But Shell Australia’s Andrew Smith says onshore gas production ban will lead to price hikes for Victorian manufacturers

This article is more than 3 years old

This article is more than 3 years old

Australia’s gas companies have manufactured a myth that there is a gas shortage, an economist with the Institute for Energy Economics & Financial Analysis, Bruce Robertson, said.

The idea that onshore coal seam gas exploration would ease pain for manufacturers by bringing down high local gas prices in a low-price global environment “goes against basic economic theory”, he said.

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Robertson made the comments in response to Shell Australia’s chairman Andrew Smith, who told Fairfax that Victorian manufacturers should direct their anger about the gas supply shortage towards the Victorian government and the premier, Daniel Andrews.

“It is the Andrews government’s ban on onshore gas production that will lead to price hikes to Victorian manufacturers – and this will cost jobs in Victorian factories,” Smith said. “All Victorian gas customers will be paying the price of gas in Queensland plus the hefty expense of pipeline access to transport the gas more than 1,000 kilometres south.

But Robertson told Guardian Australia the comments revealed Smith’s “geographical ignorance”. “Smith mustn’t realise that Victoria is located next door to the Bass Strait,” he said.

The gas consumed by Victorians comes from the Bass Strait and the industry is trying to make Victorians believe they will have to pay to transport gas from Queensland, Robertson said.

“There is plenty of gas available in the Bass Strait and on the east coast of Australia. “The manufacturers have a right to be angry, but that anger should be directed at the producers.”

In October BHP’s president of assets, Geraldine Slattery, described the Bass Strait as “our highest producer by volume and carries significant, high-return undeveloped resource, yet to be monetised”.

“We expect to see the Bass Strait gas plateau extending well into the next decade,” she said during a company briefing.

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Robertson said the idea that Victoria’s permanent ban on coal seam gas exploration and fracking was influencing prices, and that allowing fracking would bring prices down, made no sense.

Onshore coal seam gas was a high-cost industry, he said. “Producing high-cost gas is no way to bring down Australian prices in what is a low-price gas environment globally,” Roberts said. “If anyone could explain how opening up high cost fields would bring down the cost of a product, I’m all ears. It should be mind-numbingly clear that you can’t bring down the cost of something by producing it at a high price.”

While gas prices for manufacturers was a major problem, Robertson said gas companies has “manufactured” the cause.

Victoria’s acting resources minister, Philip Dalidakis, said there were no proven or probable unconventional onshore reserves in Victoria, so the ban implemented by his government would not have any impact on gas supply.

“We will continue to encourage development of Victoria’s offshore gas resources and gas storage, to assist future supply and help mitigate price increases,” he said.

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The domestic gas market is competing against Liquefied Natural Gas export markets to Asia, making it difficult for local gas users to secure new or longer-term contracts.

Coal seam gas exploration is causing concern across the country. It was a key issue for voters in the New South Wales 2015 election, and the South Australian Liberal party announced a 10-year moratorium on fracking in the state’s south-east as one of the key policy platforms on which it will contest next year’s election. A moratorium on fracking commenced in the Northern Territory in September. In Western Australia, Labor announced it would make the Perth, Peel and South West regions “frack-free zones” if elected come March.

The environment and energy minister, Josh Frydenberg, believes proposals for new gas exploration and development should be reviewed on a case-by-case basis, after an ACCC report into coal seam gas exploration on the east coast recommended against a blanket ban.

It is an approach that is being followed in NSW. The NSW minister for industry, resources and energy, Anthony Roberts, said his government would be releasing its new Strategic Release Framework for Coal and Petroleum Exploration within the first half of the year.

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“This is a new approach to how coal and gas titles will be issued,” he told Guardian Australia. “Economic, environmental and social factors will be examined, with community consultation conducted upfront, before a potential area is released through an expression of interest process.”

Roberts said the Eastern Australian gas market was facing a period of significant change in both supply and demand dynamics. NSW led calls for further reforms to ensure transparency and openness in the national gas market, he added. “NSW will not put in place a ban”.

But National Farmers Federation president Fiona Simson said the moratoriums various governments had in place were “symptomatic of the lack of confidence the community has in the development of the gas industry and concerns about a lack of regulation nationally”.



“The federation’s view is that we do think demand for gas is likely to outstrip supply as we move away from coal,” she said. “Assuming we do move towards renewables there would still be a gap needs to fill. Farming is an energy-hungry sector.

“But we only support coal seam gas if governments can get the regulatory regime right and ensure water and agriculture can be protected, and if the industry proves it can operate responsibly and safely.”