Victoria’s gas crisis leaves the state in a dangerous power situation

Victorian Energy Minister Lily D'Ambrosio during a gas press conference in Melbourne. Picture: Luis Enrique Ascu/NCA NewsWire

It has taken 10 years of foolish mistakes and bad decisions, but finally key people in the Victorian government understand that they face a desperate gas crisis and a very dangerous power situation.

Naturally, the state’s Premier will deny there is a crisis, but both the Victorian cabinet and Federal government are fully aware of the truth.

The great danger for Victoria and Australia is that the state’s desperation will lead the government to take even more foolish decisions that will impoverish the state for decades. And given Victoria is Australia’s second-largest by population, it will impact the whole nation.

It is easy to blame the crisis on politicians who did not have the ability to do the job, but the failure of the local Victorian media to highlight the tragic energy mistakes of the government and the endless internal squabbling of the state Opposition, plus the failure of the rating agencies to properly assess Victoria’s mess have all been big contributors to the crisis.

The gas crisis has been well forecast, but Bass Strait is finally running down so Victoria needs gas for its industry and homes. The days of Victorian Minister for Energy and Resources, Lily D’Ambrosio incorrectly blaming Queensland for the Victorian looming crisis are over. Only Victoria is to blame for what has happened. It is now scrambling for gas. There are six alternatives on the table, all of which have problems.

Victorian Energy Minister Lily D'Ambrosio at a gas press conference in Melbourne. Picture: Luis Enrique Ascu/NCA NewsWire

Alternative 1

Victoria has the best undeveloped gas deposits in Australia. They are on shore and are dissolved in very deep water, so don’t require fracking. The co-product, water, will enable carbon absorbing plants to store the emissions, making the deposit arguably the lowest net emissions gas in the world. The contingent reserves have been calculated by American top gas analysts and Esso in conjunction with BlueScope Steel wanted to develop but was banned first by the 2014 Coalition Napthine government and then by the Andrews ALP government. The gas leases are now held by the government, but to develop that gas – even spending the $30m required to test permeability – would mean the Victorian government confessing to the electorate 10 years of bad policy. This would cost the government key inner-city seats. Accordingly, this very low-cost way of solving the state energy problem (and enriching its finances) is off the table.

This surely must be among the worst government decisions ever seen in the nation. So then to alternative two.

Alternative 2

The giant Beetaloo gas field in the Northern Territory. It probably would take between two and three years to construct the pipe network required to connect Beetaloo with the National Grid and supply Victoria with substantial gas. At the moment top of the Beetaloo agenda is supplying Darwin and there is still a lot of work to prepare the field for full development which again might take two years to three years.

The Commonwealth government would need to step in and speed up the process but of course for Beetaloo the danger would be that it accelerates production and network construction only to have the Victorian Coalition come to power in two years and decide to drill the six wells required to prove permeability of Victoria’s massive low cost gas reserves.

The Beetaloo contracts would need to be a very firm to justify the expenditure acceleration.

The Beetaloo consortium have an enormous field and a major future export project.

But it does require fracking, so there has opposition to it. The desperation of Victoria means that if Beetaloo is the best alternative to prevent a Victorian crisis, then there will be major national pressure to accelerate development.

Alternative 3

Extra drilling in South Australia can increase gas production.

Alternative 4

Similarly, further drilling in Queensland could help. There are also small Victorian gas deposits outside the major Gippsland field that can be developed.

Alternative 5

And then of course there is the Narrabri gas fields in NSW, which have been delayed almost endlessly.

Alternative 6

The out of its depth Victorian government has come up with the bizarre idea of a floating LNG plant stuck in the middle of Port Phillip Bay. Because of the Russian and Middle Eastern situation, Europeans are erecting floating gas terminals at a much greater rate than previously, so creating a shortage and boosting leasing costs.

Given that demand, leasing a floating gas terminal will be incredibly expensive and land Victoria with huge gas bills.

Fortescue’s Andrew “Twiggy” Forrest actually has a floating gas plant which he rents to Egypt. Given enough money, he might be convinced to break the Egypt deal and bring it to Victoria to satisfy the politicians.

Twiggy will make a fortune and the state will be lumbered with huge gas costs. The great advantage of a leased plant is that when cheaper gas is available, the plant can be removed from the bay.

Anthony Albanese with mining magnate Andrew Forrest at an event. Picture: David Crosling/NewsWire

An even more bizarre plan is to put a permanent LNG liquefaction plant in Geelong. That means the state will be saddled with extraordinary expensive gas for a generation or two. Industry should expect an e uneconomic 50 per cent rise in gas prices (retail consumers will have a reduced blow) should Victoria go the LNG route.

And, as with Beetaloo, if the Coalition gets power in two years time; drills the six permeability wells and then proceeds with Exxon’s original low cost development plan, Victoria will not need LNG

On the other hand, the opposition leadership is still squabbling, and it might take a lot longer than two years for them to get their act together. For Victoria, the only hope for low-cost gas is that the local media will grasp the crisis and tell their readers the truth.

The power story is nearly as bad The massive solar and wind farm projects and their horrible transmission lines are meeting very severe (and understandable) public opposition, and they are way behind schedule and over budget.

So, a new idea has been dreamt up by D’Ambrosio to put wind farms in Bass Strait. Bass Strait wind farms require an enormous investment, which must be amortised over less than two decades. Apart from the solvency of the state itself, the developers will take no risk and make big returns.

The current calculations are rough, but an annual subsidy of $4bn to $5bn will be required to get this power to market at anything like economic levels. By any estimation, nuclear power is far, far cheaper than wind farms in Bass Strait.

With a bit of luck, Canberra will dictate what must happen in the crisis state.