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Letter from Australia: Canberra’s gas vision in crisis

Opposition politicians and media sniff blood over an economic revival strategy driven by natural gas, rather than renewables

Australia’s National Covid-19 Commission (NCC)—set up in March to advise the government on how to respond to the coronavirus pandemic’s impact on the economy—is facing increasing scrutiny over its staunch support for gas.

The NCC’s advice to Prime Minister Scott Morrison is to underwrite investment in new gas pipelines. But, appearing before a mid-August Senate committee, NCC chairman Neville Power was quizzed on what role renewables could play and could offer only that the panel had not “looked at energy in that context”.

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He also suggested that it is not the commission’s role to “recommend specific projects”—seemingly ignoring the contradiction that it had suggested government funding could be used to underwrite a new gas pipeline from ­Western Australia.

Power told the committee—which is examining the federal government’s Covid-19 response—that it was recommending guaranteeing offtake agreements, which would help to boost the attractiveness of new transportation infrastructure. This government intervention, which Power proffered did “not necessarily” equate to a subsidy, would ensure Australia could respond to the needs of energy-intensive manufacturing.

New gas-fired generation is unlikely to be economically viable compared with alternative dispatchable energy options such as battery storage and pumped hydro, AEMO concludes

While the advisory panel had been approached by business leaders in favour of urging using the economic recovery to support renewables, Power said the panel was not recommending “a green recovery per se”. Media reaction to his performance has not been positive, with a particular focus on potential conflict of interest—given Power’s deputy chairmanship of small producer Strike Energy and his former role as managing director and CEO of energy-intensive end-user Fortescue ­Metals Group.

The government has already reacted to questions about the panel’s accountability and transparency by, in late July, changing its name from the original National Covid-19 Coordination Commission. Canberra justified the change as better reflecting the panel’s “strategic advisory role”.

The late July release of the 2020 integrated system plan from the Australian Energy Market Operator (AEMO) placed the country’s transmission system operator firmly among stakeholders distinctly less confident in promoting gas over renewables. The extensive roadmap for eastern Australia’s power system champions investment in new renewable energy projects, rather than gas plants, to replace ageing coal-fired thermal power stations.

New gas-fired generation is unlikely to be economically viable compared with alternative dispatchable energy options such as battery storage and pumped hydro, the plan concludes. Existing gas-fired plants are seen as continuing to be viable, but higher feedstock costs would weigh on new projects.

Beyond the economic challenges for gas, national security concerns could present another barrier. The AEMO is responsible for balancing the country’s gas and power markets and must view potential supply shortages—the risk of which will only increase because of reduced upstream capex due to the pandemic—as a significant amber light ­going ­forward.

East Coast gas prices spiked fivefold since Queensland’s LNG export industry began ramping up, albeit only to crash back to pre-existing levels this year. But this may be a temporary respite, as AEMO has projected supply will fail to keep pace with domestic and export commitment demand.

Increasing Australia’s gas consumption may create future import dependence in the east of the country. Renewable power projects offer the clearest route to alleviating this risk of greater exposure to international gas market volatility—as well as freeing up domestic gas for non-generation use elsewhere in the economy.

Political turbulence

The right-leaning Morrison administration’s efforts to coordinate a national economic response to the pandemic, including on energy policy, has also come under pressure from diverging state governments. They have increasingly shifted focus to guarding borders and providing localised economic support as they battle to prevent a second wave of infections in the state of Victoria from engulfing the country.

But nor is it plain sailing for the leftist ALP opposition party. Shadow resources minister Joel Fitzgibbon has endorsed the NCC’s support for gas. But, in mid-August, his party’s climate and energy spokesman Mark Butler—a former trade unionist and climate change minister, and decidedly further left within the ALP—came out against the recommendations. Butler cited a lack of transparency, with the NCC having yet to release its final report, and state sponsorship of projects with questionable economics.

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