Consumers large and small are set to pay higher energy prices but it has little to do with looming “gas shortages” cited by the market operator, energy researchers with Melbourne University said.
A study by Tim Forcey and Dylan McConnell at the university’s Climate & Energy College challenged forecasts in March by the Australian Energy Market Operator of “shortfalls” of gas supplies within 18 months and its call for new pipelines and coal seam gas fields as “solutions”.
AEMO’s findings amounted to “jumping at shadows”, and likely underestimated how much gas demand will drop in response to soaring energy prices – especially as homes and businesses buy more energy-skimping products or switch to electricity.
“Consumers don’t need to worry about there being no gas in the pipe,” said Mr Forcey, an engineer with more than 35 years in the energy and petrochemicals industries. “But certainly the gas is a lot more expensive than it used to be, and that’s going to stay.”
AEMO’s study found an annual shortfall possible of just 0.2 per cent for either gas or electricity, but any demand reduction or added supply would narrow or close the gap, the Melbourne University report said.
The full scope of the cost increases is yet to play out but industry bills have risen in recent years from $3 to $4 a gigajoule for gas to as high as $20 for some contracts now – one reason the researchers say will curb gas demand more than AEMO predicts.
AEMO had already lowered its domestic industrial gas demand estimates for 2020 by 9 per cent this year compared with a year earlier, and will probably lower it again as firms cut back on use, Mr Forcey said.
With gas-fired power stations often setting the marginal electricity price, wholesale prices have also leapt, soaring to well above $100 per megawatt-hour across the eastern states. (See chart below of weekly National Electricity Market pool prices in Victoria.)
Hugh Saddler, an honorary associate professor at the Australian National University, said it was likely consumers in most states will experience double-digit increases in retail electricity and gas prices when they get adjusted after July 1. For Victoria, the pain will come next January at its annual price reset, he said.
One consequence of rising gas prices is that more consumers will ditch gas connections – or never take them up in the first place, Dr Saddler said. For instance, Riverview a new suburb straddling the ACT-NSW border, will not be connected to the grid.
“You’re crazy to go with gas now,” he said. “Reverse-cycle air conditioning is so much cheaper.” Exports squeeze
The Melbourne University study echoed other recent reports in blaming the creation of an eastern Australian gas export industry creating a huge jump in demand – triple the size of the domestic market – and linking prices to international markets. (See AEMO chart below.)
AEMO’s solutions to the problem, such as opening up Santos’ CSG field at Narrabri in northern NSW, would not have a major impact in bringing down prices, the report – commissioned by The Wilderness Society and Lock the Gate – found.
Narrabri’s cost of production, included pipelines, would be above $9 per gigajoule, and its scale too small to affect the overall market. “I can’t see why it was singled out,” Mr McConnell said.
Part of the problem is the poor transparency of the gas industry, with governments largely in the dark as to the timing and size of supply even from established conventional gas fields, such as Bass Strait. ‘Robbing the community blind’
A spokesman for AEMO said the operator stood by its March Gas Statement of Opportunities (GSOO) report.
Since then, “AEMO has been working with the industry to develop measures that will provide greater transparency of gas information,” he said. “AEMO will continue to advocate for improved data and information for the integrity of any modelled outcomes.”
Adam Searle, Labor’s energy spokesman in NSW, said CSG was “certainly not the answer” to high gas prices.
“Apart from concerns about its impact on prime agricultural land and water, it is the most expensive gas that can be produced,” he said.
If companies sitting on gas supplies did not make more of them available to the Australian market, governments should force their hand.
“They have an operating licence to export the gas, they don’t have a licence to rob the community blind,” Mr Searle said. ‘Mindless bans’
Josh Frydenberg, the federal environment and energy minister, backed AEMO’s GSOO report that gas shortfalls of between 10 and 54 petajoules a year from 2019 to 2024 because of declining exploration and output at a time Queensland LNG projects ramp up.
“Since then, the government has reached agreement with gas producers to ensure supply to the domestic market,” Mr Frydenberg said.
The steps include a peak electricity gas supply guarantee that will ensure gas is available where and when needed to ensure the security of the power sector. The “temporary and targeted” Australian Domestic Gas Security Mechanism also gives the government the power to impose LNG export controls if needed, he said.
“In the long term, however, what we need is more gas supply and more gas suppliers, especially in the southern states such as Victoria where they have in place mindless bans and moratoriums on conventional and unconventional gas extraction, to increase competition and push down prices,” he said.
A spokesman for Victoria’s energy minister Lily D’Ambrosio said the Andrews Labor government supported efforts to increase transparency in the gas market, including the ACCC investigation.
“However, the problem remains that Australia is exporting two-thirds of its gas overseas which is why the government continues to advocate for stronger controls on exports to drive down prices,” the spokesman said.
AEMO’s GSOO report estimated a potential gas shortfall of 2 petajoules in Victoria in 2021, or less than one per cent of demand.
The government is spending $42.5 million to understand Victoria’s onshore and offshore gas prospects better.
The state’s ban on hydraulic fracturing – or fracking – of unconventional gas is unlikely to affect gas supply issues not least because there are no proven onshore gas reserves in the state, the government says.