Solar? Wind? Forget it...we are goin to gas!

24 April 2008

By Kellie Tranter

I have been wondering -- and obviously I'm not alone in doing so -- whether the 2020 Summit was anything more than a closely stage managed attempt by the Federal government to provide itself with a popular "mandate" to do what it wanted to do anyway. By doing so it might be able to circumvent the peril of not being re-elected because it implemented a tranche of changes that its opposition or critics can persuade the public are radical and dangerous. If what the government believes to be appropriate policies can be blessed with the appearance of popular legitimacy then the risk is minimised. A disturbing account by Anna Rose, one well motivated young participant who was plonked into the sustainability and climate change sector, certainly supports that impression:

http://www.newmatilda.com/2008/04/21/no-such-thing-bad- idea

But even though Australia is the world's largest coal exporter, I'm not sure that the clean coal lobby is the Government’s favourite child. Federal Resources Minister Martin Ferguson was being interviewed by Kerry O’Brien about renewable energy last week and seemed to be stuck on an exasperatingly repetitive, formularised answer about carbon trading schemes, when he let slip, “I might also say, you shouldn’t forget a relatively clean source of energy, that is gas...”. An inadvertent pointer towards the real agenda?

Thus prompted to go "sniffing for gas", I turned up Mr Ferguson telling a recent Australian Petroleum Production and Exploration Association conference that the Government wants to encourage more domestic gas projects like the Reindeer development off the WA coast, that the Government is pushing ahead with its review of gas retention leases to encourage companies to exploit their existing reserves, that Australia is facing a $25 billion trade deficit in petroleum products within seven years and that the Government has announced 35 new areas for petroleum exploration in Commonwealth waters under this year’s acreage release program, most of them in North West of Australia. Even though we are already the world's fifth largest gas exporter, the thrust of that seems to be "Find more, dig it up, pump it out and get it sold, ASAP!" So what if it kills the planet, and us along with it?

Mr Ferguson’s focus on the trade deficit in petroleum products (his 7 year estimate may have to be revised now that oil hits a "record high" nearly every day) seems a little odd when we have countervailing trade surpluses in coal and gas, and when the trade deficit in petroleum products is a drop in the bucket compared to what has happened to our net foreign debt.

But not if you’re pumping for gas.

To produce a unit of energy it generates about 56% of the CO2 generated by coal and about 70% of the CO2 generated by oil. So as far as greenhouse gases go, it is thus "relatively cleaner", as Mr Ferguson said. Ignoring for the moment that it is a fossil fuel and that burning progressively larger quantities of it will generate progressively larger quantities of CO2, its relative cleanliness compared to other fossil fuels presumably also means that its attractiveness to those who supply and use it will be greatly enhanced under a carbon trading scheme. Exactly who will benefit from that?

It also has significant potential as an oil substitute, particularly in powering the motor vehicles whose numbers are increasing inexorably, notably in China and India. The current issue of Time magazine, which contains the usual standing full page greenwash for Shell, this week has the company crowing about producing a synthetic fuel “made from natural gas, the cleanest fossil fuel. Gas to liquids fuel reduces sooty emissions and can be used in existing diesel engines”. All very well, but burning natural gas instead of diesel with current cutting-edge technology reduces CO2 emissions by only about 20% per unit of energy, and that reduction will be worth nought if vehicle numbers and vehicle usage keep increasing as they have to date.

And besides, by the Government’s own admission, Australia is under-prepared for peak oil, even though experts have long warned our government to plan for it.

So it was no surprise when the same Mr Ferguson this week welcomed the UN giving Australia jurisdiction over an additional 2.5 million square kilometres of seabed. The word he used was "bonanza", and no wonder: the gas fields just got bigger! Australia now has rights to the oil and gas resources under an extra 2.5 million square kilometres of continental shelf, which is almost five times the size of France, seven times the size of Germany and almost 10 times the size of New Zealand.

The importance being placed on gas as an energy resource cannot be overstressed. Mr Ferguson's approach reflects what can only be described as a ruthless scramble all over the globe, from Canada to Burma to the Arctic to China and India to Bolivia to East Timor to Nigeria and so on. Obviously natural gas is far more than a "relatively clean" bridging substitute between oil and true green renewables.

The first thing that concerns me about all this is comparing what the government says with what it actually does. In that light the government’s talk about climate change is bunk and its posturing about being a concerned global citizen is a charade: behind that green front, the country is still being driven by selling off fossil fuels that are going to end up as greenhouse gases and it will stay that way well beyond the point of environmental "no return".

The compelling inference from the information that is about is that the Government has no genuine interest in truly green alternative energy sources; through the dictates of financial necessity its policies have been co-opted by the fossil fuel lobbies, and Australia inevitably will continue finding, extracting and selling, to be burned here or abroad, as much coal and gas as it possibly can. We will ignore "expensive" (that is, if you ignore the externalities of the fossils) but necessary alternatives like wind and solar power, we will waste money subsidising industries whose profitability is at an all-time high in a quest directed not to an optimal outcome but to maximised private profits, and all in farcical contradiction to one platform upon which the Rudd Government truly was given an electoral mandate, namely to take real action on climate change.

If Australia's coal and gas exports were interrupted our entire economic foundation would be threatened. So, seen in the warm glow of glorious economic truth, "our" Australian gas undoubtedly is set for a big future.

My second concern emerged when I looked at the structure of the gas industry itself, its relationship to government and its relationship with and accountability to its ultimate consumers.

In Australia, the Crown -- which you may be amused to remember means all of us, in a true democracy -- owns petroleum resources, including natural gas. Both the Australian Government and the State and Territory governments sell rights in relation to those commodities to the private sector in exchange for taxes and excise duties and royalties. The fact that the production chain requires large capital investments, and that our Governments don't have any money, as they keep telling us, means that commercial arrangements in the sector typically involve significant private investment in exploration and infrastructure in exchange for advantageous pricing approvals, with substantial returns on investment built in, and profits hidden by confidential long term contracts for gas supply and transport both in Australian and overseas. "Investors" like confidentiality and don't like regulation unless it provides them with security or certainty; governments like and need money, and so they accommodate the investors. Regulation of the gas industry is already quite limited, particularly given its unique nature as a valuable resource that in the present mode of blinkered thinking has a very promising future, and the industry is tending towards further deregulation.

The problem with all of this is that it is too much of a one way street. At a time when the limited supply, precious nature and potentially deleterious side effects of misusing resources like water and oil and gas have been driven home to us, we are privatising our common interest in these resources and letting the privateers loose in a 21st-century neo-Conservative frontier.

As long ago as February 1994 governments agreed to facilitate developments aimed at stimulating competition, and promoting ‘free and fair trade’ in the natural gas sector. But what does ‘free and fair trade’ mean for privateers? How far is too far?

At its most fundamental, is it too far for regional transmission and distribution systems, being natural monopolies, to be privately owned? Is this not precisely the kind of infrastructure government should be building with the primary aim of maximising long-term benefit for all Australians? Even if private ownership’s OK, why should there be a trend in the gas transport sector towards deregulation, particularly for transmission pipelines? (Some recently constructed pipelines have never been covered, and coverage has been wholly or partly revoked for 14 transmission systems.) Is it 'free and fair trade' for the many pipeline owners who are not covered to be subject only to the general anti-competitive provisions of the Trade Practices Act 1974? Is it 'free and fair trade' when there is no obligation on them to give access to their private pipelines or sell gas to other people who want it, and if they do decide to sell it, they can effectively name their own price?

What message does government send when reforms to replace the old Gas Law and Gas Code with the National Gas Law and National Gas Rules include an amendment to limit coverage to pipelines where regulated access is likely to generate a material increase in competition in a related market, provide for light handed regulation and for binding up-front no coverage rulings for greenfield pipelines and price regulation exemptions for international pipelines?

Is this not unharnessing the monopolist that the government has created? Hasn’t our experience with oil companies been enough? (I bet you've forgotten by now that it is our gas -- yours and mine -- we are talking about!)And if you think I'm being uncharitable about the approach of the privateers, consider the scathing criticism of the ACCC in the Australian Pipeline Industry Association (APIA)’s July 2002 submission to the Review of the Competition Provisions of the Trade Practices Act:

…………the ACCC's approach has simply crystallised our concerns regarding their motives and attitudes towards the gas transmission sector.

2. ACCC Role is to Apply, not Develop, Policy

Over recent years the ACCC has sought to take a proactive, well resourced and very self-serving role in the development and modification of government settings relating to energy and competition policy, notwithstanding the fact that they have been entrusted through legislation to implement that policy in an unbiased fashion.

The policy development and policy justification role that the ACCC has adopted in respect of the Productivity Commission's Review of the National Access Regime, the CoAG Energy Market Review and other less publicised, but equally important processes, is inappropriate given the primary role of the ACCC in implementing current competition legislation.

APIA believes that the objectives and process for regulations should be specified by government, not the ACCC, and that the regulator should focus on applying these policy decisions.

Why, one might ask, do the privateers prefer to deal with governments rather than independent regulators?

The response of TXU Electricity Ltd (previously Eastern Energy Ltd) to the Draft Greenfields Guideline for Natural Gas Transmission Pipelines is much more moderately worded, but its philosophy is just as clear:

TXU believes that regulation should only act as a surrogate for competition. Where pipeline on pipeline competition is evolving, TXU believes that the market should set the price. Applying access regulation in this case will lead to an inefficient allocation of resources. TXU believes the gas market in Australia is still maturing, and that it is essential this maturing process is facilitated rather than inhibited. The most effective way of achieving this, in TXU’s view, is to “allow the market to work”. In this environment TXU believes regulators should deliberately take a “back-seat”, providing a light-handed framework that encourages the development of a competitive emodel in the South East Australian gas market. TXU further believes that regulators should deliberately seek to minimise intrusive regulation in such a developing market where investment is so vital.

But what happens when privateers have to reach agreement with private land holders before putting in a gas pipeline? Is it still ‘free and fair trade’ when pipeline privateers can call on government power to force their development through? Under the Pipelines Act 1967 lands or easements over lands are available for compulsory acquisition if the Minister is satisfied that the privateer “has taken all reasonable steps to enter into an agreement with the owner to acquire the lands or easements and those steps have not resulted in any such agreement”. So much for ownership, or at least the little person's ownership. So much the freedom to buy and sell, and the right of refusal. These aren’t public projects, or even projects that will necessarily provide any benefit to the public, yet government power can be brought to bear on the individual landholder to enable the privateer to achieve its purpose.

If resistance is futile, as it undoubtedly is, then perhaps instead of agreeing to a single lump sum payment in exchange for permitting a pipeline to pass through their land, private landholders should offer the easement sought by the privateer in exchange for a small annual fee calculated by reference to the quantity of gas that passes through the line and its value. In the long run I suspect that just a tiny percentage would allow them to sit back, crack open the bubbly and sing along with the Paul Kelly Classic and 2020 summit theme song "From little things, big things grow".

::BACK::