Weatherill's coal seam cash injection

It’s easy to believe that the hand wringing going on in New South Wales and now Victoria over coal seam gas development is leading to a certain amount of quiet hand rubbing in the corridors of power in Adelaide.

The gas saga has become a tale of four states, one (Queensland) relishing the boom CSG has delivered locally, two trapped by their own inability to manage the issue and the fourth (South Australia) quietly confident that the LNG export demands created in the first will work to its long-term advantage too.

Coalition political leaders in Sydney and Melbourne are now confronted with a train wreck, with wholesale gas prices in the two states seemingly heading inexorably towards around $9 per gigajoule versus $4 to $5 in recent times.

The result, as set out by former federal minister Peter Reith, trade union leader Paul Howes and Australian Industry Group CEO Innes Willox in a joint op-ed for the Herald-Sun, is to put at risk jobs and to expose “families and pensioners” to fast-rising gas price spikes on top of half a decade of unwelcome power bill increases.

As evidenced by the story of the shale oil and gas ‘revolution’ in America, really high prices send the upstream petroleum industry hunting for new resources to cash in on the situation – an outcome popular with both factory owners and gas producers even if the former are aghast at what comes first.

What the Napthine and O’Farrell governments may not yet really appreciate is that a dash for gas in central Australia – in South Australia’s Cooper Basin – delivers them a lose/lose outcome.

Not only do their governments not get to benefit from hundreds of millions of dollars in annual tax payments plus new jobs, but the several years of price strife – probably from 2014 to 2018 on present indications – will impact heavily on the large, already embattled manufacturing sectors in their states, potentially (according to lobbyist Manufacturing Australia) costing 200,000 jobs.

Meanwhile South Australian mineral resources minister Tom Koutsantonis is only too pleased to talk up the coming “energy revolution” for his state, underpinned by some $3.5 billion in petroleum exploration expenditure over the next five to seven years.

Just how much “tight gas” and shale gas is in the Cooper Basin, which has been sending conventional natural gas to Adelaide and the Sydney/Newcastle demand hub for four decades, is anyone’s guess.

A Texan investment bank, Tudor Pickering Holt, has published a report hailing the Cooper as “one of the best shale prospects outside North America,” and pointing to the prospect of “strong gas prices” allied to substantial existing production and pipeline infrastructure as reasons for investors to “sit up and take notice.”

Which is what Santos, Beach Energy, Senex, global heavyweights Chevron and BP, the Norwegian giant Statoil and others are doing as they envision not only a domestic market eager for their production but also the prospect of being able to sell gas to the LNG exporters in Gladstone.

Apart from geology and infrastructure, Koutsantonis says, the benefit for the petroleum industry in focussing on South Australia is that his government “recognises the need for a clear message of stability when dealing with industry and community.”

His state, he adds, offers companies “the certainty they are being denied in other jurisdictions.”

His government “clearly recognises the dangers of shifting policy and regulatory goal posts” – a dig at both the Coalition in New South Wales and last writhings of the Gillard regime in Canberra.

It’s interesting to see the Weatherill government, faced with an election next year where the pundits believe it will struggle for survival, adopting this stance while the Napthine government across the border, also balanced on a political knife-edge, is doing its best to duck and weave on the issue.

The added difficulty for the green-tinged ones in coming to grips with the South Australian “energy revolution” is that it also manifests itself in the strongest support in the country for wind power and in encouragement for geothermal and solar power.

If geothermal energy is ever to actually win through in the east coast market it will be via the support it has received in South Australia.

Meanwhile Koutsantonis expects 200 wells to be drilled in South Australia between now and 2020, exploration activity he declares “an enormous boon” for the state; you needn’t hold your breath waiting for the Victorian or New South Wales regimes to say anything similar before their respective elections in 2014 and 2015.

The radical environmental movement, of course, is as loud in South Australia as it is elsewhere in declaring its undying opposition to the state government’s direction, accusing Weatherill and his government of being on “a ruinous road to nowhere.”

The difference is that they are dismissed in Adelaide where it matters.

And the petroleum push in South Australia is not limited to the desert areas.

Federal industry minister Ian Macfarlane has accepted a bid from Chevron to explore offshore in the Great Australian Bight, a move the environmentalists view with even more horror than CSG development, if that is possible.

The company is committed to spending $500 million on the “frontier” search, having also bought into the Cooper Basin by paying acreage holders $361 million.

P.S. Even substantial new developments in the Cooper Basin won’t lead to “cheap gas” for domestic users (i.e. the prices paid in the past) but there is every chance they will deliver fuel to the big southern Australian markets at well below the $9/GJ (and higher) spikes that the present imbroglio is threatening. How many factories will still be around to use it is an ‘interesting’ question?