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Key Findings

NSW Independent Planning Commission will have no other avenue but to reject the proposed coal seam gas project in Narrabri, New South Wales

Significant factual inaccuracies in Santos’ and Acil Allen’s supplementary reports can’t mask the poor financial results of the proponent nor the poor future for gas

Executive Summary

In this submission to the Independent Planning Commission of NSW (IPC), we review the late-received report submitted to the Commission by the project proponent, Santos, and their consultant Acil Allen.

IEEFA finds:

  • There are many factual inaccuracies in the Santos/Acil Allen supplementary submission to the IPC. The most glaring inaccuracy is their bald statement that gas in Australia has a “relatively flat domestic demand profile”. Instead, gas usage in Australia has declined by 21% since 2014. This is a clear downtrend in domestic gas consumption, rather than a “relatively flat” trend.
  • The Narrabri gas project, far from stimulating competition in the domestic gas industry, reinforces the power of the gas companies. Narrabri is owned by Santos, one of the five gas companies operating in Australia. As the Australian Competition and Consumer Commission (ACCC) has found, these gas companies have consistently priced Australian domestic gas above international prices for both spot and longer-term contracts since the building of the Gladstone LNG export plant in 2014. The ACCC’s ongoing East Coast gas inquiry has repeatedly and exhaustively shown there is no competition among the gas companies that are setting gas prices domestically, and that the Australian consumer is paying too much for gas. Opening Narrabri gas will not alter the market structure or enhance competition in the gas market, as there is no market. As such, Narrabri gas will not bring down the cost of gas on the east coast of Australia.
  • Narrabri gas is high cost gas to produce, costing $8.50/GJ ($6.40/GJ at the well head plus $2.10/GJ for transmission to Sydney). The current spot gas price is less than half this price at $4.21 in Sydney (as at 21 August 2020). Contract prices are in the range of $8-11/GJ. Santos cannot supply gas to Sydney and make a profit from the proposed Narrabri gas fields at current gas prices. Rather, Narrabri’s high cost gas will force up prices for domestic consumers, whilst the gas companies will continue to export lower cost sources of gas. 
  • Santos has attempted to mislead the Commission in its comparison of the price of Narrabri gas against imported LNG. It neglected to take into account transport costs from the remote region of Narrabri to consumption centres in Sydney. Narrabri gas is not cost competitive with imported LNG.
  • In financial and investment markets, ‘timing is everything’. Santos’ delay in lodging its’ supplementary submission to the IPC (documents that clearly have been in production for months and that were submitted on the last day open for public submissions) has coincided with some game-changing economic news. AGL Energy, a company whose very name is synonymous with the gas industry and who produced the iconic natural gas “Living Flame” advertising campaign in 1979, announced on 13 August 2020 that there is a clear business case for big batteries usurping the role of gas in a renewables rich grid. This was followed up with news of a truly grid scale battery in the U.S., rivalling the size and capacity of a gas peaking plant, and then further news of a big battery in South Australia which is 10 times the size of the Tesla big battery at Hornsdale (formerly the largest battery in the world).
  • Gas usage for gas-powered generation has declined by 58% since 2014. Future declines for gas in the power system are now assured. Australia does not need to open up new gas supply. 

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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