Australia is in the grip of an energy crisis

AUSTRALIA is in the grip of an energy crisis. Power bills have gone through the roof and businesses are hitting the wall. Worse still, regulators this week warned of an ­extraordinary gas shortfall on the east coast next year.

Coal is losing out to natural gas and renewables for electricity generation. Picture: Jim Urquhart

SOMETIMES you really have to wonder about the antenna of our state politicians.

Australia is in the grip of an energy crisis. Power bills have gone through the roof and businesses are hitting the wall. Worse still, regulators this week warned of an ­extraordinary gas shortfall on the east coast next year.

There’s plenty of blame to go around, but somehow our state leaders shirk responsibility. They appear on factory floors and talk about jobs as if power prices have nothing to do with them.

For years they have been gripped by fear on coal-seam gas, terrified by the political pressure from green groups, some farmers and broadcaster Alan Jones. Siding against CSG has been a safe bet until now, but the political ground is shifting.

This week’s reports from the Australian Energy Market Operator and the Australian Competition and Consumer Commission should be a wake-up call. The east coast is facing a severe gas shortfall. The biggest reason for this shortfall is not increasing exports, it’s increasing demand at home.

As old coal-fired plants shut down, energy companies need gas. With all the focus on AGL’s plan to close its Liddell coal-fired power station, few have paid attention to the fact it intends to replace it with gas.

Sure there will be renewables in the mix, but gas will provide the baseload supply when demand peaks. Manufacturers need gas too. Glass makers, smelters, plastics and chemical plants rely on affordable gas and simply can’t access it. This is squarely an area of state responsibility.

Geoscience Australia reckons Victoria is sitting on 27 trillion cubic feet of gas, enough to supply the entire east coast market for 40 years. Yet the Andrews Labor government has legislated an outright ban on “unconventional” (coal-seam) gas exploration. This blanket approach has bipartisan support from the Liberal/National opposition. Victoria also has a moratorium on “conventional” gas development to boot.

David Speers

NSW technically doesn’t have an outright ban, but the green tape and other restrictions in place have the same effect. Santos has spent a decade and $1 billion trying to develop a big gas project at Narrabri that would supply half the state’s needs. While this regulatory nightmare drags, NSW imports 95 per cent of the gas it uses. Premier Gladys Berejiklian says the policy won’t change. She’s under no pressure from the state Labor opposition either. Acting leader Michael Daley this week even suggested “there is no gas shortage on the east coast of Australia”. What planet is this guy on?

The ACCC says gas prices would be 25 per cent lower in NSW and Victoria if they dropped these restrictions. The Prime Minister is now explicitly telling households and businesses in these states to blame the ­Berejiklian and Andrews governments. The Turnbull strategy is now to make that blame stick.

On Wednesday the Prime Minister had a win. He convinced the major LNG exporters to make enough gas available in the east coast market to meet the predicted shortfall for the next two years. It’s not a permanent solution, but a start. Turnbull didn’t “pull the trigger” on export controls, because he didn’t need to. The threat of the trigger worked.

Labor was left looking slightly ridiculous. It was demanding Turnbull pull the trigger before the scale of the gas shortfall was actually identified. It still wants the trigger pulled now, even after the gas companies have acted. This “Yosemite Sam” approach is more about looking tough than ­actually getting tough.

When it comes to the states, federal Labor isn’t muscling up. Earlier in the year, Bill Shorten said the states “are producing enough gas”. He now agrees they “do need to do more”. His front bench, meanwhile, is torn over whether coal seam gas is a good thing or a bad thing.

Of course protecting the environment is important. Without delving too far into this debate, let’s just consider the view of the Chief Scientist Alan Finkel on coal-seam gas mining.

“It’s being used widely across America”, Finkel points out. “The evidence is that, if properly regulated, it’s completely safe.” So if the states won’t listen to the Prime Minister, the Chief Scientist, the ACCC, struggling manufacturers or battling households, what will change their minds? Let’s see if money makes a difference.

The Commonwealth Grants Commission on Thursday flagged an important change to how it doles out GST revenue to the states. In an interim position paper, the commission made clear it does not want to “unduly penalise or reward states which, in similar circumstances, adopt very different policies towards potential mineral and energy developments (for example, coal-seam gas developments).” In other words, why should a state that’s exploited its resources, like Western Australia, be penalised, while others who refuse to do so are rewarded? This warning on coal-seam gas from the Grants Commission is significant.

If NSW and Victoria start to lose GST revenue ­because of their timidity on gas, this issue will really bite. It’s extraordinary the political leaders of both parties in our two most populous states can’t see where this gas ­debate is going and re-position.