Instituting a structurally broken U.S. business model as Australia enters the first recession in 30 years will cause the country even more pain as lockdown eases.
Australian energy company’s Santos and Origin have trimmed their exploration budgets. Santos announced a $550 million (38%) reduction in its’ 2020 capital expenditure.
In announcing its gas-led economic recovery package, the Australian government also stated that it wants to keep gas prices at $6-7/gigajoule (GJ) in the medium term, a price it views as low.
The Australian federal government has sought to map out the economic recovery from the COVID-19 pandemic via appointing the National COVID-19 Coordination Commission (NCCC).
The NCCC is looking to shore up the fortunes of the failed East Coast Australia coal seam gas (CSG) to liquefied natural gas (LNG) industry and is attempting to stimulate gas-based manufacturing in Australia. Its’ model is to heavily subsidise gas infrastructure, gas projects and gas manufacturing.
The U.S. fracking industry is not a sustainable business model to follow.
The NCCC also looks to the U.S. as a successful model for producing low gas prices. Whilst it is true that gas prices are low in the U.S., it neglects the fact that the U.S. fracking industry has been unprofitable for most of the last decade and is currently suffering a depression and a tidal wave of bankruptcies. It is not a sustainable business model to follow.
The gas industry is currently delaying projects, shutting in LNG capacity, and cutting capital expenditure budgets as gas prices plunge to all-time lows. The NCCC is trying to stimulate the Australian economy by subsidising an industry at a time when even those within the industry are not investing.
The Commission’s favoured industrial project is an ammonia-based fertilizer and explosives factory at Narrabri in New South Wales. It neglects to look at world markets where ammonia-based fertilizers are at 10-year lows making any investment dependant on large government subsidies.
The East Coast CSG to LNG industry is a financial failure. Since 2014, the three companies leading the industry wrote off over $19 billion, before the recent crash in oil and gas prices. Further large write-offs are assured in the next 12 months.
The NCCC and the government are propping up a failed industry that has demonstrably destroyed wealth. They should search for growing sectors in our economy with bright futures. A “gas-led” recovery is not possible and should not be pursued.
Please view full report PDF for references and sources.