IEEFA slams proposal for gas to lead post COVID-19 economic recovery

The Australian government’s support for the National COVID-19 Coordination Commission’s (NCCC) proposed gas-led recovery has been questioned by the Institute for Energy Economics and Financial Analysis (IEEFA).

In a new report, IEEFA says the move to adopt the US oil and gas industry’s business model as Australia enters its first recession in nearly 30 years does not stack up.

“In a world over-supplied with cheap gas, the NCCC is also suggesting opening up further gas supply in order to bring down prices in Australia to $4/gigajoule, but with current spot prices at $5.23/GJ in Victoria and $4.74/GJ in Sydney, and existing contract prices around $7/GJ, it really is a hard sell,” report author Bruce Robertson said.

“What the NCCC may not be recognising is that paying around $4/GJ makes us still 66 per cent more expensive than the US.”

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Robertson added that gas industry lobby group, the Australian Petroleum Production and Exploration Association (APPEA), disagrees with the NCCC and wants to keep selling gas at inflated prices into the domestic market.

Robertson says that more high-cost supply cannot bring down prices and would only cost Australian manufacturers and domestic consumers more money.

He added that applying the US model to the Australian gas industry would mean pouring money into a failed oil and gas, and petrochemical industry, which is demonstrated by the number of bankruptcies continuing since the onset of COVID-19.

The NCCC’s proposal to revive old infrastructure projects such as the east-west pipeline and the ammonia fertiliser factory for Narrabri, New South Wales, that were already deemed uneconomic even before the COVID-19 lockdown was also rubbished by Robertson.

“Prices have collapsed in the ammonia and oil/gas industry globally and are unlikely to recover until the supply glut moves, which for gas, will be at least eight years,” he explained.

“Subsidising new oil/gas and petrochemical projects which are globally bottoming out when other industries such as IT and medical technology are booming is a backwards step for a country already contracting.”

Economics consulting firm Acil Allen, which won the tender to complete a feasibility study of an east-west pipeline in 2017, found that the high cost of a pipeline along with the rapid changes in the energy market made it an unacceptable risk for the government to underwrite.

Robertson also claimed that the NCCC is trying to prop up Australia’s east coast coal seam gas to liquefied natural gas industry, noting that Shell, Origin and Santos have already written off $19bn on their investments since 2014.

“Yet more write-offs are a certainty this year. Pouring yet more government money into this failing industry is throwing good money after bad,” he added.

In a late twist, the Australian Financial Review has quoted NCCC chairman Nev Power as saying that the plans to increase public spending on gas infrastructure do not represent the commission’s view of how to accelerate the economy, but was an interim plan developed by the manufacturing taskforce.

Greenpeace Australia has also called on the government to abolish and replace the current commission, pointing to the links that Power has to gas company Strike Energy (ASX:STX) and commissioner Catherine Tanna’s role as the managing director of EnergyAustralia, which has a 20 per cent interest in the Narrabri gas project.