Energy experts have expressed doubts the Coalition’s plans to force gas producers to sell more of the fossil fuel domestically could bring down prices or ease supply pressures, saying the move could also push up greenhouse gas emissions.
In his budget-reply speech, delivered only 12 hours before Anthony Albanese announced a federal election for 3 May, the Coalition leader, Peter Dutton, said that, if elected, his government would deliver an “east coast gas reservation”.
Dutton said “between 50-100 petajoules” of gas destined for export markets would instead be “delivered to the domestic market” and this would bring prices down from $14 per gigajoule to $10. He later told the ABC this price drop could be achieved by the end of this year.
But experts were frustrated at the lack of detail on how a Coalition government could implement such a plan.
“What was announced by the Coalition is not policy – it’s lines in a speech,” said Stephanie Bashir, chief executive of energy analysts Nexa Advisory, who said a “well-considered and permanent gas reservation policy” had long been needed.
According to the Australian Energy Market Operator, seasonal shortfalls in gas supply for the southern states could occur by 2028 “with annual supply gaps emerging from 2029”.
Australian Energy Producers, the body representing the gas industry, said Dutton’s plan to “artificially reduce prices” was a “damaging market intervention that will drive away investment and exacerbate the supply challenges in the longer term”.
Tony Wood, the director of the Grattan Institute’s energy program, who has previously worked in the gas industry, said there was still very little detail on how the Coalition might simultaneously force more gas into the domestic market and push the price down.
“That’s a huge intervention in the market,” he said, adding if the Coalition’s proposals slowed the move to renewables, emissions would rise.
The Guardian asked the Coalition for more detail on how it planned to divert gas to the domestic market and if it was planning to place restrictions on LNG exports, but did not get a reply before deadline.
Currently, LNG companies can opportunistically sell gas not tied to long-term contracts in spot markets internationally or domestically.
The Coalition has said that, if elected, it wants to increase the use of gas and keep coal plants running for longer while it builds taxpayer-funded nuclear reactors.
Gas has been identified by the electricity industry as an important back-stop to cover times when renewable energy generation is low. But gas is one of the most expensive forms of electricity on the market.
Tristan Edis, a director and analyst at Green Energy Markets, said even if gas prices did fall to $10 a gigajoule, “it still leaves us with expensive electricity if we are going to significantly increase our reliance on gas”.
“Coal power plants typically have a fuel cost that is half that level, so if they are replaced with gas instead of renewables, then power prices will go up,” he said.
He said a new gas-fired power plant would need to charge about $170 per MW-hour to recover its costs if gas cost $10 per gigajoule.
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“By comparison CSIRO estimates that wind and solar generation costs will be between $40 to $80 per MW-hour,” said Edis.
Joshua Runciman, lead analyst for Australian gas at the Institute for Energy Economics and Financial Analysis, said diverting LNG exports to domestic markets was the quickest way to materially increase domestic supply.
But he said exporters could respond by ramping down investments in production that could mean “there might not be much spare gas”.
The Coalition’s plans to burn more coal and gas while it waits for taxpayer-funded nuclear reactors is likely to see less renewable energy enter the grid.
If pro-gas moves slowed renewables even further, this would risk higher electricity costs, Runciman said.
In his speech on Thursday, Dutton said a Coalition government would also scrap the $20bn Rewiring the Nation fund to finance electricity grid upgrades and major transmission projects such as new transmission lines and towers.
Bashir said without a replacement, losing the fund would slow the transition away from fossil fuels to renewables.
Nexa’s own modelling had shown that delays in building new transmission infrastructure would push up power prices, reduce reliability and force higher use of more expensive gas for electricity.
Bashir said: “Gas is a transition and peaking fuel. It is unequivocally more expensive than renewables and batteries.”
