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Key Findings

Gas is no longer serving a role as a transition fuel either domestically or internationally.

High domestic prices for gas have left the industry uncompetitive.

The gas-fired recovery is being overtaken by battery technology and changing export markets.

Executive Summary

Similar to the terminal decline of coal globally, we are now seeing the rapid decline of gas as a major source of fuel in the international and domestic energy system, being replaced by renewable energy and newer more sustainable technologies. The very rationale for embarking on a gas-fired recovery plan post COVID-19 has been removed.

At the moment, the Australian gas industry is reliant on exports with approximately 70% of gas being exported from the east coast of Australia. That is likely to change in the near term with Australia’s core export markets, Japan, China and South Korea, having all given firm net zero emission commitments: by 2050 for Japan and South Korea, and 2060 for China. Net zero emissions by 2050 effectively means that liquefied natural gas (LNG) demand will fall. This is echoed by the International Energy Agency (IEA) which finds primary energy demand falls 17% by 2030 under such net zero emission commitments. Australia’s key export markets will increasingly get more energy from renewables and batteries, and through demand reduction via efficiency gains, electrification and behavioural changes.

High domestic prices for gas have left the industry uncompetitive.

Domestically, gas use in industry has fallen12% since 2014. High domestic prices for gas have left the industry uncompetitive. Opening up further supplies of high cost gas under the Australian government’s gas-fired recovery plan will increase the cost of gas to Australian consumers and industry, further depressing industrial gas usage. Gas is an expensive fuel to use for domestic applications and domestic usage will fall as consumers move away from gas.

Gas usage in gas-fired power plants has declined by 58% since 2014, whilst renewables have increased to produce 25% of the energy in the National Electricity Market (NEM). The rapid rise of grid scale batteries will assure the continued decline of gas-powered generation.

The Australian Energy Market Operator (AEMO), the only agency to model a future electricity grid for Australia, has shown that by 2040 the role of gas in a renewables rich grid is smaller than today. With the rapid uptake of grid scale batteries, the AEMO’s Integrated Systems Plan (ISP) has over-estimated even the limited role of gas it foresees.

Gas is no longer serving a role as a transition fuel.

By developing a National Gas Infrastructure Plan (NGIP), the Australian government is failing to acknowledge the evidence contained in the Australian Consumer and Competition Commission’s (ACCC) 1,226 pages of gas inquiries from 2015 onwards that all clearly and unequivocally continues to demonstrate a lack of competition in the Australian gas market and the monopolised nature of the gas transmission sector. This lack of acknowledgement will lead to the failure of any NGIP.

The first rule of business is to listen to your customer. By focusing on a gas-fired recovery via the development of infrastructure and new gas resources in the Northern Territory, the Kimberley in Western Australia, and in Queensland, Australia is ignoring the behaviour change occurring with its customers, both domestic and international.

This failure to acknowledge the current global energy transition away from fossil fuels and into sustainable, clean renewable energies is leading Australia’s economic recovery policy to a ‘dead end’. With its core customers moving to import less coal and LNG, and domestic usage dropping, Australia must acknowledge these bald facts and adjust its policies accordingly.

Gas is no longer serving a role as a transition fuel either domestically or internationally.

Gas is no longer serving a role as a transition fuel either domestically or internationally. The clear established global trend is towards more renewable power in electricity systems with grid scale batteries, and less gas. Grid scale batteries are now cost competitive with gas, eating into gas’ market share for peaking power.

In supporting a gas-fired recovery, Australia is subsidising a losing industry that is experiencing export and domestic market declines.

Any commercial gas production out of the Beetaloo Basin in the Northern Territory would most likely start in the second half of the decade subject to highly speculative drilling success. This will not provide the necessary economic stimulus coming out of the COVID-19 recession.

The offshore development of gas hinges on a final investment decision for Santos’ Barossa project located 300kms North of Darwin in the Northern Territory. This project however is carbon intensive, an unsuitable source of gas in a carbon constrained world. It faces significant financial risks from both carbon taxes and carbon tariffs.

Bruce Robertson

Bruce Robertson has been an investment analyst, fund manager and professional investor for over 36 years. He has worked with Perpetual Trustees, UBS, Nippon Life Insurance and BT. He has appeared as an expert witness before a number of government enquiries into energy issues.

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