Archive for March, 2016

Drilling down on gas

Next week’s Australian Domestic Gas Outlook conference in Sydney — from 8 to 10 March — offers a new opportunity for stakeholders (suppliers as well as consumers) to think about both the present state of play, not least for New South Wales, and where the winding path of politics is taking them.

The politics involved here is not just Australian but also the global joust over oil production created by the Saudis and others that seems to have now taken on a life of its own and is impacting across the petroleum patch.

One of the discussion sessions at ADGO — now in its fourth year and regularly attracting more than 200 people annually — raises the question of what is the “new normal” for the gas business here and to what extent Australian upstream companies and joint ventures should be recalibrating their business models and issues management?

The case of network business Jemena is an interesting example.

Last week it officially commissioned the $150 million augmentation of its Eastern Gas Pipeline, which brings about half the NSW gas supply from Victoria and has been expanded by some 20 per cent, and it is looking to spend another $800 million to link Northern Territory gas resources to the east coast through Mt Isa — but already activists and the NT Labor party, targeting the next Territory election, are threatening to block hydraulic fracturing there; should they do so, the present supply proposals will become much more difficult.

The Australian Petroleum Production & Exploration Association points to 40 years 0f industry work in the Territory using “fracking” and says that, without it, further development of NT gas resources is “impossible.”

This sort of stuff plays to a point the Australian Energy Market Commission chairman, John Pierce, made to a forum of the Committee for the Economic Development of Australia last month.

“We should  recognize the sobering reality,” he said, “that we only have a relatively small window of opportunity to adjust our domestic gas market arrangement — a window of opportunity to make lasting change and to develop a resilient market.”

Pierce’s version of a resilient market is one that is efficient, secure and reliable for the long-term interest of consumers — and is transparent, flexible and adaptable.

As he rightly adds, attaining this will require commitment from all stakeholders — the further (and not small) problem, I suggest, is that some are ideologically bent on preventing gas developments and others are politically bent on running with the green and NIMBY hounds.

Federal Energy Minister Josh Frydenberg, welcoming the Jemena EGP development, declared his government is leading work with other jurisdictions to deliver co-operative reform “aimed at easing price pressures for consumers while ensuring a reliable supply.”

One must laud the sentiment but, as with the CoAG Energy Council pledge to integrate carbon and energy policies, one must also look at the performance of individual governments to see just how far the words will have real force. Victoria, for example.

The imminent report from the Australian Competition & Consumer Commission on the east coast market can be expected to deliver an interesting report card for all concerned — producers, policymakers and consumers, especially those in manufacturing where a lot of jobs are likely to be affected by the market going pear-shaped. Some 200,000 in NSW alone.

The gas market roadmap the AEMC has laid out for the Energy Council, Pierce says, is not dependent on Australia  being in some part of the commodity cycle or the economic cycle “or, for that matter, the specific economic challenges of the day.” It means, he adds, getting the market mechanisms right so that there can be an effective response to changes in supply across the east coast, whether LNG exports are high one month or low with supply pushed south.

By progressively winding back barriers to the flow of gas, he says, it can go where it is valued most.

Unfortunately, the mechanism can only work well if there isn’t political interference affecting exploration and development, fuelled by fear of activists or a desire to give them comfort, so that an adequate supply of gas is available to the market.

The upstream petroleum industry is constantly calling for a “balanced and factual” approach to gas development but this is still an uphill struggle despite innumerable inquiries that have delivered a message that, well-regulated, the effort does not represent a “scourge” to communities (to quote one politician seeking to default the industry at present).

APPEA argues that “saying no to natural gas is saying no to thousands of jobs, regional development, a better economy and a meaningful response to climate change.”

The extent to which this message is getting across to the community at large, especially in Victoria, NSW and now, perhaps, the Northern Territory, as well as to elements in federal parliament, is open to question.

Broad public understanding of the economic risks, including risks to large number of jobs, inherent in the negative approach continuing to make ground is also questionable.

The ADGO forum offers a good opportunity to canvass the range of current issues and portents in the gas space, but the need to win wider community support remains a work in progress — as it has been now for a number of years.