PAUL SHEEHAN August 06, 2012
Any subject, even the humble household energy bill, can become interesting if it turns into a horror story. In 2015, the NSW government will face an election. It will also face an energy shock. The state's major gas supply contracts expire at the end of 2017, along with the flow of gas. From 2014, demand for gas will exceed supply. NSW is not building any coal-fired power plants. It is not developing any gas-fired power plants. It is not granting any natural gas exploration licences. Prepare for an energy bill horror story.
The man who must confront this problem is the NSW Minister for Resources and Energy, Chris Hartcher, who surveys the scene with some foreboding.
''We have been advised there will likely be gas supply challenges from as early as 2014,'' he told me. ''If we fail to secure future energy supplies, it could result in a more than tripling of gas prices for over a million NSW gas consumers.''
The word ''challenges'' is corporate euphemism for firestorm. The chief executive of the company that supplies most of the gas to NSW, Michael Fraser, of AGL, concurs. He says the natural gas market in Australia is heading for a ''structural dislocation''. He warns: ''If we don't get on with the job, we're going to have supply problems, it's as simple as that.''
NSW has abundant untapped low-cost energy. It has coal and coal-fired power stations but the Gillard government has destroyed the cost base of developing future coal power. NSW has enough natural gas reserves to power the state for more than 200 years. But the state government is suffocating the industry at birth with layers of red tape.
A state with abundant energy is thus facing an energy shock because coal has become a dirty word and even natural gas has become anathema in NSW because it is coal seam gas, now synonymous with another dirty word, ''fracking'' - which is shorthand for hydraulic fracturing, the process of extracting natural gas from coal seams.
A powerful alliance has formed against fracking, built on a fear that it poses an intrinsic threat to the water table, a rational fear given that once an area's water supply has been contaminated it faces economic collapse. For many people, opposition to coal seam gas exploration is a blanket ban - nowhere, at no time.
Chief among the antagonists are the Nationals and the NSW Farmers Association. The Greens are also opposed, along with the environmental movement en masse and thus the ABC. There is also an opponent more formidable than any politician - Alan Jones.
When in full campaign mode and full righteous indignation, the broadcaster is a force of nature. He is fully mobilised against coal seam gas exploration. A combination of the Nationals, farmers, environmentalists and the wrath of Jones is enough to still the hand of the NSW government on any policy.
Its hand has certainly been stilled on granting or renewing gas exploration licenses since coming to power 16 months ago. It has granted none. Instead, it has commissioned its umpteenth report, the Strategic Regional Land Use Policy, in which concerns about coal seam gas exploration are already enshrined under an ''aquifer interference policy''. The final version of the report is due any day.
All of which leaves Australia's biggest state, economically, with a problem. Where is it going to source its growing energy needs? The massive natural gas developments around Gladstone in Queensland are being financed and locked up by and for foreign markets.
Hartcher believes NSW should look close to home: ''We have a responsibility to maintain and improve our state's energy security and central to that is the responsible development of a domestic gas industry.''
He is clearly frustrated by the emotionalism that has led to stasis: ''A refusal by certain groups to join the rational debate under way on the state's future energy needs shows a reckless willingness to disrupt future household gas supply.''
His frustration was amplified by Fraser in a recent speech: ''For the past 18 months, the public conversation has been notable for a smorgasbord of claims about many issues impacting the energy industry that are sometimes ill-informed and, in some instances, deliberately misleading.
''If anyone wants to see what a CSG operation actually looks like, then drive out to Camden one weekend and see if you can find one of our 89 operating wells. You'll struggle to find them because … they have a very small footprint. In Queensland, over 90 per cent of their natural gas supplies come from coal seam gas. In NSW, it's about 4 to 5 per cent.''
He said demand for east coast gas was about 700 petajoules a year but would surge when the Gladstone liquid natural gas projects come on stream, increasing demand more than threefold to 2500 petajoules a year if the fourth Gladstone project goes ahead. These projects convert natural gas to liquefied natural gas for export.
AGL is the largest retailer of gas in NSW, with 700,000 customers, supplied via Santos from the Cooper Basin in South Australia and via Esso/BHP from Bass Strait. These contracts expire at the end of 2016 and 2017.
A recent ACIL Tasman study found that gas supply problems could arise as early as 2014.
''Gladstone is going to be like a giant vacuum cleaner for the east coast gas market, hoovering up all the gas it can get its hands on,'' Fraser said. ''Any time you get a structural dislocation like that in demand, it's going to have consequences.''
Consequences that the king of compromise, the NSW Premier, Barry O'Farrell, will have to navigate.