Australia's gas and electricity producers push back on government intervention
Australia’s oil and gas producers have warned against the Morrison government underwriting a massive expansion of the domestic industry, saying the country does not have a gas shortage and intervention could reduce supply and raise prices.
The Australian Petroleum Production and Exploration Association said it welcomed some recommendations on gas in a leaked draft report by a manufacturing taskforce advising the National Covid-19 Coordination Commission, but it also included “ideas that just won’t work”.
The report suggested taxpayers should underwrite an increased national gas supply from multiple new fields and help build multibillion-dollar interstate gas pipelines, and the states should introduce “reverse auction” subsidy schemes for gas-fired power.
Andrew McConville, APPEA’s chief executive, did not say which recommendations he thought made sense and which he rejected, but said the country should “let gas markets work”. “Intervention is not needed and could be potentially counter-productive by discouraging investment, reducing supply and raising prices,” he said. “There’s also the question of what is the problem we are trying to solve?”
McConville said the Australian Energy Market Operator had found there was no gas shortage, and the taskforce’s recommendations would not keep prices to the historically low level of $4 a gigajoule as it hoped. He said Asian countries had managed to have strong manufacturing industries – the point of the taskforce’s report – with much higher prices.
The report to the NCCC leaked as the government kicked off the process of developing its much-vaunted technology investment roadmap with the release of a discussion paper flagging taxpayer support for innovation.
The Australian Energy Council, which represents Australia’s major electricity and downstream natural gas businesses, echoed the warning from APPEA about the perils of arbitrary government intervention. It welcomed the discussion paper, but warned the government it should reserve taxpayer support for early-stage clean technologies, not look to subsidise energy sources that are already mature or commercial.
Sarah McNamara, the chief executive of the council, said many of the directions set out in the discussion paper were sensible, including focusing potential support for carbon capture and storage (CCS) on hydrogen and gas production rather than retrofitting coal-fired power stations, which had not been commercially successful.
“But as a note of caution, funding should be reserved for genuine innovation and to help establish early-stage clean technologies,” McNamara said. “It should not subsidise already commercial or mature technologies. The latter would simply undermine private investor confidence and inhibit market efficiencies.”
She said it was a “concern” that the taxpayer-funded Clean Energy Finance Corporation and the Australian Renewable Energy Agency would be used to support already mature technologies. “Customers need to be confident that taxpayer funds are being spent on technologies that require support, not those that are already self-sufficient,” she said.
Facing sustained pressure to adopt a 2050 target of net zero emissions, pressure it is continuing to resist, the Morrison government plans instead to develop the roadmap as the
cornerstone of the Coalition’s mid-century emissions reduction strategy. The discussion paper points to a role for gas, hydrogen, renewables and, potentially, nuclear power.
Angus Taylor, the energy and emissions reduction minister, and the NCCC has also focused on gas as being at the centre of economic recovery plans from the pandemic. The leaked report to the NCCC does not consider cleaner alternatives to the fossil fuel, or mention climate change or the country’s commitments to the Paris climate agreement, raising the ire of the renewable energy industry and climate activists.
Australia’s resources industry has welcomed the positive signals from the government on CCS and on nuclear. The Minerals Council of Australia – historically one of the major opponents of carbon pricing to drive the transition to low emissions – said it supported a “genuinely technology-neutral approach to reducing emissions which embraces global best practice and the adoption of CCS and advanced nuclear technology as well as renewables, gas, coal with CCS and pumped hydro”.
But the Investor Group on Climate
Change, representing institutional investors managing $2tn in assets, said it would be important for the government to set clear goals through a national climate policy that made it clear Australia was heading for net zero emissions by 2050, consistent with its international obligations. It said private investors would be reluctant to invest in the transition if it did not.
Its director of policy, Erwin Jackson, queried whether new gas investments were consistent with that objective. “Private investors are already making climate risk assessments in their portfolios about carbon-intensive fuels like gas as compared to zero-carbon alternatives like renewable energy and storage technologies,” he said.
“Governments will also need to assess whether further support and investment in gas projects are resilient to continued rapid cost reductions in clean energy options and an accelerated shift to truly zero-emissions energy options”.
Prof John Quiggin, an economist at the University of Queensland, said the government’s thinking was “five to 10 years behind the times”.
“Although the idea of new coalfired power stations seems finally to have been abandoned, the report focuses heavily on technology options that seemed promising in the past, but have now been abandoned everywhere in the developed world, such as nuclear power and carbon capture and sequestration,” he said.
But he said the roadmap’s most significant failure was that it did not recognise that gas-fired electricity generation was increasingly being supplanted by renewable energy backed by battery storage. “The policy remains fixated on extractible resources such as coal and gas, ignoring our massive endowment of solar and wind resources,” he said.