IEEFA briefing note: New policy for massive subsidies for Australian gas industry is a poor decision

29 April 2019 (IEEFA Australia): A new analysis by the Institute for Energy Economics and Financial Analysis (IEEFA) finds the recent announcement by Australia’s opposition party to massively subsidise Australia’s liquefied natural gas (LNG) industry is a poor decision that assists an already profitable gas cartel while detrimentally affecting Australian consumers.

The new briefing note — Massive gas subsidy will further gas cartel profits at Australian gas consumers’ expense — explores the Australian Labor Party’s announcement on 23 April 2019 for a $1.5 billion financing facility to develop coal seam gas (CSG) in the Galilee and Bowen basins in Queensland, and shale gas in the Beetaloo basin in the Northern Territory.

Author Bruce Robertson, investment analyst with IEEFA, says the announcement earmarks funding for an already heavily subsidised industry with a proven track record of both price gouging Australian consumers and destroying wealth, while fracking coal and shale to export LNG has negative economic and environmental consequences. 

“Onshore gas will not result in lower prices for consumers,” says Robertson. “Australia’s gas market is lacking a fundamental mechanism to ensure prices have parity. That is, an open market.

“In recent years, there has been a tripling in gas production on the east coast of Australia – Australia is in fact the world’s largest gas exporter – yet domestic prices have tripled. Without a domestic market, more gas production will not bring down the cost of gas.”

Due to market concentration, gas companies in Australia can control the price and supply of gas. People living on the Australian east coast are paying well above international prices.  

“The announcement to subsidise Australia’s gas industry is disturbing because it ignores the over-supply in the global LNG market,” says Robertson. “Prices for gas in Asia have collapsed. The world is awash with LNG capacity and globally prices are very weak.

“Domestically, gas is no longer a competitive fuel for electricity production in Australia and its usage is falling. Further, opening up of two major gas provinces will ensure Australia fails to meet its Paris commitments.

“To support a loss-making industry that has failed to supply Australian consumers with gas at a reasonable price or pay its fair share of royalties and tax is total policy failure,” says Robertson.

Read the IEEFA Briefing Note: Massive gas subsidy will further gas cartel profits at Australian gas consumers’ expense 

Media Contact: Kate Finlayson ([email protected]) +61 418 254 237

Author Contact: Bruce Robertson ([email protected])

About IEEFA: The Institute for Energy Economics and Financial Analysis (IEEFA) conducts research and analyses on financial and economic issues related to energy and the environment. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.