This article is more than 7 months old

This article is more than 7 months old

Farmers near the proposed Narrabri gas development in northern New South Wales fear they will be “sold out” by a federal-state energy deal that promises to dramatically increase supplies of the fossil fuel in the state.

Announcing the $2bn deal alongside the prime minister, Scott Morrison, on Friday, the NSW premier, Gladys Berejiklian, nominated Santos’s long-promised Narrabri coal-seam gas project as a way to deliver 70 petajoules of new gas a year as promised under the agreement.

Berejiklian said the state government was in the final stages of considering the controversial development, which could involve drilling 900 wells, including within the Pilliga state forest.

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But she said it was one of “two or three options” – including an approved gas import terminal at Port Kembla and a second possible terminal at Newcastle – that could win support: “One of those three things will satisfy our arrangements.”

The promised increased gas supply is part of what federal and NSW governments described as a landmark agreement that would lower power prices, cut emissions and strengthen the reliability of the electricity grid.

With the Morrison government having abandoned attempts to reach internal agreement on an overarching national energy and climate policy, it is the first of what is promised to be a series of bilateral agreements between Canberra and the states.

The deal promises $2bn in grants and loans for fossil fuel and clean energy projects, including supporting improved electricity transmission, ensuring the Mount Piper power station has enough coal to keep running, supporting new power projects through a federal underwriting scheme and establishing a pilot large-scale renewable energy zone in the state’s central west.

While Morrison initially emphasised the role of gas, NSW’s environment minister, Matt Kean, said the deal meant the state would meet its 2030 target of a 35% cut in emissions compared with 2005 levels and was a major step towards it reaching net zero emissions by mid-century. “This is a massing step forward to ending the climate wars within the Coalition,” he said.

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The gas agreement is to help investments that would increase the amount available on the east coast by 70 petajoules, a more than 50% increase on what is used in NSW. The Narrabri proposal is before the state’s independent planning commission, which is waiting on a report from the planning department before running public hearings.

Some residents opposing the development feared the announcement would increase pressure on the regulator to quickly approve it.

Sarah Ciesiolka, who owns a nearby horticulture business that relies on local groundwater, said it appeared the announcement could subvert proper process. “It is quite devastating that the NSW government and federal government have sold out regional communities in this way,” she said.

Alistair Donaldson, who lives on the south-east corner of the proposed site, said there was little evidence the Narrabri development would lower gas prices, and it made little sense to promise $960m to cut emissions while also supporting gas developments that released large amounts of methane, a particularly potent greenhouse gas, during extraction.

“It’s ludicrous,” Donaldson said.

Georgina Woods, NSW coordinator for the anti-coal-seam gas group Lock the Gate, said the government has released little detail on how the energy deal would work. But she said it was not a comprehensive plan to decarbonise the economy as the country needed.

“What we’ve got is a random chunk of money not linked to any clear goal to manage our transition,” she said. “That chunk of money appears to be coming with a sting in the tail, which will potentially expose north-west NSW to the damage and pollution of coal-seam gas.”

Santos’s chief executive, Kevin Gallagher, said Morrison was correct to say there was no credible pathway for energy affordability and security and emissions reduction without gas. Though they compete in the same market, gas from Narrabri would “always be cheaper” than imported gas.

Tim Buckley, from the Institute for Energy Economics and Financial Analysis, said analysis had shown gas was not needed to transition to clean energy. The deal was a subsidy for fossil fuels: “We know that Narrabri is not economically viable without support, and we know high-priced gas is not going to provide low-cost electricity.”

Innes Willox, chief executive of the Australian Industry Group, said the agreement would make the energy transition faster and cheaper. Unlocking new clean energy zones with new transmission connections and complementing by gas-fired power would help accelerate the transition to clean energy and cut costs.

He said a well-regulated gas supply was an important part of reaching net zero emissions by 2050, but given its high cost and emissions the state would increasingly need other flexible sources, such as pumped hydro, demand response and batteries.

Kean said the investment in clean solutions under the deal, including a hydrogen technology program to commercialise its use and concessional funding to drive the rollout of fast charging stations for electric vehicles by 2024, would be more significant than the support for fossil fuels.

The government would “not be cutting corners” in assessing the Narrabri project. It would still go through the independent planning commission and the gas commitment could be met a number of ways, including imports.

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“This doesn’t change anything when it comes to gas exploration in NSW,” he said. “The Narrabri project will go through the rigorous assessment process we have.”

Kean said the funding was not contingent on NSW delivering more gas into the market and the memorandum of understanding committed both governments to a review of outcomes.

The package was welcomed by the NSW Conservation Council, one of the leading environmental groups, although it opposed Santos’s Narrabri plan.

Chris Gambian, the council’s chief executive, said Berejiklian and Kean had been strong advocates for addressing the climate emergency.

“Today we are starting to see meaningful action,” he said. “Better integrating renewable energy hubs throughout the state will mean clean, cheap, reliable energy into the future.”

Labor’s climate and energy spokesman, Mark Butler, said a “sweetheart deal with one Liberal state” was no substitute for a genuine policy.

He said the announcement did not explain where the money was coming from, what it would specifically be used for, how it would be administered or how consumers would benefit.