Nev Power says cheap gas is achievable as a ‘stretch target’
COVID response chief Nev Power admits his $4 plan for domestic gas prices is a ‘stretch target’, but is achievable in the long term.
National COVID-19 Coordination Commission chairman Nev Power has pushed back on energy industry criticism of his $4 target for domestic gas prices, admitting the low price is a “stretch target” but saying it’s an achievable goal in the long term.
Mr Power said on Wednesday Australia’s success in combating the coronavirus could allow a reinvigorated manufacturing sector – focused on downstream processing of Australia’s minerals and energy resources – to take advantage of global supply chain issues caused as COVID-19 advances through South and North America, and Asia.
He told the Mines and Money Virtual Connect conference Australian industry should look to push down the processing chain in nickel, lithium, fertilisers and petrochemicals to break the processing “oligopoly” held by major manufacturing nations in Asia – and cheap gas and energy prices were the key to success.
“We’ve put out there some target of around $6 in the short term and $4 in the long term as a direct comparison with the Henry Hub price in the US. Now I’m the first to admit there are a lot of differences between our gas supply here in Australia and the Henry Hub,” he said.
“But as many of you would know from my history it’s about setting those big stretch targets and then looking at all of the factors – in productivity, in supply right through the supply chain – to work out how we can get there.
“If we can provide competitively-priced gas into the manufacturing sector we can develop fertiliser manufacturing and petrochemical manufacturing – these are products we already have scale in.”
Mr Power’s comments come after energy majors and manufacturers clashed over the issue on Tuesday, with gas producers pushing back against the commission’s suggestions of government intervention in the gas markets.
The Australian chairman of ExxonMobil, one of the biggest gas suppliers to the east coast, told the annual Credit Suisse Australian Energy Conference on Tuesday that government intervention in the east coast gas market – including domestic reservation policies and taxpayer-underwriting for a transcontinental pipeline, both ideas floated by the NCCC – could see planned investments culled due to artificial market conditions.
ExxonMobil’s Nathan Fay said the remedy was bringing on new supplies which would ease pressure on demand and reduce pressure on prices.
But Australia’s largest commercial gas user, Incitec Pivot, said there was no evidence that a supply boost would cut prices.
“The experience on the east coast over the last decade shows us that increasing production does not improve prices for local businesses or households,” Incitec chief executive Jeanne Johns said in a statement.
“In the last decade gas production on the east coast has tripled, and at the same time prices have tripled.
Mr Power did not directly address the argument flowing from the Credit Suisse conference, but said removing red tape and freeing up more of Australia to minerals and energy exploration was another key focus of the commission’s work.
But he said that while Australia’s mining sector had held up well through the coronavirus crisis, it should not be complacent, as the spread of the coronavirus could eventually hit demand for Australian resources products.
“We’re all waiting and bracing for the impact as it goes to Africa and other parts of Asia. It could well be that Australia and New Zealand – and perhaps a few other nations – are islands that have very low levels of coronavirus in a world that has high levels of the virus,” he said.
“That will restrict travel and will likely impact demand for our raw materials as well. So while it won’t be impacting us from a supply perspective, I think there is a very real perspective about the global economy and the impact on demand for us here.”
Mr Power said that could offer an opportunity to realise long-held Australian ambitions to build scale in downstream refining of our resource exports, particularly in critical minerals and petrochemicals.
“In a lot of cases with critical minerals and battery minerals much of the processing is done in one or two countries globally, which means we’ve got a monopoly or oligopoly formed in that mineral processing and there’s an opportunity to move downstream and leverage the fact that we’ve got the raw materials here and – at least in some parts of the country – low energy costs, and the availability of skilled labour,” he said.
“So lithium and nickel would be the best examples of this, but there are others in the rare earths and critical minerals area we can look at.”
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