The Morrison government's $50 million gas handout undermines climate targets and does nothing to improve energy security
- Written by Samantha Hepburn, Director of the Centre for Energy and Natural Resources Law, Deakin Law School, Deakin University
Tuesday night’s federal budget confirmed the Morrison government will spend A$50.3 million on gas projects in the Northern Territory, South Australia and the east coast.
This decision, it says, will support the completion of seven new “priority” gas projects. Energy Minister Angus Taylor says the government strongly backs natural gas and accused the opposition of being “willing to risk Australia’s energy security and investment in regional Australia to appease gas activists.”
However, the development of new fossil fuel projects is completely inconsistent with the broader goal of achieving net zero emissions by 2050 – and will not improve energy security.
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Gas extraction drives climate change and extreme weather
Gas is a fossil fuel and a greenhouse gas. Emissions from the extraction, processing and export of gas contribute significantly to Australia’s carbon emissions.
Globally, there is growing recognition the energy sector must change. An International Energy Agency report last year made clear there can be no new oil, gas or coal development if the world is to have any chance of reaching net zero by 2050.
The methane found in natural gas is 25 times as potent as carbon dioxide at trapping heat in the atmosphere.
Funding new gas projects undermines Australia’s efforts to achieve an already unambitious climate target of 26-28% below 2005 levels by 2030.
Failing our climate target would breach the global goals of the Paris Agreement to limit the increase in global average temperatures to well below 2℃ above pre-industrial levels.
The consequences of global warming are catastrophic. Australia has had recent and profound experience of extreme climate events in the form of devastating bushfires and floods.
But what about energy security and Russian gas?
The European Commission is phasing down two-thirds of Russian gas exports by the end of the year, in response to Russia’s invasion of Ukraine. This will create a gas shortfall.
Russia supplies nearly 40% of the EU’s gas consumption via a fixed pipeline infrastructure.
To phase this supply out, the EU will this year require 500 terrawatt hours of additional imports of liquified natural gas (LNG).
This will be difficult. Global markets are tight and LNG tends to be sold on long-term contracts. Alleviating the EU shortfall will require record imports of LNG over the European spring and summer period and a rapid upgrade of gas infrastructure.
In a recent pact between Europe and the US, the EU will receive an additional 11 million tons of LNG by the end of 2022.
It’s unclear where this LNG will come from. Much may be sourced from non-contracted stock destined for Asia.
However it’s acquired, the price of LNG exports will continue to rise. Indeed, the delivered price for LNG in Northwest Europe rose 29% in a day after Russian President Vladimir Putin announced his special military operation. And spot prices for LNG in Asia are trading at near record levels.
Australia is one of the world’s largest exporters of LNG, with most going to China, Japan and South Korea.
Given the lock-in contracts, Australia has little existing capacity to assist the EU. Australian gas producers are, however, benefiting from the higher global prices for LNG exports caused by the EU shortfall.
Woodside, Santos and Oil Search have all registering significant gains in their share prices.
Complete nonsense
Taylor says spending $50.3 million of public money for new gas projects will:
accelerate priority projects and ensure Australia does not experience the devastating impacts of a gas supply shortfall as seen in Europe.
This is complete nonsense.
Australia will never face a shortfall like Europe because it’s not import-dependent. We have plenty of gas.
The issue for Australia is regulating the export of gas to ensure a sufficient domestic supply.
If the federal government wanted to improve Australia’s energy security, it would force gas producers in the east coast market to reserve a percentage for domestic consumption.
And it would actually use the Australian Domestic Gas Security mechanism. The measure was introduced to ensure gas supplies meet forecast energy needs, but has never been triggered.
An uncertain future
Funding seven gas priority projects is also inconsistent with the conclusions of the 2022 Gas Statement of Opportunities, recently released by the Australian Energy Market Operator (AEMO).
This statement argues the future path for the gas sector in Australia is uncertain because the pace and impact of a transforming energy sector upon the gas system remains unclear.
In the short term, this statement suggests funding new infrastructure will not alleviate domestic supply concerns because it won’t be running in time.
In the longer term, the statement forecasts a gradual decline in domestic gas demand as consumers inevitably shift from gas to electricity or zero-emission fuels.
Contrary to Australia’s climate targets
Funding seven new fossil fuel projects is fundamentally contrary to Australia’s climate targets.
These projects will not improve Australia’s energy security or assist the EU with its supply difficulties.
Nor do they cohere with AEMO’s longer term conclusions about the future of the gas sector.
Prime Minister Scott Morrison has argued gas projects are needed to generate new dispatchable electricity which can be ramped up quickly when needed, making new gas projects integral to a national pandemic recovery plan.
But Kerry Schott, the former head of the Energy Security Board, disagrees. She’s made it clear there is an abundance of cheaper, cleaner alternatives.
Schott is right. This is where public money should be directed – to projects that represent the future, not the polluting past.
Authors: Samantha Hepburn, Director of the Centre for Energy and Natural Resources Law, Deakin Law School, Deakin University
