O’Farrell's double-barrel gas plan will backfire

The NSW premier's decision to play politics with both sides of the gas debate won't get him very far - especially now federal industry minister Ian Macfarlane is stepping in.

New South Wales Premier Barry O’Farrell is playing a two-sided game in the state’s coal seam gas imbroglio.

In the wake of his government’s ‘energy summit’ at the end of September, he has resources and energy minister Chris Hartcher out and about explaining how barriers to resource development in the state are being removed. But, via his parliamentary secretary Marie Ficarra, he is also writing to people concerned about the issue to boast of his regulatory steps to bar CSG activity from a widening area of the state.

Hartcher’s next opportunity to explain how the state government is addressing what federal industry minister Ian Macfarlane describes as “a looming gas crisis in 2016″ will come on Thursday when he speaks at Eastern Australia’s Energy Market Outlook conference in Sydney. On Friday, I will chair a half-day forum on New South Wales gas supply at the end of the conference, which will include the Australian Workers’ Union’s national secretary Paul Howes and Manufacturing Australia chairperson Sue Morphett as speakers.

The forum is being held just as the Business Council of Australia is illustrating its concerns by pulling together 16 chief executives from its leading company membership, drawn from users and energy suppliers, to consider the current issues – not least the CSG impasse.

One of the council’s prominent chief executives, BlueScope boss Paul O’Malley, has described the gas situation as “a looming train wreck”, and Macfarlane is telling media that he wants the NSW problems resolved by the year’s end.

Macfarlane thinks the situation sufficiently serious to warrant holding a meeting of state and territory governments “before Christmas” to seek a solution.

Meanwhile O’Farrell, via Ficarra in a message that does not contain a single syllable on the high and rising concerns about delivery of an adequate gas supply to the NSW economy, is telling the community that his government “has introduced the toughest CSG laws in Australia” to balance the land use needs of “our important farming and resource industries”.

The letter’s main thrust is to explain that the government has already barred 2.3 million hectares of the state to CSG activities, is looking at excluding another half a million hectares and is considering, under its “gateway” regime, steps to strongly regulate CSG intrusions on a further three million hectares of agricultural land.

“These proposals demonstrate that the state government is resolved to strike a balance so that agriculture, communities and resource development can co-exist,” Ficarra writes.

While this is going on, the NSW Labor opposition is seeking from its position of extreme parliamentary weakness to push legislation to ban CSG activity is areas around the state’s water storages for Sydney, the Illawarra, the Blue Mountains, the Southern Highlands and Shoalhaven – some 371,000 hectares.

The upstream petroleum industry, meanwhile, is pointing out that even where eventually the state government approves a CSG project, the “merit” appeals process in the regulatory regime means that third parties can tie up companies in protracted court battles.

Santos’ James Baulderstone, who is spearheading the company’s $2 billion attempt to extract CSG from the Pillaga area, says the appeal set-up “makes investment almost impossible”.

However frustrating it may be for wannabe suppliers and worried consumers, politics is now the key to this situation.

As we go in to 2014, we can be certain that Premier O’Farrell is increasingly focussed on the state election of March 2015. Ficarra’s communication highlights this.

O’Farrell’s dilemma is that almost nothing his government can now do will ward off substantial further wholesale price rises for gas, feeding in to retail bill spikes that a million households and a large number of businesses will find unpalatable.

This is an east coast situation, not just one for NSW. Origin Energy, in its latest roadshow for stock market analysts, is pointing to eastern Australia’s wholesale gas prices rising from just under $6 per gigajoule now to around $10/GJ by 2017. They were under $4 less than three years ago.

How could a Pillaga development approval at some point in 2014 see a significant gas flow for New South Wales by 2016 or even 2017?

The environmental movement views this outlook as a plus in its campaigning against CSG in NSW.

Its line of chat is that exposure to global prices via the Gladstone LNG developments will see wholesale prices increase substantially regardless of these developments, “so why put a lot of wells all over the state and endanger the water supply and productive farming land just to give the gas industry profits?”.

Politically, the O’Farrell government has spent the best part of three years putting itself in a lose-lose position on this issue and, reading the Ficarra missive, one wonders if a cold-blooded decision has been made at the top to “save the furniture” in rural and regional seats and leave the hard CSG development decisions to be made in a full-blown crisis post-poll.

Just how reckless this would be in terms of economic and social disruption – and not only in NSW, given the prospect of ‘gas-outs’ in the state during peak demand – may explain Macfarlane’s “we’re running out of time” statements and pressure for yet another summit meeting with the federal government in the chair.

How more jaw-boning can save the day in the relatively short term for the east coast manufacturing sector and thousands of employees in high gas-use industries is hard to see.

Keith Orchison, director of consultancy Coolibah Pty Ltd, publisher of the This is Power blog and editor of OnPower newsletter, was chief executive of two national energy associations from 1980 to 2003. he was made a member of the Order of Australia in 2004 for services to the energy industry.

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