The current gas crisis is a prime example of how energy policy has been mishandled in this country. But it should not be an excuse for continuing the bad policy. Using talk of a gas shortage to increase fracking and coal seam gas exploration would be a bad solution to a problem of our own making.

The latest statement by the Australian Energy Market Operator (Aemo) on the gas industry seems to makes it pretty clear that we are about to suffer a gas shortage.

It notes at the top of its executive summary that “declining gas production may result in insufficient gas to meet projected demand by GPG for supply of electricity from summer 2018-19”.

The statement includes estimates of which states will suffer shortages out to 2036:

That would make it seem like a pretty open and shut case for needing to increase gas exploration and remove the moratorium on fracking that exists in Victoria and the Northern Territory. Surely a gas shortage means we need to increase the gas supply.

But the shortage figures hide the fact that Australia is not suffering from a lack of gas at all. It’s one of the more odd things that, while Aemo is predicting a gas shortage in 2019, Aemo also notes that demand for gas in Australia has actually fallen since 2012.

It also seems weird to talk of a shortage of supply when we are also hearing about the massive boom in the gas industry in Queensland. And it is here that we get to the crux of the problem. We are producing more gas than ever before but it is not for Australian consumers, it is for exports:

By 2020, 73% of gas production in Australia will head overseas.

The problem is that when the Gladstone LNG plants and port opened, for the first time the eastern gas market was linked with the world market. At the time, the price of selling LNG to Japan was much higher than gas prices here, even accounting for the cost of conversion and transportation. It meant that the prices of gas in the south-eastern states rose but also that selling gas overseas became a more attractive option than selling it to domestic users.

But since the Gladstone port and LNG plants came online, due to the massive increase in supply and demand not growing as fast as expected, the price has crashed and there is now a glut of LNG:

And when the cost of coal seam gas turned out to be more than expected – due to, as Aemo notes, “geological challenges” – it meant that in order to achieve a profit for these large and long-term export contracts for LNG, rather than use expensive gas, suppliers sought to use gas that previously went to domestic supply.

It saw big export contracts that effectively sucked up as much of Australia’s gas as possible. But, as Aemo notes, the lower prices in Japan have not led to lower prices here.

In 2016 – coinciding with the first winter where LNG supply was in full swing – Aemo notes that spot prices increased from an average of around $5 a gigajoule (GJ) across gas markets in April 2016 to an average of $12/GJ in July 2016.

None of this is a surprise.

I first wrote of the looming gas price hike in March 2014 and about calls for a reservation of gas for local use in October that year. That three years later I could pretty much rewrite the same article says a bit about how energy policy in the country has been handled.

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The issue of cost and supply remains – although it is somewhat changed.

Back in 2014 the view was that Japanese LNG prices would pull up our gas prices, so that we were in effect paying the world price. Except now we have the absurd case where Japan prices have fallen so low that there is talk of importing Australian LNG for domestic use.

So do we need to unlock the gate – and allow fracking? Not particularly.

We already have enough gas production to meet Australia’s demands three times over and developing more fracking sites may not actually do much to lower prices. As Aemo notes: “The increased cost of sourcing new gas supply means additional gas in the market may not translate to lower prices.”

Arguing for new fracking exploration and production is effectively suggesting that the way to meet Australia’s demand for gas and lower prices is to develop more costly sites and allow the low-cost production to be exported.

That’s a pretty odd policy to follow.

Back in 2014, I was against moves to reserve gas supply because while doing so might guarantee electricity generation it is not a guarantee that prices will remain low. Western Australia has a gas reserve policy and, over the past 10 and 20 years, consumers in Perth have seen their gas prices increase faster than those living on the east coast:

But my main issue against reserving gas for domestic use is doing so is a perverse incentive against the use of renewable energy. I was in 2014, however, perhaps rather too naive about how bad our energy policy would be handled and how strongly the government would be against renewable energy.

Aemo argues that to remove all gas shortfalls from 2019 to 2024 all that is needed is to reserve “5% of supply currently earmarked for LNG export”.

There is, however, some suggestion that the Aemo projections of shortage might be overstated. A report in 2015 by the Melbourne Energy Institute notes that Aemo has consistently overstated projections of demand for gas. Even since 2013 the amount of gas Aemo expects Australians to use has fallen:

Better efficiency and consumers reducing use due to increased gas prices has seen gas demand fall by more than expected.

Ironically, a gas reservation would likely reverse that trend and move consumers away from more energy efficient methods for heating and cooking.

The issue of gas supply is not about a lack of gas in Australia but where that gas is going. A reserve of gas might now be a least worst policy but we certainly should not be using the current situation to move towards more costly – and environmentally dubious – methods of gas production.