No future in cheap gas-led recovery
For large gas users, it can seem like the gas market has been in a constant state of crisis for several years. Yet, although far from perfect, the market is not broken. Recent government actions have helped, and more can be done to restore a semblance of confidence in the market by improving liquidity and transparency. One measure of a functioning market will be how well domestic contract markets reflect continuing lower spot prices in our region. Although there are some indications of improvement, ongoing monitoring by the ACCC remains necessary.
Yet, no matter how efficient the market, it will not deliver the cheap gas of history – and attempts to drive a gas-led economic recovery through manufacturing will almost certainly fail. Manufacturers would welcome cheaper gas, yet gas prices are not an existential threat to large numbers of jobs. And, if cheaper gas were the saviour, we would have had the manufacturing boom years ago.
Threats to force in more [gas] supply through direct market intervention are unlikely to improve reliability or reduce prices.
The best role for the government is to support the development and deployment of the low-emissions technologies that can replace natural gas in manufacturing over the next few decades.
Natural gas will have an important role as a critical backstop to the power system as the share of wind and solar steadily grows. In this case, the role of the government should be to focus on measures that clarify the closure of coal stations and ensure that wholesale electricity markets are working effectively. Gas will then make its efficient contribution. Threats to force in more supply through direct market intervention are unlikely to improve reliability or reduce prices.
Australian homes and small businesses have been using natural gas for more than 50 years. While hardly an essential service, natural gas had been a low-cost energy supply and often preferred over electricity for cooking. In states where power generation has been based largely on coal, gas has also been a lower-emissions fuel.
The cost of electrification of this gas load would be large, removing the choice of fuel would be a political challenge, and there would be major financial implications for gas network businesses. Such a transition would involve many technical and planning issues. Yet the future cost of alternatives such as renewable hydrogen or biomethane are not well quantified.
The hard analysis to identify the best long-term outcome and how to get there must be a policy priority in Australia. In the meantime, in Queensland, NSW, South Australia and the ACT, new homes would be financially better off with electricity for all their energy needs, and emissions would be reduced in the near future relative to a dual-fuel home. In these cases, a moratorium on new gas connections would be a prudent, no-regrets option.
Ongoing high costs and the imperative to dramatically reduce emissions over the next few decades lead to the challenges listed above. Prevarication, or thinking we can avoid the challenges, will only make things more expensive in the long run.
