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Investment Key to Driving Down Gas Prices

Recently, the Federal Government agreed to investigate further reforming Australia’s gas market as it sought to have its tax package passed through the Australian Senate.

While details of the agreement are currently not in the public domain, the premise that gas prices can be driven down through government intervention represents a band-aid, and ultimately short-term and short-sighted, solution to the east coast gas crisis.

Australia’s energy industry enjoys many competitive advantages, which in the 1990s and 2000s saw Australian gas prices amongst some of the lowest in the world.

However today, as a result of misaligned policies across state boundaries – which have seen gas reserves locked up in some states – and energy policy uncertainty at the federal level, Australia’s east coast domestic gas prices have more than trebled. This makes east coast gas some of the most expensive in the world.

This doesn’t need to be the case.

Remedying this situation relies not on further reform but rather a fundamental shift in our country’s gas supply vs. demand equation.

Simply put, if Australian gas prices are to return to acceptable levels additional gas must be brought to market.

That gas exists, and through a well-regulated industry can be made available to Australian gas users in such quantities so as to ultimately bring down prices.

What industry and gas consumers need now is a regulatory environment which encourages upstream and midstream investment in new gas supply and transportation infrastructure at an expedited timescale. Freezing investment, by introducing further regulatory uncertainty, will only serve to increase the price of gas over the long term.

Gas also has a key role to play as we move towards a low-carbon future. For while burgeoning renewable storage technologies such as batteries appear promising, they won’t be efficient or cost effective at scale for the foreseeable future.

Only gas can provide the crucial firming power needed in a power system accented by intermittent renewable technologies that are largely reliant on weather conditions beyond our control.

International experience demonstrates this to be the case, while also showing how gas can be used to pave the way for renewables while facilitating a move away from coal.

From 2009, the United States invested heavily in its onshore oil and gas industry, driving it from being a gas importer to one of the world’s largest exporters. Over the same time period, the domestic price of gas in the US dropped by over $10/GJ (USD), and is forecast to remain at less than $3/GJ (USD) for the next two decades. Low prices and long-term stability has enabled new manufacturing and petrochemical industries to start-up, reviving once floundering communities.

At the same time, this also helped the United States to effectively retire some 80GW of coal-fired generation – nearly double Australia’s entire generation capacity – which was then replaced by the natural twins of renewable energy and gas-fired generation.

With less than half the carbon intensity of coal and other fossil fuels, gas not only provides flexible, affordable, and reliable energy, it also has a very real role to play towards meeting our country’s carbon emissions targets.

The United States provides an example of what could happen in Australia with a coordinated effort that builds on the back of evidence based responsible development such as is being delivered in some Australian states and territories, notably the Northern Territory, Queensland, and Western Australia.

In order to replicate this success further, enormous investment must continue to be made in gas exploration, development, and gas pipeline infrastructure.

We are fortunate that we are endowed with significant energy resources. We also have a number of operators and investors in gas production and transportation assets – Jemena being amongst them – that stand ready to work with all stakeholders to unleash the economic potential of our country’s vast natural gas resources.

As appealing as greater regulatory reform may appear, in the long-term this will only serve to drive up gas prices.

The best way to bring down prices is to rebalance the supply vs. demand equation in an environment that supports investment and the development of our natural energy advantage.

Frank Tudor

Managing Director,
Jemena