It's time for the government to step up on gas

Keith Orchison, Principal, Coolibah Consulting.

Keith Orchison, Principal, Coolibah Consulting.

Perhaps the most important thing to understand in the domestic energy market is that the supply chain ends in customers. No less important, when it comes to most business users, is appreciation that energy use ends in products.

Take the plastics and chemicals industry, which supplies inputs for 109 of Australia’s 111 industries.

Speaking at the Australian Domestic Gas Outlook conference in Sydney, PACIA Chief Executive Samantha Read pointed out that 10 per cent of all gas produced for domestic consumption is used as a chemical feedstock.

In New South Wales, where the argument about secure and affordable gas supply remains of major importance, the industrial gas demand share is 25 per cent.

As an example of the fuel’s importance, she noted that methane and ethane are significant starting points in the production of pharmaceuticals, surfactants and solvents that ultimately get used in applications such as water treatment, advanced fibres, coating and adhesives – for which there is a huge demand in Asia.

The factors that influence whether the businesses pursuing these activities are competitive go well beyond those related to gas. They include a raft of other input costs, the impacts of regulations and much more – but a non-trivial issue is the availability of gas and its price.

An astonishing amount of time and effort over the past few years has gone in to efforts, often spearheaded by plastics and chemicals companies, to pursue reservation of gas resources for domestic use – an activity reviled by the upstream petroleum industry as seeking a return to protectionism and a leg-up for manufacturers at the expense of gas producers. However, despite trade union attempts to impose this step on the Labor Party as national policy, the issue is sliding off the table as its flaws become ever more apparent.

However, appreciation of the need to bring a lot more gas in to the east coast market, and to do so as efficiently as possible, is gaining ground, supported by manufacturing business lobbies, the Federal Government and the Productivity Commission.

Of course, this is not a promise of ‘cheap gas’, because the costs involved in finding, producing and transporting the fuel are higher now than they were, for example, five years ago.

The real positive prospect is that bringing on more gas from a number of areas, including within NSW borders, onshore Victoria and in Central Australia, will alleviate price pressures for all users, including householders, small businesses and industrial companies.

Producers continue to call for the removal of regulatory burdens – and political moratoriums on gas activity – to enable them to deliver more supply.

Ultimately, governments (and especially state jurisdictions) have the responsibility of ensuring that the community interest – in terms of the economy, the environment and employment – is served to the best possible extent.

Unfortunately, it seems beyond debate that our governments have not demonstrated effective institutional capacity over this decade in a range of energy areas, of which efficient gas policy is far from the least important.

The Energy Policy Institute points out that two key elements are needed to deal with this problem: a stable platform for policy implementation and a mechanism that deals competently with stakeholder participation in policy formulation.

Governments, the EPIA asserts, have lost control of their energy policy agendas “and everyone is the worse for it”.

Regrettably, getting this issue into a productive public debate is proving really hard while what a former senior public servant used to call “the meretricious players” continue to hog the media headlines.

The national interest, especially for those at the end of supply chains, surely deserves much, much better than this.

Keith Orchison has been involved in resources and energy industry policy issues for more than 32 years, of which he spent 24 as Chief Executive of national industry associations dealing with upstream petroleum and electricity. He publishes the
This is Power blog and a monthly newsletter on his Coolibah website, read by members of the energy industry, analysts, politicians and public servants.

Read more of Keith’s commentary at coolibahconsulting.com.au.

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