O'Farrell must take Obama's lead on gas

As the US president gives credit where it’s due to the gas industry’s economic role, the O’Farrell government’s hard line looks like trebling wholesale prices.

The frustration of the gas industry with the level of debate about its exploitation in Australia is only too evident. It has shown up again in the past week in the industry’s key lobbyists, the Australian Petroleum Production and Exploration Association, springing on US President Barack Obama’s State of the Union address to make a domestic point.

Obama told Congress that one of the main factors in America’s current push-back towards economic health is the gas industry, “a bridge fuel that can power our economy with less of the carbon pollution that causes climate change”.

“Why,” demands APPEA, “can’t our elected representatives show similar support here?”

The especial government target for APPEA and its gas industry members is Barry O’Farrell’s New South Wales regime; every step it takes adds to their ire.

The O’Farrell government has just announced new regulations affecting coal seam gas development that cover “critical industry clusters”, residential zones, seven villages and future residential growth areas. In all, this covers some 5.3 million hectares – that is, 50,000 square kilometres, or the equivalent of more than 20 Australian Capital Territories. A little less than half of it is an exclusion zone for CSG and the rest is “safeguarded” by requirements for independent scientific investigation of the industry’s impacts.

APPEA executive Paul Fennelly, the association’s front man in eastern Australia, retorts that when it comes to ranking New South Wales as a place to do upstream petroleum business the state now ranks 145th on a list of 157 global regions and 127th for the costs of regulation compliance.

The Canadian Fraser Institute’s global petroleum survey, he says, puts the state behind South Sudan, Somaliland, Kyrgyzstan, Kazakhstan, Uzbekistan and Bolivia – and this for an economy that imports 95 per cent of its gas needs from other parts of Australia and, says APPEA, knows that failure to develop gas supplies within its borders will lead to higher consumer prices.

Other Australian states are world leaders on the Fraser Institute list, says Fennelly, and the present situation makes a mockery of O’Farrell’s election promise to “make New South Wales number one again”.

Two events just ahead are going to throw the New South Wales situation into the spotlight again: one is the Australian Domestic Gas Outlook conference in Sydney at the end of February – which I am co-chairing – and the other will be the biggest resources forum of any year, the 2014 APPEA annual conference, held in Perth at the start of April and expected to attract 4000 attendees from 30 countries.

One of the keynote speakers at the APPEA conference will be federal industry minister Ian Macfarlane, whose department has recently published a review of the east coast gas market that warns of the prospect that, because of barriers to bringing on more fuel for domestic use, prices could exceed netback values for liquefied natural gas trade.

For ordinary folk, this is a suggestion that gas prices, which were only $4 to $5 per gigajoule two to three years ago, could not just hit double this cost – which has been a cause for consumer concern for at least the past 12 months – but might go spiking out towards $12.

Translated, a trebling of wholesale gas prices on the east coast could represent a 45 per cent increase in end-user bills.

The O’Farrell government is presumably banking on the fact that this ‘shock, horror’ scenario is only likely to emerge beyond the middle of the decade and it can play its present line to political advantage at the next state election, fixed for March 2015.

How far the Coalition federal government is willing to play along with this game is an open question, especially as eastern Australia’s manufacturing woes continue to ratchet upwards.

APPEA has nothing to lose in slamming the O’Farrell government and at present it is harping on the comments of Peter Reith, who chaired a gas review for Victorian premier Denis Napthine – another who doesn’t want a bar of CSG activity with an election looming.

In an end-January statement, APPEA quotes Reith reminding O’Farrell that: “If you are the premier of New South Wales, you are paid to consider the state’s interests and not just to join up with the greenies in walking away from an important issue.”

Reith warns that Sydney faces a situation where there will be days when it “goes without gas” – a reference to the possibility of critical winter peak shortfalls later this decade.

Macfarlane’s department, in its market review initiated by Labor’s Gary Gray and launched at the 2013 APPEA conference, has been blunt in its advice to state governments: they should not unnecessarily restrict supply development, particularly in a period of tightness, and they should focus on removing impediments to supply and “maximising opportunities from their acreage”.

This is the exact opposite of what O’Farrell & Co are doing, and their constituents are far more likely to hear media coverage about the perceived bad things related to CSG development than they are about their potential consequences of the Californication of New South Wales.

Keith Orchison, director of consultancy Coolibah Pty Ltd and editor of OnPower, was chief executive of two national energy associations from 1980 to 2003. He was made a Member of the Order of Australia for services to the energy industry in 2004. He is chair of the Australian Domestic Gas Outlook conference 2014.