Thursday, March 16, 2017

That sucking sound is us being robbed of our gas

In Melbourne, gas cooktops are only the start.

Melburnians use gas for stoves, hot water, central heating and room heating. Ninety per cent of Melbourne homes have gas, compared to only 50 per cent in Sydney. Victoria accounts for two-thirds of all the household gas used in Australia. And Victorian industry uses little else.

Because it's been astoundingly cheap.

Esso and BHP discovered it by accident, as a byproduct of searching for oil in Bass Strait in the 1960s. Rather than burn it at sea (as they might have been inclined to do) they were prevailed upon to pipe it to the mainland where they as good as gave it away. A feud between NSW and Victoria at the time meant that it wasn't piped north of Wodonga.

Sydney got its gas from the more expensive Moomba field near the Queensland-South Australian border at the end of a 2000-kilometre pipeline.

Until the mid-1990s, when, for ABC television, I stood in front of the stump at the end of the Victorian pipeline in Wodonga and the stump at the NSW end in Wagga Wagga and explained that they were going to be joined. The gas could flow in either direction, although because Victoria's reserves were running low and Moomba's weren't, Victoria stood to benefit the most.

Which is how it was until just a handful of years ago.

At the height of the minerals boom and the height of oil prices (which drive international gas prices) three of Australia's big gas producers each decided to build two giant freezing plants at Gladstone in central Queensland. The six "trains", each with a capacity to freeze and export half as much gas as eastern Australia used per year, would be connected to the network of pipes that extended all the way to Adelaide and Melbourne.

They signed cast-iron contracts to sell the gas to Japan, which was hungry for energy in the wake of the Fukushima nuclear disaster; contracts they needed in order to justify the enormous expense.

Finding gas may have been a lower priority.

The Gillard government was relaxed, boastful even. It ruled out introducing a gas reservation policy along the lines of the one in Western Australia that stipulates that a certain percentage of local gas has to be retained for local consumption.

Without quite realising, it approved the creation of what an AGL executive later described as a "giant vacuum cleaner for the east coast gas market, hoovering up all the gas it can get its hands on".

Two months ago something extraordinary happened. The Moomba to Sydney pipeline, which for its entire 40-year life had only run in one direction (hence its name) reversed course. Gas was sent from Sydney to Moomba and then north to Gladstone to feed the LNG export trains. Sydney got the gas from Melbourne and, ultimately, Bass Strait. The sucking sound was gas that would have once cheaply warmed Australians being sent an extraordinary 4300 kilometres north across three state borders to be frozen and shipped to Japan.

KAGOME Australia is our largest tomato processor. Based at Echuca on the River Murray it exports in competition with Californian processors and is powerless to increase its prices. Gas accounts for 5 per cent of its costs. It has just been told the price will double. Worse still, it and other business are being offered only short-term contracts at "take it or leave it" prices for gas they fear isn't there.

Retooling to use another fuel is prohibitively expensive. They installed gas because of an implicit promise that it would always be there. Rod Sims, an energy expert who heads the Australian Competition and Consumer Commission, said this week that manufacturers hit by the sudden shortage and price hikes were more likely to close than re-equip. The owner of South Australia's emergency gas "peaking" power plant closed half of it some years back because it couldn't afford the gas.

An (incorrect) way to describe what's happened is to say Australians are at last paying the international price for gas after being shielded from it for so long. But the international price is low. There's a glut. Australians are paying far more than the international price (more than Japan is paying for Australian gas) in order to allow the big three at Gladstone to fulfil watertight contracts.

So wide is the price gap and so short are we of our own gas that there's serious talk of setting up a floating terminal and importing it back (perhaps even from Japan) at what for users would be a cheaper price.

Making more of the stuff here wouldn't much help. It'd be sucked up to Gladstone.

The easiest way out would be for the Gladstone three to voluntarily give up some of what they have bought, and the Prime Minister is pressing them to do that. The other, essential, solution is to ensure that any future gas finds have a portion of what's extracted set aside for us, something I reckon ought to have happened all along.

In The Age and Sydney Morning Herald