October 15, 2013

Drew Hutton’s foray into analysis of east coast natural gas supply and demand and the global LNG market (Courier-Mail, Oct 10), highlights the danger of taking a simplistic and ideological view on a complicated issue.

Gas prices have been unsustainably low in eastern Australia for the past 15 years. That they are now rising is due to a combination of factors – increases in the cost of supplying gas and the need to support export and domestic demand. As demand for any good increases and the cost of producing that good rises, so too does the price.

The successful natural gas development story unfolding in most parts of Australia, but not south of the border in NSW, is underscored by sufficient gas reserves and resources to meet both domestic and export markets.

And the ability to access international markets has allowed the development of this new Australian industry. More than $60 billion investment underway in Queensland has helped power recent economic growth and, if not impeded, will continue for decades to come.

But development on that scale has occurred only because of LNG.

Not only is it part of our export trade, strengthening and diversifying our engagement with the region, it is a vital contributor to federal and state government coffers through taxes and royalties that can be used to fund schools and hospitals.

Last week natural gas was identified by Deloitte as a “super growth industry” that could lift Australia’s next wave of economic prosperity over the next 20 years.

It is one of five sectors, including farming and tourism, that could add $25 billion to the economy by 2033.

Cash flow is not disappearing overseas as the Lock the Gate and the Australia Institute claim.

The nation benefits enormously from LNG projects. A recent report by McKinsey & Co shows 69 per cent of gas sale revenues from these major projects remains in Australia. All companies, both Australian and international, are spending vast amounts on local goods and services while helping create more than 100,000 jobs across the Australian economy. In fact, one Queensland based company has spent more than $14 billion since 2010 on local content.

The Americans are showing us how it’s done. The shale gas boom in the US was driven largely by a previously high gas price of $US11/MMBtu in 2008 which has now dropped to $US4/MMBtu due to increased production.

It’s extraordinary that those who oppose the development of natural gas from coal seams, are now arguing for a domestic gas reservation policy.

Gas reservation policies do not help to bring a greater supply of gas into the market as they act as a disincentive to investment.

It is also important to recall wholesale gas prices represent only about 30 per cent of the final bill paid by retail gas consumers, with network charges and costs imposed by green schemes the major contributors to gas bills. The reality is the best response to rising gas prices is not more regulation or a halt to a major export industry, it’s more gas.

This blog post was first published as an opinion piece in The Courier-Mail on 16 October.