For Tony Abbott to achieve his dream of making Australia an “affordable-energy superpower”, an attack on the Renewable Energy Target is not the best approach. If the Prime Minister is serious about keeping energy prices down, stop approving the construction of new gas export terminals.
The Curtis Island LNG facility, which was recently approved in tandem with the controversial Abbot Point terminal development, is the latest in a series of projects that will work to increase Australia’s exposure to international gas markets and the higher prices that prevail in them.
Current domestic gas prices in Australia are well below those of our regional neighbours. Australians currently pay around a third of prices paid by Japanese and South Korean gas customers, as our producers do not yet possess sufficient infrastructure to sell gas production into these markets.
However, forecasts of future wholesale energy prices, commissioned by the Australian Energy Market Commission (AEMC), warn that domestic gas prices are likely to more than double over the next decade. This increase comes with greater exposure to the gas export market, as new export terminals, such as those on Curtis Island and the mammoth Gorgon and Gladstone projects, are brought online.
While natural gas currently trades at around $4 to $5 per Gigajoule (GJ) domestically, new LNG processing and export infrastructure offers Australian producers access to the Japanese and South Korean markets, currently offering almost $20 per GJ.
Even after the cost of liquefaction and transport have been accounted for, domestic gas prices have been projected by AEMO to rise as high as $13 per GJ in 2026, around triple current prices, due to expected demand from the Asian market
Modelling completed by Treasury as well as the Bureau of Resource and Energy Economics echo these expected price increases in Australian gas markets. Investment in export infrastructure, and the resulting linkage with the Asia-Pacific gas market will only work to drive up prices and constrain domestic supply.
The United States is currently the gold standard for how rapid growth in gas production can be used successfully drive domestic energy prices down. There’s no secret to how it has happened, the production of gas has been allowed to flourish, while infrastructure to export excess gas remains effectively non-existent.
Lack of gas export terminals located in the United States creates a situation where it is near impossible to actually get the gas out of the country. Producers have no other option than to sell gas into the US domestic market, significantly below prices being offered in Asian and European markets.
This glut in US gas supplies has resulted in prices falling to just a few dollars per gigajoule. The U.S. Energy Information Administration reports prices at the Henry Hub located in Erath, Louisiana, the standard measure for US gas prices, averaging as low as $2.60 USD per GJ for the year 2012 and were regularly well below $4 USD per GJ throughout 2013.
These low prices have assisted a renaissance in the US manufacturing sector, as factories take advantage of cheap sources of energy.
Realistically in Australia however, the likelihood of stopping the development of export terminals is next to zero. While the developments will lead to higher domestic prices, they will also generate huge growth in Australian trade. This is irresistible to Government searching for new sources of revenues that may contribute to balancing the Federal budget.
In this context, the Prime Minister must acknowledge that unbridled support of the Australian gas industry works to undermine his attacks on the RET on the basis of its cost.
Australians will continue to see energy prices rise, as our integration into the wider Asian economy continues. All we can really ask for is our politicians to be honest about the reasons why our energy prices are increasing.
Is it also too much to ask for the financial benefits of exploiting our fossil fuel resources to be invested into clean technologies that will continue to provide us energy well after our fossil fuel reserves are tapped out?
Michael Mazengarb is a post-graduate student Australian National University, completing a Master of Climate Change. An environmental mercenary, he has worked numerous roles pursuing environmental conservation and climate change action. Michael edits Omnishambles, and generally writes with a progressive perspective.
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