Despite an evaporating global demand, Australia clings to natural gas as its COVID-19 economic savior
Between an oversupply of natural gas, the Paris commitments reducing demand, and increasingly affordable renewable energy, you’d have to be wildly optimistic—some might say stupid—to put your eggs in the gas basket right now.
But Australia is doing just that.
After all, who else but Australia, the world’s fossil fuel cheerleader, would think that the answer to pandemic economic recovery is a taxpayer-funded push for more gas?
The Australian government seemed to tip its energy hand when Prime Minister Scott Morrison appointed an economic recovery committee stacked with—you guessed it—gas industry executives. It seems obvious conflicts of interest are no issue for this government.
The outcome could be a wave of new investments that keep Australia wedded to fossil fuels, argues Richie Merzian, Climate & Energy program director at the Australia Institute. “Locking Australians into gas by building new infrastructure is short-sighted, will end up costing Australian energy consumers more money, and ignores the other crisis at hand: climate change,” he says.
Australia trying to buck the gas market trend
Meanwhile, the global gas market continues to tank. Since 2014, investment in gas is down 59% in Australia. In the U.S., the number of operating drill rigs has fallen 73% in the past 12 months. U.S. liquified natural gas (LNG) exports have more than halved so far in 2020. Instead, investment is flooding into renewables. Since 2010 renewables have grown by about 148%.
You’d have to be wildly optimistic, or stupid, to put your eggs in the gas basket.
“You can’t stimulate an economy by pouring money into an industry that’s contracting,” says Bruce Robertson, an analyst with the Institute for Energy Economics and Financial Analysis (IEEFA). “What [Australia] needs is a renewable energy recovery. That’s the sector that’s really growing.”
Unfortunately, Australia’s government isn’t getting the message. Robertson says he believes they hope demand for gas will rise as the world gets the pandemic under control. That, he says, is wishful thinking.
“We’ve got gas companies slashing budgets around Australia. All of the major companies are withdrawing and divesting with A$11 billion in projects officially for sale now,” he says. “The idea that gas is growing or will continue to grow? Not happening.”
As if to make the point, three tankers loaded with Australian LNG in June are either anchored or circling at sea as buyers cancel or delay deliveries due to reduced demand. Major Australian producers including Woodside, Origin Energy, and Oil Search have announced severe write-downs and major cuts to the value of their assets leaving investors speculating that gas will never bounce back to pre-pandemic values. The consultancy EnergyQuest estimates that Australia’s LNG export revenues could drop as low as $21.6 billion from a near-record high of $36.1 billion for the 2019-20 fiscal year.
“The idea that gas is growing or will continue to grow? Not happening.”
“Given the incredible drop in demand, gas companies may as well stuff these tankers with hundred dollar notes, send them to Asia and hope that might get some interest,” Robertson says. “Gas is currently being almost given away on international markets.”
One very public test case for new gas projects in Australia, and for the federal government’s gas-led recovery plan, is Australian oil and gas company Santo’s controversial Narrabri gas project that would open up the entire northwest of New South Wales to fracking within five years. Since 2015, Santos has seen its share price slammed by debt, falling oil prices, and leadership changes. Yet to date, the company has shown no interest in transitioning from oil and gas.
Regarded by some as a test case of the gas industry, Narrabri has become a hotly contested project that has no practically public support. Of the more than 23,000 public opinion submissions to the government department, 98% object to it. Nor does it make business sense. With Santos writing off $683 million (A$950 million) from its failed LNG investments in Australia in late July, the company’s total write-offs since 2015 are now close to $5.7 (A$8 billion). This raises the obvious question. With the company losing money on LNG, why add an ambitious LNG project?
Good money after bad
“It’s throwing good money after bad,” Robertson explains. “Narrabri gas is high-cost gas. It is simply not possible to bring down the cost of a commodity by producing it at a high cost. The proposition is absurd.”
Ironically, the consumer price for gas energy in Australia ranks among the highest in the world. Robertson says price-fixing, with the blessing of government, is to blame.
“Given the incredible drop in demand, gas companies may as well stuff these tankers with hundred dollar notes, send them to Asia and hope that might get some interest.”
“In Australia, we are paying too much for gas,” Robertson says. “Our gas industry is a cartel, that has consistently set the prices for the Australian domestic consumer, and our governments have allowed them to do so.”
In fact, high energy costs have caused Australian manufacturers to move away from gas, with many companies opting for renewable energy direct power purchase agreements. Gas energy for manufacturing has fallen 12% since 2004 according to Robertson.
Methane emissions underreported
On the climate front, the gas industry is facing increasing international scrutiny from scientists and the United Nations Environmental Programme over claims that production, fugitive, and end-use emissions are heavily unreported by as much as 40% internationally and 60% in the U.S. A recent IEEFA report suggests that gas is not only no better than coal but could, in fact, have a much greater climate change impact due to the greenhouse gas intensity of methane. Methane’s role in global warming cannot be overstated. Over a 20-year timeframe, methane traps 86 times as much heat in the atmosphere as carbon dioxide. It is responsible for about a quarter of total atmospheric warming to date. Given the emissions benefits and falling cost of renewable energy, the gas industry’s claim that it’s a good transition fuel looks more and more like out-of-date PR spin.
All of this leaves Australia’s gas-led recovery plan on the wrong side of climate change and energy investment. The country with boundless solar, wind, and large-scale battery options now stands at a crossroads.
How long can Australia get away with attempting to prop up a failing and polluting gas industry? It all depends on when businesses and voters say “enough.”