Industry Minister Ian Macfarlane is caught in a gas supply crunch between three powerful forces:
– heavy industrial manufacturers;
– the oil and gas sector; and
One way to relieve the tension which is not getting much attention is to help the industrial manufacturers and, indeed, all energy consumers become more energy efficient so they use less gas.
The clash between the three groups boils down to the following:
Many large industrial manufacturers, finally getting a break via a decline in the dollar, are now getting hit by rapidly escalating gas prices. According to Santos, and also agreed by most market analysts, wholesale gas prices will double from historical levels of about $3 to $4 per gigajoule to around $6 to $9.
There are also concerns that gas producers are finding it harder to extract methane from Queensland coal seams than they had originally envisaged. This is partly due to geology and partly due to community resistance. This could lead to a temporary spike in prices between 2014 to 2017 as producers scramble for extra gas beyond their own Queensland tenements, in order to satisfy their LNG export contracts.
To date the coal seam gas sector has focused much of its extraction activity in agricultural areas of relatively low productivity, focused mainly on pastoral grazing. Also, one area of CSG activity around Roma, in southwest Queensland, has had the gas extraction industry around for decades. The dense network of gas wells and access roads associated with coal seam gas extraction, as illustrated below, aren’t such an issue for these farmers. While the income from each gas well can make a big difference, especially with droughts a regular problem.
Figure 1: Roads and other infrastructure in a CSG field near Dalby State Forest, southern Queensland.
Scale widthways: 6.8km. Source: Eco Logical Australia 2013 cited in BREE (2013) Gas Market Report – October 2013
But greater farmer resistance to gas production has been encountered in NSW where the CSG fields are located in areas with greater agricultural fertility and where cropping is more common. This means the network of wells and roads is more of an imposition on farming and the income from gas wells less significant.
Macfarlane is hoping he can address this clash, freeing up more gas supply, by persuading farmers in NSW but also Queensland that it’s in their financial interests to allow CSG development. The problem is, he’s up against some entrenched opposition and developing new CSG fields takes time, even with approvals in place – Origin’s Grant King spoke of a three-year timeframe and Santos’ James Baulderstone has said they’d need until 2017 to bring on gas from their NSW fields.
In addition, Baulderstone explained to me last week that price rises to $6 to $9 per GJ are unavoidable, although NSW CSG development should avoid supply shortage spikes much above this level.
Another alternative available to Macfarlane is to help consumers consume less gas through energy efficiency. Analysis by ClimateWorks detailed in the chart below, found that energy efficiency improvements could free up 92 petajoules of gas per annum within manufacturing and 104 petajoules overall. Accessing all of this is unlikely but, to put this into context, NSW’s entire annual gas consumption is about 140 petajoules.
Source: ClimateWorks (2013)
Improved energy efficiency in manufacturing not only frees up gas for others, it acts to permanently enhance the competitiveness of manufacturers, so they avoid having to pay for a gigajoule of gas altogether.
Macfarlane could provide such assistance relatively quickly but only if he was willing to piggy-back off government programs introduced as part of the carbon pricing legislative package.
The Clean Technology Investment Program provides grants of up to 50 per cent of the cost of energy efficiency upgrades within manufacturing businesses. During the election campaign, the Coalition announced it would cancel this program saying it was no longer necessary with its plan to abolish the carbon price.
However, abolishing the carbon price is unlikely until July next year. While the program is not particularly well-designed to maximise the government’s bang for buck, it has established processes in place that manufacturers are already accessing to improve their energy efficiency. Some businesses are achieving extremely large reductions in energy costs of the order of 30% through this program.
Also, the Coalition announced it would abolish the Clean Energy Finance Corporation (CEFC), which has $10 billion available to lend for energy efficiency upgrades, in addition to renewable energy projects. However, the Coalition also said it intended to keep Low Carbon Australia, which was actually merged into the CEFC some months ago.
By keeping much of the CEFC machinery and personnel intact, but changed back in title to Low Carbon Australia and focused on energy efficiency, it could also deliver energy efficiency projects quite quickly.
Energy efficiency is often overlooked but could provide some relief for manufacturers, while also helping Macfarlane and his colleague Environment Minister Greg Hunt with their political pickles.