New report warns of gas industry decline

Prime Minister Scot Morrison has talked up a gas-fired recovery for manufacturing, raising expectations of big price reductions. However, the report from the Grattan Institute –entitled Flame out: the future of natural gas – shows that, far from fuelling recovery from the COVID-19 recession, a combination of economics and environmental imperatives will place increasing pressure on the industry.

“The evidence is clear: over time, gas will decline, economically and environmentally,” says Tony Wood, Grattan Institute Energy Program Director and the report’s lead author and. “Rather than indulging in wishful thinking or living in denial, the Federal Government and the gas industry – and its customers – should start planning now for a future without natural gas, or at least with a dramatically reduced role for natural gas.”

The report shows that eastern Australia faces inexorably more expensive gas. The east coast has already burned most of its low-cost gas and will not go back to the good old days of low prices, so gas will become an increasingly expensive energy source. If the Government intervenes directly in the market, taxpayers will pay the price via big subsidies.

Even if the Government could significantly reduce gas prices, the benefits to manufacturing are overstated. The companies that would benefit most contribute only about 0.1% of gross domestic product (GDP) and employ only a little more than 10,000 people. Much of this gas-intensive industry is in Western Australia, which has low gas prices already.

The report argues that the Government’s best role is to support the development and deployment of the low-emission alternatives that can replace natural gas in manufacturing, such as renewables-based hydrogen and renewables-based electricity. Australia must reduce emissions over coming decades to meet our international climate change commitments.

The report also disputes the potential of gas as a ‘transition fuel’. As Australia’s coal-fired power stations retire over coming decades, it would be more expensive to replace them with gas than to switch to more renewable energy such as wind and solar. While gas will play an important backstop role in power generation, this does not require large volumes of gas.

In the home, too, Australia must either replace natural gas with low-emissions substitutes such as biomethane or hydrogen, or switch to electricity, for heating and cooking. It is already clear that households would save money and Australia would reduce emissions if new houses in NSW, Queensland, South Australia, and the ACT were all-electric. The report calls on governments in those places to impose a moratorium on new gas connections.