With business turning away from fossil fuels, the government plans to step in to fill the void. Why is it so keen on gas?
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Last modified on Thu 17 Sep 2020 05.33 AEST
The Morrison government has been promising a gas-fired recovery for months. On Tuesday we got the first details of what that might look like.
So what is the government saying it will do and what problem is it trying to solve?
What did Scott Morrison say?
The prime minister announced that expanding the use of gas – a fossil fuel that is used in electricity generation, for heating and as a feedstock in some manufacturing – is central to plans to re-establish a strong economy after the coronavirus recession.
In a speech in the Hunter Valley, the prime minister repeated a claim he made at the press club in February: there is “no credible energy transition plan for an economy like Australia that does not involve the greater use of gas”.
He announced steps that could expand the gas industry, but few measures designed to boost the economy in the short-term – most were little more than commitments to coming up with a plan.
Morrison acknowledged the rise of cheap solar and wind energy, but beyond a passing reference, there was no discussion of a transition plan or dealing with climate change. The destination set out in the speech was an expansion of gas that could last for decades.
Who is supposed to bring in this expansion of gas?
The most concrete short-term commitment Morrison made was an ultimatum, issued to electricity companies. He said taxpayers would pay to build a gas-fired power plant in the Hunter Valley (through the government-owned Snowy Hydro company) if the industry did not back new “dispatchable” electricity generation – a source that can be called on when required to support conditions-dependent renewable energy – by April next year.
Morrison said the government estimated that 1,000 megawatts of new dispatchable power was needed to replace AGL’s Liddell coal-fired plant, which is due to shut by early 2023.
How does this fit in with the government’s expert advice?
It doesn’t really. No evidence has been provided to back up the claim that government intervention is required to ensure this amount of generation is built in a hurry.
New dispatchable electricity will certainly be needed in the national grid. The Australian Energy Market Operator (Aemo) estimates between 6 and 19 gigawatts will have to be built over the next 20 years. But its analysis suggests there is no urgency to build before Liddell shuts.
Aemo applied the electricity grid’s strict “reliability standard” – a test of whether 99.9994% of demand for power can be met each year – and found only an additional 154MW would be needed in New South Wales by 2023.
More than that amount has been subsequently announced, including a NSW government pledge to help pay for four new projects: two large-scale batteries, a hybrid gas and battery plant and a virtual power plant. Together they should deliver 170 megawatts.
Aemo also found new gas-fired power is less likely to be affordable than like-for-like alternatives that can provide dispatchable power, such as batteries, pumped hydro, virtual power plants and demand response programs that pay consumers to reduce consumption at peak times.
The government supports its claim new gas generation is needed by quoting the chief scientist, Alan Finkel, who is quoted as describing the fossil fuel as the “perfect complement to solar and wind”.
Finkel’s support for new gas has proven controversial. A group of 25 leading scientists wrote to him last month warning that his support for an expanded role for gas as a transition fuel was not consistent with a safe climate.
Guardian Australia had earlier asked Finkel why he believed more gas power was critical when Aemo’s plan for an optimal grid suggested otherwise, and if there was an alternative analysis that he had relied on. He said he had based his assessment “on the real-world experience of Britain, California and South Australia”.
Why does the party of the free market want to intervene in electricity?
The government says this is not its preferred path, but that its hand has been forced by industry inaction. Morrison says while solar and wind have been built at record speed – mainly due to a national renewable energy target that was filled last year and the Coalition chose not to replace – only 1.6 gigawatts of dispatchable power was built over the past decade.
Industry representatives argue the reason for this is straight-forward – more dispatchable generation in NSW has not been needed. Coal still provides about two-thirds of grid electricity and existing gas-plants have been operating well below capacity.
They, along with pretty much every analyst and many business leaders, blame the lack of future investment commitments in dispatchable generation on the Coalition’s failure to back a clear national energy policy.
Everyone knows a transition is coming – a raft of coal plants will shut in the years ahead – but a lack of policy to oversee it has meant it is not clear when new investment will be needed and economically viable.
It has long been argued that a well-designed policy that sets a framework for where the grid is going – a gradually increasing carbon price or a timetable for coal closures, for example – could allow investments to be planned. The Coalition abandoned support for this sort of scheme shortly before Morrison replaced Malcolm Turnbull as leader, when the proposed national energy guarantee was dropped following opposition within the government.
The result is a system in which there is a perverse incentive for coal-plant owners to keep running dirty old generators as long as possible.
The government further muddied the investment picture through its support for Snowy 2.0, a massive expansion of the celebrated hydro scheme to introduce far more storage capacity, and a promise to underwrite up to six smaller pumped hydro projects and five gas plants.
The Business Council of Australia chief executive, Jennifer Westacott, recently warned this government intervention was deterring investment from energy companies that had not been offered taxpayer support.
Why is the government hell-bent on gas over alternatives?
This has never been clearly answered. The direction has been clear since Morrison’s speech at the National Press Club in February and was emphasised when he selected gas industry executives to lead the National Covid-19 Coordinating Commission.
A leaked draft report, revealed by Guardian Australia, showed the commission’s manufacturing taskforce recommended taxpayers underwrite a massive expansion of the gas industry. Alternatives were not mentioned. The head of the taskforce, the Saudi Aramco and Worley board member Andrew Liveris, later said the government had set the taskforce’s pro-gas course.
The Liveris report was driven by a belief that gas could deliver a manufacturing renaissance in Australia if prices fell to between $4 to $6 a gigajoule – far below what most analysts believe is possible – and stay there.
In his speech on Tuesday, Morrison cited evidence from the oil and gas industry that there were already about 225,000 jobs in manufacturing industries that rely heavily on gas as a feedstock or fuel source. They included fertilising, chemicals, metals, bricks, cement and food and beverage manufacturing. While hydrogen may provide a long-term replacement for gas in some of these industries, it is not ready yet.
But like so much of the debate about gas, the number of people that rely on it is not that straightforward. According to the Australia Institute, about three-quarters of the gas used in manufacturing is consumed by relatively few companies, and supports only 16% of jobs.
And manufacturing industry representatives are increasingly suggesting gas is not as essential a part of some processes as is sometimes suggested.
What are the details of Morrison’s gas plan for industry?
There are a few parts, all of them early stage. He says the government will increase gas supply by opening up five new gas basins, starting in the Northern Territory and Queensland – but at this stage has announced only $28.3m for planning the expansion.
He wants to expand an existing gas trading hub at Wallumbilla, a tiny town inland from the Sunshine Coast where a couple of gas pipelines connect and more could in future.
Nearly $11m has been promised for an infrastructure plan to identify priority pipelines to “highlight where the government will step in if the private sector doesn’t invest”.
And he says the government will consider – but has not committed to – creating a gas reservation scheme to force companies to sell a percentage from future gas production locally, rather than ship it overseas.
So why don’t we just keep the gas rather than export it?
As has been well-documented, Australia has no shortage of gas, but about three-quarters of it is extracted on the east coast and sold to north Asian countries as liquefied natural gas (LNG).
In the space of five years, Australia went from having virtually no gas export industry to briefly becoming the biggest global player. The near overnight advent of a mass export market in 2014 led to gas prices for local users tripling in some cases.
The price dipped slightly before the Covid-19 recession, and has fallen further since, but few analysts believe it is realistic that it will stay low when the majority of what the country produces is sold overseas and the price is largely determined by the international market.
No evidence has been released to support the suggestion that the government’s proposal will lead to a reduction in prices.
What about the climate impact?
Beyond cost, the obvious argument against a gas expansion is that it is a fossil fuel and is helping to rapidly heat the planet.
The government and gas industry argue using more gas is an environmental good as it reduces emissions when compared with coal.
The usual shorthand description is that gas releases about half the emissions of coal when burned. But studies have suggested its impact may be greater due to leakage of methane, a particularly potent greenhouse gas.
Climate scientists increasingly place coal and gas in the same basket, and say new developments of either are inconsistent with the Paris agreement and limiting global heating to 1.5C above pre-industrial levels. They say the impact of rising emissions is already evident in worsening bushfire risk, melting glaciers, rising insurance costs and the rapid loss of biodiversity.
Though only occasionally reflected in Australian political and media discussion, there is evidence that companies are recognising that shareholders increasingly see investments in oil and gas in a similar way to those in thermal coal – as a risk in a world that is looking to cut emissions.
A couple of recent examples: in its annual energy outlook released this week, energy giant BP forecast that acting to reach net zero emissions would mean gas use peaking by 2025; major Australian insurer Suncorp last month announced it would stop financing or insuring the oil and gas industry by the same date.
Several studies during the push for a green economic recovery from Covid-19 have made the case that Australia does not need more gas – that an energy efficiency and electrification drive for households and business could reduce fossil fuel reliance while creating jobs, lowering costs and using this moment to set up the country for an inevitable low emissions future.
The argument goes that it would leave more than enough gas from current supplies to run existing gas power plants and for manufacturers that will need it for high temperature heating until a viable alternative becomes economic.
There is, obviously enough, no evidence the government has been persuaded.
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