Australian gov to open gas to domestic market with $52.9m funding

Scott Morrison’s government plans to allocate AUD52.9m ($38.2m) from the October budget to unlock larger supplies of gas and improve transportation infrastructure, as part of Australia’s “gas-led recovery” to relieve the economic recession caused by the Covid-19 pandemic. Fugitive emissions from the growing liquified natural gas sector have resulted in rising greenhouse gas emissions, but the government has not explained how this will be reconciled with Paris Agreement commitments to shrink emissions, The Guardian reported. Consultations with the gas industry will be held to detect barriers and opportunities along the supply chain, according to the government.

The Morrison government will use a looming negotiation with Australia’s LNG exporters to try and ensure sufficient supply is made available to the domestic market without having to impose a formal gas reservation policy – a scheme the industry would strenuously oppose.

The prime minister, who has been championing a “gas-led recovery” from the economic shock caused by the coronavirus, will use a speech in Newcastle on Tuesday to point to new commitments in the October budget, including funding of $52.9m to unlock more supply of gas and boost transportation infrastructure.

In a warm-up for substantial budget commitments, Morrison will hold open the option of taxpayer underwriting for priority gas projects, streamlining approvals, or creating special purpose vehicles for new investment.

The prime minister will say the government intends to pursue 13 measures designed to establish an open and competitive hub model – an Australian version of the Henry Hub in the United States. The Louisiana distribution hub connects gas pipelines from across the US, and the pipeline is the pricing point for natural gas futures on the New York Mercantile Exchange.

Morrison will flag further developing the Australian hub at Wallumbilla in Queensland. The Australian Energy Market Operator first implemented that hub in March 2014 as an exchange for the wholesale trading of natural gas. A single trading location was established in 2017.

The government says it will develop a national gas infrastructure plan to lay out the requirements for the industry into the future. The government will hold consultations with the gas industry to identify gaps, barriers and opportunities across the supply chain.

Morrison will on Tuesday commit funding of $28.3m to develop five strategic basin plans, beginning with the vast Beetaloo Basin in the Northern Territory, and followed by the North Bowen and Galilee Basin plans. As well as the basin plans, Morrison will flag his intention to set new gas supply targets with states and territories and enforce potential “use-it or lose-it” requirements on gas licenses.

Morrison will also keep live the option of imposing a domestic gas reservation scheme. But the prime minister will telegraph the government’s intention to use the process of negotiating a new heads of agreement with the three east coast LNG exporters to strengthen current commitments on domestic supply and price.

The current heads of agreement is due to expire later this year. The government is wary of massive pushback from the industry to a domestic gas reservation, and concerned about the risk of capital flight.

The gas-led recovery has been championed by the government’s business advisers, including Nev Power, the former Fortescue executive who heads Morrison’s Covid coordination commission.

A leaked report from the manufacturing taskforce attached to the commission headed by Andrew Liveris, a former Dow Chemical executive and current Saudi Aramco board member, recommended the government underwrite an increased national gas supply and that government agencies partner with companies to accelerate development of new fields such as Beetaloo Basin, and that states introduce subsidy schemes for gas-fired power plants.

That report, revealed by Guardian Australia, also proposed a role for government in helping develop gas pipelines between eastern states and the north, and potentially a $6bn trans-Australian pipeline between the east and west, by either taking an equity position, minority share or underwriting investments.

The government says any future pipeline investments would be based on evidence from the gas industry plan it intends to formulate.

Environmentalists are increasingly concerned that the Coalition is preparing to lock in fossil fuels for several decades at a time when it could be championing a green recovery after the pandemic.

Fugitive emissions from the booming LNG industry have led to increases in greenhouse gas emissions in Australia, and the Coalition has not telegraphed how it intends to address that problem given Australia’s commitments to reduce pollution under international climate agreements.

As well as the pollution problem associated with any expansion of the industry, Australia’s biggest oil and gas companies, Woodside Petroleum and Santos, face ongoing pressure from shareholders concerned about the financial risk of these companies backing long-term investments if the world moves towards the Paris agreement goal of net zero emissions by mid-century.

In a statement issued ahead of Tuesday’s speech, Morrison said the initiatives over the coming months were about “making Australia’s gas work for all Australians”.

“Gas is a critical enabler of Australia’s economy,” Morrison said. “Our competitive advantage has always been based on affordable, reliable energy.

“As we turn to our economic recovery from Covid-19, affordable gas will play a central role in re-establishing the strong economy we need for jobs growth, funding government services and opportunities for all.”

Taking the cue from the government’s positive signalling, the gas industry is lobbying Canberra to adopt a range of changes in the budget, including making wages and salary costs tax deductible, creating a new investment allowance for the industry, extending roll-over relief from the capital gains tax, amending environmental regulations to streamline new development and remove the water trigger, and providing loan guarantees.