In approving almost 47,000 square kilometres for offshore oil and gas exploration, the Labor government is jeopardising its climate target and echoing the Coalition’s spurious case for energy security. By Mike Seccombe.
How Labor is jeopardising its own climate target
The rhetoric accompanying Resources Minister Madeleine King’s announcement that she had approved almost 47,000 square kilometres for new offshore oil and gas exploration was very familiar.
King’s rationalisations might well have come from one of the climate change deniers or fossil fuel boosters of the previous government, a Matt Canavan, Keith Pitt or Angus Taylor. The only thing missing was the repetition of the slogan “gas-fired recovery”.
The release of the 10 areas off the coasts of Victoria, Western Australia, the Northern Territory and Ashmore and Cartier Islands, she said in her media release, was “central to alleviating future domestic gas shortfalls”, even as “we strive to reduce emissions”.
It was, she said, “vital for the economy” and would also “support international energy security, particularly during the global turbulence caused largely by Russia’s invasion of Ukraine”.
King also announced she had approved two new offshore areas for carbon capture and storage, which she described as a “key proven technology”, despite all evidence to the contrary.
Senator David Pocock, one of the many new independents in federal parliament, having campaigned strongly on the need for greater action to combat climate change, found King’s action and language “really concerning”.
“The talking points that we’re hearing from the government are straight from the talking points of APPEA,” says Pocock, whose vote is now crucial to the balance of power in the senate.
He’s not wrong. APPEA, the Australian Petroleum Production and Exploration Association, responded to King’s announcement with a media release making all the same arguments, except that it didn’t reference Ukraine.
“These announcements are important to ensure our industry can continue to reduce emissions while ensuring future energy security,” it said.
“More exploration means more supply – which means continued energy security for Australian homes and businesses.”
We heard these arguments ad nauseam from the previous Coalition government, which was voted out of office in significant measure because of its failure on climate policy. Indeed a relic of that government, Nationals senator Matt Canavan, a former Resources minister and resolute opponent of climate action and proponent of fossil fuels, went on television to praise King.
His host on Sky News, right-wing gadfly Andrew Bolt, nominated King as the “most sane and serious” minister in the Albanese government. Canavan agreed that she was “the hope in the side”. He only wished she had opened up more of the sea for exploration.
As Pocock notes, these arguments amount to the same old ones we’ve heard for years: gas enables greater use of renewables domestically by providing energy security, therefore mining more of it helps lower carbon emissions.
But implicit in this are several lines of sophistry.
The first is that this country has a gas supply problem, when actually, as The Australia Institute put it in a recent energy briefing paper, “we have a gas export problem”.
Until less than a decade ago, supply and demand for gas in Australia were closely matched. Then came the gas export boom.
East coast gas production increased by 260 per cent in just three years from 2014, even as domestic gas use declined. All the extra supply went to exports. Now, three-quarters of Australian gas production – including two-thirds of gas production in the eastern states – is exported. In fact, more gas is used in processing gas for export (mostly in liquefying it for transport) than is used in Australia’s entire manufacturing sector.
The second fallacy is that all this additional gas is making for greater energy security. In fact it is strangling economic activity, because prices for Australian consumers are through the roof.
Tennant Reed, director of climate change and energy with the Australian Industry Group, which represents 60,000 businesses employing more than one million staff in sectors including manufacturing, construction, engineering, transport and logistics and others, says dissatisfaction among the group’s members is “universal”.
And no wonder.
“In the old days before LNG [liquefied natural gas] exports began from the east coast, the wholesale price was $3 to $4. And then the takeoff of exports led to a reset in expectations basically, to the $8 to $12 a gigajoule,” he says.
Prices fell a bit during the pandemic because of reduced demand, but since then, and particularly since the war in Ukraine, those seeking new supply contracts on the retail market “have been getting enormous prices quoted to them, by any historical standard, just colossal prices,” says Reed.
“So, north of $30 a gigajoule is what many are being offered for a year [year-long contract], or higher if it is for less than a year.”
The third myth is that new gas fields will solve energy supply or price issues, at least in the medium term. King’s suggestion that the release of new exploration zones will ameliorate shortages resulting from Russia’s invasion of Ukraine draws a particularly long bow. That’s because new developments take a long time to begin production.
“These new developments are a long way off … alleviating any near-term, or even medium-term, challenges, whether they’re local ones or global ones,” says Reed.
“Gas markets will be tight, I would say, for at least five years, if not the rest of this decade.”
And that will be the case “almost regardless” of the duration or outcome of the war. “Europe has taken, collectively, a decision to get off Russian gas as fast as they can. And they’re in a bit of a race for whether they can do that faster than Russia turns off the taps.
“They will be doing a lot of things to reduce underlying gas demand: efficiency upgrades, electrification, more renewables, coal, nuclear, biogas, hydrogen, lots of things. But those things will take time to build up.
“The near-term thing that they are doing is buying up all the LNG they can get from wherever they can get it.”
Tight markets mean high prices. The spot price in Europe, says Reed, has been $70 or more in recent weeks. Although it has come down a little now, prices are still up to 10 times what they were a year ago.
“Even in the US, where prices in recent years have been remarkably low compared to everywhere else, spot prices have doubled,” says Reed.
And though most gas is sold under opaque long-term contracts rather than on the spot market, suppliers have been reaping huge windfalls. To cite just one example, Woodside Energy this week revealed its core net profit was up more than fivefold, to $US1.82 billion in the first half of this year.
Coal and oil prices – and miners’ profits – have also soared. But while fossil fuel miners have done very well out of high energy prices, most of the world has suffered higher inflation and lower economic growth.
Reed sees a big change coming, albeit in the medium to long term. The crisis, he says, will accelerate the shift to renewable energy, to permanently reduced demand, and to a gas glut.
“You’ll see a lot of demand evaporating towards the end of this decade, and at that point, because there’s too much supply chasing too little demand, feast turns to famine for the gas sector.
“We’re a long way away from that point, but it probably does wind up involving stranded assets. That investment that looks like a good idea commercially now has to be written off or abandoned,” Reed says.
In the meantime, one might think Australia, with so much coal and gas, would be in a better position than most other nations. But as the eminent economist Ross Garnaut told the jobs and skills summit on Thursday evening: “Australian industry gets little competitive advantage from Australia being richly endowed with gas and coal. With the exception of Western Australian gas, these are made available to domestic industry at close to international prices. “We are kidding ourselves if we think no deep wounds will be left in our polity from high coal and gas, and therefore electricity prices bringing record profits for companies, and substantially lower living standards to most Australians,” he said.
Garnaut made the economic case for a much faster shift to renewable energy, arguing that it conferred on this country a competitive advantage that fossil fuels do not.
“Australian renewable electricity and green hydrogen will be twice – and more – as expensive in importing countries as in Australia. It will not make economic sense to use Australian electricity and hydrogen to process Australian materials in other countries.”
The nation will need to get its skates on, as was made clear this week in the Australian Energy Market Operator’s annual report on the state of the energy market. It called for “urgent” action to build new wind, solar and storage capacity and new transmission links, to avoid electricity shortfalls as old coal-fired generators cease operating.
AEMO said that within the next decade, at least five power stations totalling 8.3 gigawatts, or about 14 per cent of the national energy market’s total capacity, would be retired.
It warned of imminent potential breaches of “reliability standards” – that is, insufficient supply to meet demand, meaning possible blackouts – in South Australia in 2023-24, Victoria from 2024-25, New South Wales from 2025-26, followed by Victoria again, then Queensland and South Australia.
On the positive side, AEMO found there was sufficient renewable energy replacement in the planning stage, although not enough was firmly “committed”.
A decade of policy inertia under the former Coalition government can be blamed for much of the uncertainty among investors. But, as even some in Labor privately concede, there is culpability on their side too.
It was a former Labor minister for Resources and Energy, Martin Ferguson, who signed off on the massive expansion of east coast gas exports a decade ago, without reserving domestic supplies.
“So many of the terrible policy decisions he made, or was part of, are still biting. Letting the current Resources minister make the same sort of mistakes would be deeply problematic,” says one source.
“Many in the party are exercised about Madeleine King’s public positioning and fossil fuel boosterism.”
So is Professor Tim Flannery, chief councillor at the Climate Council, although he gives considerable credit to the new government for many of its policy positions – such as the 82 per cent target by 2030 for renewable electricity, and 89 per cent for new car sales being electric vehicles by 2030.
But encouraging new exploration, he says, is entirely incompatible with what needs to be done to address climate change. The scientific consensus is that if global heating is to be kept below 1.5 degrees, there can be no new fossil fuel projects.
“If you trust the scientists on this, there’s no way you’d be opening up new oil and gas fields, because the returns are trivial compared with the cost.
“We’re already feeling very severe consequences at 1.1 [degrees of warming], verging on 1.2,” he says, referencing various current climate catastrophes around the globe.
So why would King encourage new exploration that would ultimately exacerbate climate change, or result in the waste of billions of dollars on stranded assets, or both?
The most charitable explanation is that Labor, having gone to the election saying it was not going to stand in the way of coal and gas projects, is operating on the expectation – or hope – that the market will decide against developing them.
But Richie Merzian, climate and energy program director at The Australia Institute, doesn’t buy that.
He points to more than 100 new coal and gas projects in the pipeline. Clearly, there are many market players still prepared to invest in fossil fuels.
He speaks of a “dissonance” between the new Labor government’s commitment to reducing carbon emissions and its commitment to letting the market decide.
In the institute’s submission on the climate bill, which legislated a 43 per cent emissions cut by 2030, it pointed out that just a handful of the big gas projects would add more than 100 million tonnes of carbon emissions. “The government hasn’t really balanced out its books on how to reach 43 per cent,” Merzian says.
“They don’t realise that their climate credibility, their Australian renewable energy superpower vision, has to come with a trade-off on gas and coal. And so they haven’t sorted out their position.”
“Labor Resources ministers, when it comes the need to decarbonise and to spruiking fossil fuels – whether it be Ferguson a decade ago or King now – are pretty much the same as the conservatives.
“There’s just this inertia in the political system. They don’t realise that the public, led by the independents and the Greens, are just much further ahead than they are,” says Merzian.
David Pocock sees the same dissonance in King’s announcement opening up vast new areas for offshore oil and gas exploration.
“They’re trying to both say the right things and transition our generation to renewables, but, at the same time, continue to explore for more fossil fuel reserves,” he says.
“People want change. Turn on your TV, look at what’s happening in Pakistan. Look at the devastating flooding there. Look at China – 70 plus days of heatwave. Here, places flooding four times in a year.
“This is what climate breakdown looks like.”
This article was first published in the print edition of The Saturday Paper on September 3, 2022 as "Fields of contention".
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