’t outstrip supply and create domestic shortages that push up prices. In Norway, Qatar and Russia, state-owned companies take on the role of a producer to ensure a domestic advantage. Of course Russia also uses gas as a political weapon and threatens to cut supplies in Europe.
Only Western Australia mandates that 15% of the state’s gas be reserved for domestic consumption.
This is a massive policy failure by government that’s continued for nearly three years amid alarm bells being continuously sounded.
“We just need to do what every other gas-exporting nation does and bring in laws to look after the local population,” AWU’s Scott McDine told Business Insider in 2014.
“We are throwing away hundreds of thousands of jobs, and our national competitive advantage, simply so gas exporters can squeeze a little extra profit out of what is already a spectacularly profitable business.”
Within days, Australia’s peak oil and gas body, APPEA, said it opposed domestic quotas, claiming “reservation doesn’t work” and penalise exporters and hinder investment.
“The only solution to gas shortages is to develop more gas. It’s simple,” APPEA said in 2014.
This year, Australia will become the world’s largest exporter of LNG.
Time to act
Turnbull said the Commonwealth “has considerable power with respect to any exports of any items, including gas”, but “what I’m seeking to do is to ensure we have action from the gas companies”.
Amid the federal government’s continued political bluster over energy policy – a cycle Atlassian billionaire Mike Cannon-Brookes hoped to break in enlisting help from Tesla’s Elon Musk – the question remains why there has been so little action from the Commonwealth beyond its constant shouting at the states and why Turnbull’s solution is to make the very people who’ve been warning about this problem for years do something instead.
For a long time now the industry sector, investors and broader business community have all been calling for policy certainty from the Turnbull government. Still they wait.
When South Australia released its energy plan yesterday, it received broad community and business support, a notable exception being federal minister John Frydenberg, who immediately dismissed the entire proposal.
BHP Billiton said “it was pleasing to see the plan address the critical issue of energy security through a number of infrastructure and policy initiatives”.
AGL called it “a considered and comprehensive approach to meeting current challenges in the market”.
Frydenberg said: “the measures announced today will only increase electricity prices for South Australians”, adding he was seeking legal advice on whether South Australia was “in breach of the national electricity market rules”.
This from a minister who talks about the need to rethink the grid.
It appears there are limits in federal politics to the innovation nation and the disruption the PM urges everyone out working in the economy to embrace.
Right now, many await the final report by the nation’s chief scientist, Dr Alan Finkel, into the Future Security of the National Electricity Market (NEM).
Finkel’s report says there’s a “once-in-a-generation opportunity to reform the NEM to make it more resilient to the challenges of change”.
Many hope this is the point at which Malcolm Turnbull will take action beyond telling everyone else to do something.
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