According to Malcolm Turnbull, the Berejiklian government of New South Wales has completely failed to develop enough gas reserves to head off grave gas shortages and to keep power bills low1.
Turnbull said the government had recently received two reports, one from the Australian Energy Market Operator (AEMO), and the other from the Australian Competition and Consumer Commission (ACCC), which have indicated there will be gas shortages in the east coast domestic market over the next two years. Turnbull said that the government has been advised that there will be a shortfall of about 110 petajoules – more than three times the figure of which they were advised earlier in the year1.
He also said that recent rises in the price of gas were the biggest single factor in the rise in electricity prices. The government’s powers to limit gas exports would be invoked if exporters and states with fracking* bans did not indicate how the shortfall will be met. These powers, known as the Australian Domestic Gas Security Mechanism (ADGSM) were introduced on July 1 to allow the government to intervene to ensure sufficient supply. This requires companies who export gas to either limit those exports or to find offsetting sources of new gas1.
Of course, Turnbull blamed everybody but the federal government, and stated that it was a failure of New South Wales (NSW) and Victoria to develop their own gas resources, whereas he stated Queensland was an honourable exception. By this, Turnbull means that Queensland has allowed fracking in the search for coal seam gas resources. In NSW, there is a ban on the use of BTEX chemicals in fracking, and bans on coal seam gas exploration within 2 km of residential areas, horse studs and wineries1. Turnbull has asked that the NSW government fast-track Santos’ Narrabri Gas Project, which is mostly in the area of Pilliga Forest, with the rest being on or adjacent to farmland. The region’s irrigation body, Namoi Water could not support the project as there was significant uncertainty regarding the impacts on contamination of groundwater and surface water2.
One of the effects which have been modelled was a decrease in the level of groundwater in many (up to 470) water bores. This is because, when drilling takes place (Santos says there will be no need for fracking), it is common for a significant amount of water to have to be removed before the gas starts to flow. This is what leads to the lowering of the water table. If as many bores are impacted as have been modelled then that will require significant assistance for farmers to deepen their bores possibly by as much as 50 metres, so they do not run dry2.
Santos is a company which has suffered serious write-downs in assets. One part of this is its gamble on the east coast gas export industry, particularly its share of one of the Gladstone Liquefied Natural Gas (LNG) trains. These trains came online just as world gas and oil prices plummeted. There is now a gas glut which could last several years, but Australians are still paying over $10 per gigajoule, whereas the ACCC considers that we should be paying about half that3. The reason for this is because we are shipping most of our gas overseas, especially to Japan, China and Korea. The government’s plan is that we simply produce more gas. That, you would think would drive down prices in Australia. However, the export market is huge and is already locked in through export contracts, and according to an analysis by ANZ, Australia will need to lift its total output by 50% just to meet its expected exports in 20204. In addition to the plummeting prices, some of the coal seam gas fields turned out to be less productive and costlier to operate than was expected. As a consequence, LNG exporters have had to ‘raid’ conventional gas supplies mainly in South Australia and Victoria just to fulfil their export contracts. This is what is putting huge upward pressure on local gas prices. And ironic as it may sound, gas was relatively cheap until the LNG export boom began4.
So, Turnbull’s exhortation to approve such projects as Narrabri and to lift the moratoria on LNG exploration and on fracking, would only work if there was an actual market, but what we have is simply a large cartel of six big players (Santos, Exxon, BHP, Origin, Arrow and Shell). That is why conventional gas from the Victorian Bass Strait fields can be piped to Queensland, turned into a liquid, put on a ship, sailed 6,700 km to Japan and sold for less than Victorians themselves pay for it. This is the gas cartel purposely keeping prices high by restricting domestic supply; this despite the current LNG glut and the fact that Asian LNG imports have been falling since 20145.
Australia has more gas than it can poke a stick at, and the LNG exporters have manufactured this crisis5. Turnbull’s implementation of the DGSM6 to ensure there is sufficient natural gas for Australian consumers, will require, if necessary, LNG projects to limit exports or find offsetting sources of new gas6. This latter feature is the reason behind Turnbull’s exhortations to the states to lift their moratoria. After all, one should not affect the profits of one’s donors.
*fracking: an abbreviation of the term ‘hydraulic fracturing’. This is a technique used to increase the rate of oil or gas extraction from a well by high pressure injection of a fluid (usually water but containing sand and guar, ethylene glycol, polyacrylamide, acids, borates and sundry other chemicals). Pumping this at high pressure into a well induces fracturing or propagates pre-existing cracks in the rock, and the sand keeps the fractures open. This effectively increases the surface area through which the gas or oil can be extracted, making the flow faster7.