Brace for NSW's rude energy shock

New parliamentary evidence shows NSW is on track for power shortages from 2015. And gas pipeline and supply capacity from Victoria would need to more than double – at a cost of billions – to meet the state’s post-2016 demand.

As the Liberals and the Nationals get set to snatch the federal legislature back from a fumbling Labor, the largest Coalition government in the country is demonstrating how not to manage a critical issue.

The regional and development committee of the Assembly has been taking evidence through the winter on downstream gas supply and availability for New South Wales.

The emerging picture is not pretty, especially if you are a gas consumer or an employee of a company for which gas is an important input.

For those who have not been paying attention, New South Wales is highly reliant on gas imports from interstate. It consumes 21 per cent of the east coast’s domestic gas supply but produces only one per cent within its borders. The long-term contracts that underpin its gas supply are now rolling off just as the LNG export trade via Gladstone is taking off.

This situation would have been manageable if the Keneally Labor government and the O’Farrell Coalition regime had been on the front foot in settling relations between coal seam gas developers and the rural community.

Having spent almost five years going nowhere, New South Wales faces the prospect of being short on gas as early as next financial year.

Just what this means for the “premier state” has been set out by Santos in a submission to the Legislative Assembly committee.

The gas producer points out that 15,000 industrial jobs in the state are dependent on gas as a critical input – and there are many more employed by small industrial companies that use gas.

“Many businesses, and in particular the large industrial ones, could be faced with closures due to high gas prices caused by lack of supply post 2016-17,” Santos warns.

This is a crisis that has been a long time in the making.

Bob Carr was premier of the state when its resources advisers started warning that ensuring adequate gas supply was a long-term issue that needed attention.

Carr issued an energy “green paper” in December 2005 acknowledging this, but neither he nor his Labor successors could be bothered focusing on the issue.  After all, a ruddy great pipeline was going to bring natural gas from Papua New Guinea, which has oodles of the stuff.

Well, the good people and businesses of Osaka in Japan are going to be using that gas rather than east-coast Australians. Queenslanders are going to get by thanks to more than 4,000 farmers cutting access deals with the coal seam gas mob.

It’s New South Wales that bears the pain. Santos tells the Assembly committee that policymakers should not get too excited about the chances of Victoria’s gas providing a get-out-of-jail card.

“Existing pipeline and supply capacity from Victoria cannot alone meet New South Wales peak demand,” says Santos. “It is insufficient to meet demand on four out of every five days.

“In order to meet demand post-2016, pipeline and supply capacity from Victoria in to NSW would need to more than double at an investment of multiple billions of dollars.”

Not only is this unlikely to happen, adds the company, but this level of development has a lead time of more than five years. In other words, if work began today, it will be 2018 before it is completed.

And putting all the state’s eggs in one basket is not a good idea, Santos continues, pointing to the 1998 Longford gas processing plant explosion that left Victoria without supply for 20 days.

Just to rub in some more salt, it says, think about “the commercial behaviour risks” inherent in having a single supply source and a monstly uncontracted purchasing position post-2017.

Even what Santos is offering to do doesn’t resolve the O’Farrell Government’s problems.

Santos says that, if the government could organise approval for its Pilliga Forest coal seam gas development in northern New South Wales and development could start now, it could deliver 25 per cent of the state’s needs by 2017.

But the reality is that when substantial amounts of Cooper Basin capacity become unavailable to southern markets from 2015, this will leave the Victorian capacity unable to meet New South Wales needs on peak days. This means there will be shortages and price hikes for consumers from 2015. They will get much worse in 2016.

One of the real stupidities of the Greens’ position on coal seam gas is that the most likely escape route for retail, commercial and small industrial consumers in New South Wales is to switch to electricity, which will need to come from black coal-fired generators and whatever can be obtained from brown coal plants in Victoria. Ditto for 1.1 million of the state’s 2.9 million households that now use gas for cooking, hot water and space heating. But of course, they are all going to rush out and buy rooftop solar panels, aren’t they?

Pity the state has a winter electricity peak.

The New South Wales gas problem is a real mess, and it is also a metaphor for the likely incoming Abbott Government: putting off critical decisions, however uncomfortable. But another day comes with a price tag.

Given the importance of New South Wales to Liberal and National politicians at the state and federal levels, and the fact that the polls will barely have closed on 7 September and minds will turn to the elections of 2015 and 2016, the Coalition needs to deal with this issue as soon as possible.

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