Australia’s energy mess to spark our own Trump revolt

If the market is right and the US booms, then watch Trumpism spread to Australia on the back of our energy mess.

A sign warning of the presence of hydrogen sulfide gas hangs across a walkway at the Queensland Curtis Liquefied Natural Gas (QCLNG) project site, operated by QGC Pty, a unit of Royal Dutch Shell Plc, in Gladstone, Australia. (Photographer: Patrick Hamilton/Bloomberg)

Global markets last night declared the looming Trump-driven US boom back on track. For Australia to duplicate such a boom would require four elements:

First, there needs to be a willingness to slash government administrative waste. The Washington reductions (“draining the swamp”) are monumental. Our waste is worse than that in the US. The Abbott government was elected in 2013 on a promise to slash the waste but it didn’t go through with it. There is no political will.

Second, we would need to raise tariffs or introduce an import tax, which means a return to protectionism. Australia says ‘no’.

Third, an ability to run up a huge deficit in the expectation that the tax cuts and infrastructure spending will create a boom. We certainly run big US-style deficits but by via government spending and waste not tax cuts. A mindset change is required which is not in our political DNA.

Finally, and most important of all, Trump is fostering massive energy developments in oil, gas and coal to drive his job creation and middle class income increases (Trump talks to the believers, March 1).

Here we can do the same thing and do it in a way that slashes our carbon emissions. But our politicians, particularly in states like NSW and Victoria, have no concept of the link between employment and gas usage, so we are actually facing a domestic gas shortage and skyrocketing energy prices.

Hundreds of thousands of jobs are linked to gas. Worse still, we have invested in renewable electricity generation but have not invested in base load power generation or energy storage systems like pumped hydro, so NSW and Victoria face blackouts in coming summers when the Hazelwood brown coal generator is shut down. You can’t have an investment-led recovery like the US when there are energy shortages.

Of the four US elements, energy goes to the core of why the Australian domestic economy will struggle and requires savings run-downs or borrowing for houses to maintain domestic momentum.

It is becoming clearer and clearer that the Origin and Santos consortiums in the Gladstone LNG projects are seriously short of gas from the Surat basin and surrounding areas in Queensland, so they are going to continue sucking gas out of the Cooper Basin and Bass Strait that supply NSW and Victoria — exactly as the chief of BlueScope, Paul O’Malley warned.

How do we solve this problem? We have the gas but state politics is preventing its development (An easy fix for our east coast gas mess, February 7).

On the surface the most straight forward way would be to bring in a third political party in New South Wales and/or Victoria (either to the right or to the left) who understands the link between gas and jobs (The people will punish our energy vandals, February 21).

But that’s hard work and there are no obvious candidates at this stage, although one might emerge.

So we’re really left with only one alternative — the Bowen Basin in Queensland although there is gas in the Northern Territory but that too is being blocked by the Northern Territory administration.

The gas in the Bowen Basin is owned by Shell and Petro China. The Bowen Basin gas was originally owned by BHP and then AGL. Shell and Petro China bought the gas field for $3.5 billion and have since invested large sums in it. (Shell and AGL in the north Bowen Basin supply gas to Townsville, including Clive Palmer’s nickel plant).

There are huge reserves but they are deeper than the Surat basin further south and much more complex. Shell and Petro China drilled a series of some 20 pilot wells but not all of these flowed as well as Shell had hoped, so more work is required to extract the gas economically.

It will therefore take some years to bring Bowen gas to market and the outlays will be large. Probably the best alternative is to pump the gas 250 kilometres to the Wallumbilla gas hub where it can be piped to Sydney and Melbourne.

Alternatively, it can be pumped 500km to Gladstone to reduce the Santos and Origin shortfalls so that they’ll no longer require gas from the Cooper or Bass Strait.

When Shell purchased British Gas in 2015, it acquired the BG LNG project in Gladstone, which is now owned in a consortium with a different Chinese partner. Shell has sufficient Gladstone gas so it doesn’t need to suck gas from the Cooper and Bass Strait to honour its commitments.

Given the costs and complexity of developing the Bowen Basin, it’s probably not at the top of Shell’s agenda. More importantly, Shell needs to make sure it continues to drill in the old British gas areas in the Surat, so that there continues to be enough gas to supply its LNG requirements.

To develop Bowen gas will not only require more development work but the buyers of gas in Victoria and New South Wales will need to come together and offer an iron clad contract to take the gas.

In the past, because we had abundant gas in the Cooper Basin and Bass Strait, Australian gas buyers have never had to secure their supplies. But now they do and the gas will not be cheap but at least it will be available. Of course, the frustrating part of this is that our governments/oppositions in Victoria and NSW are stopping the development the reserves of gas in their states.

These are the sort policies that in the US created the Trump presidency. If the market is right and the US booms, then watch Trumpism spread to Australia on the back of our energy mess.