Labor needs a gas policy
by Tony Wood
A critical environmental decision and an enthusiastic industry conference have exposed several issues that must be high on the agenda for the second Albanese government. In its first term, the government struggled to be clear on the role of gas, which left gaps to be filled by advocates with strong interests. Current developments demand a different approach.
The gas industry celebrated Minister Watt’s decision to extend the life of the North West Shelf gas project to 2070 as evidence of an open door to gas. The terms of the Environmental Protection and Biodiversity Conservation Act did not allow the minister to reject the project based on its climate change impact. A final decision depends on unreleased conditions related to the impact of the project on important indigenous rock art.
Two concerns have emerged. The first is that domestic emissions from the project are already covered by the Safeguard Mechanism, which requires emissions from large emitters to decline or be offset in line with the government’s net zero objective. Provided this policy remains in place as designed, the approval will not breach this target.
The export element is more challenging. Environmental advocates and the Greens are appalled by the emissions that will be produced when the exported gas is burned overseas. The government’s defence is that it is following established international carbon accounting principles, according to which emissions are the responsibility of the country where they occur. These countries will buy less of our LNG as they make their own contributions to climate change mitigation. Australia should work with the global community to ensure this happens.
The critical question is whether we would be doing enough.
The gas industry will support the current position. Others insist that Australia cannot ignore the climate change impacts of our exports. Big LNG projects are primarily focused on exports, and fundamental flaws in Australia’s Petroleum Resource Rent Tax mean that Australians do not get a fair benefit from our gas. The government could be tempted to dismiss these arguments. It should not do so. Rather, it should engage with the fundamental principles of our responsibilities and how they could be codified in policy.
East-coast issues
There are two separate but related gas issues on the east coast. The first is that the southeast is running out of gas as the traditional resource, Victorian offshore gas, is being exhausted, with looming shortfall risks this decade. There is plenty of gas; the problem is that it’s not in the areas where it has traditionally been extracted, and no amount of policy will change the geology. Gas producers, including Esso Australia, Woodside and ConocoPhillips, are planning to spend hundreds of millions of dollars looking for more gas off the coast of Victoria. The likelihood of major finds is not high, and what is found won’t be delivered quickly.
Pipeline capacity to bring gas from the north is limited, and new pipelines could face a long-term “stranded asset” risk as gas demand declines. Importing gas from other states via ship may be a more cost-effective solution. Commercial hurdles for import terminal proponents (one terminal has been built, and one approved) have been insurmountable to date. While the national energy ministers may give the Australian Energy Market Operator powers to deal with this problem, it is unclear whether that will work. Some form of time-limited government support may be necessary.
The second east-coast issue is that the current mechanisms that have underpinned gas supply to the domestic market are now due for review.
Reserving Australian gas for Australians is obviously an attractive idea. A reservation policy, and one that is prospectively focused, could deliver gas. But the current and forward problem is price, not volume. Reserving enough gas on the east coast to drive down the price significantly would require volumes of production well beyond what is currently available or envisioned. There will need to be a new mix of policy mechanisms, and it would be in the interest of the gas industry to be involved in finding a workable solution. That may include streamlining the current supply mechanisms and a different form of price monitoring that deals with any linkage between domestic and international prices.
The Labor government was adrift on gas policy in its first term and now needs to get its future strategy clear. Otherwise, it will leave the field open to those who insist we should stop all gas now, and those who argue that gas will be around for many decades yet. Neither of these positions can become Australia’s de facto gas policy.