Got Gas? Time to prioritise gas supplies over generation capacity

Gas is very much in the news recently with prices in the northern hemisphere reaching record levels as supplies struggle to meet demand. So you may be forgiven for wondering why the Australian government continues to promote its gas-fired recovery plan?

After all, European gas prices – represented by the front-month benchmark Dutch TTF gas contract – have climbed more than 14% in the span of one day to €107 ($170.76) per megawatt hour, well above the price of €14.89 just a year ago.

The why is simple. Europe is struggling to fill its depleted gas stores ahead of the coming winter.

Asian gas prices are a little harder to track but the Argus assessment for spot LNG deliveries to northeast Asia was assessed at $34.685MMbtu for first-half November deliveries on 1 October, up by $15.80MMbtu for first-half October deliveries on 1 September and seven times last year’s price.

While still incredibly low by comparison with Europe and Asia, US gas prices have also increased by 9.5% to US$6.312 per million British thermal units on the New York Merchantile Exchange, the highest close since December 2008.

This is also due to concerns about gas supplies, though US shale operators have responded by ramping up their shale well completion operations.

By comparison, Australian east coast gas prices halved in August from where they were at in July due in part to having our own sources of gas that are exported to Asia and also the usual reduction in demand as we move into summer.

This might be why the recent $30m award to support early works on Australian Industrial Power’s Port Kembla gas-fired power station might have seemed like a good idea.

It is also incredibly short-sighted.

Gas supplies are becoming constrained

As noted here several times before, excluding gas supplies reserved for the big LNG export projects in Queensland, the east coast is facing the spectre of entering into a supply deficit far sooner than later.

This makes finding new sources of gas critical given that it is responsible for generating nearly a quarter of our electricity.

Over in Western Australia, the supply situation isn’t quite as critical and may even be comfortable given that potential large sources of gas have already been found in the Northern Perth Basin.

Given this scenario, it’s perhaps a little questionable why the federal government is funding a new gas plant when the question of securing gas supplies has yet to be answered in a satisfactory manner to date.

Perhaps the funds would be better deployed trying to source new supplies of gas by encouraging exploration or improving transport infrastructure.

Green proponents will no doubt disagree and call for funding to be diverted to renewable energy and that is honestly not a bad idea, which is why we have the Australian Renewable Energy Agency.

However, that ignores current trends showing that while the use of renewables has been increasing, it is doing so at the expense of coal, not gas.

It is also still some ways off before batteries or green hydrogen are developed enough to provide enough dispatchable energy to completely displace fossil fuels.

This means that gas will continue to provide a significant percentage of Australia’s energy needs – particularly dispatchable energy needs – for some time yet, which given the somewhat dire supply situation indicates that what we need instead of new gas plants is more secure gas supplies.