What has been the greatest milestone of the Australian gas industry in the past five years?
There are many significant achievements, however, my nomination for the greatest milestone in the past five years would have to be the final investment decision on the Queensland Curtis LNG Project – the first of the CSG-based LNG export projects in Queensland. That decision heralded the beginning of a fundamental transformation of the eastern Australian gas industry that will reverberate for decades.
How has the industry changed since you first became involved in it?
Having been involved in the Australian gas industry over a period of more three decades, I’ve seen a great deal of change.
In eastern Australia, the biggest and most important changes have been:
- The evolution of the market from a series of isolated regional sub-markets, each served by a single source of gas supply, to a physically interconnected market in which gas can be freely traded throughout eastern Australia, from Mt Isa to Hobart.
- The unlocking of vast reserves of CSG in Queensland which now supply approximately 30 per cent of the total gas production in eastern Australia.
- Based on those Queensland CSG reserves, the emergence of a major LNG export industry in eastern Australia which was not contemplated even a decade ago.
Where do you see the gas industry going in the short term and the longer term?
For eastern Australia, I think the short term is all about the transition to an export-oriented gas industry based around its CSG-to-LNG projects.
In Western Australia, the key challenge will be the declining availability of gas from the North West Shelf Project, which has been the mainstay of the domestic market for more than 20 years. However, continued supply tightness and strong domestic gas prices will offer opportunities for both new conventional projects (onshore and offshore) and for unconventional sources, such as shale gas and basin-centred gas accumulations in tight reservoirs.
The potential emergence of WA’s Canning Basin as a significant new source of domestic gas supply is something to watch with great interest.
What are the most important steps the gas industry needs to take to survive in a carbon-constrained economy?
The carbon-constrained economy repre-sents something of a two-edged sword for the gas industry.
On one hand, carbon pricing tends to support greater use of natural gas over more carbon-intensive fuels, particularly coal. On the other hand, the introduction of large amounts of subsidised renewable energy will tend to reduce the opportunities for gas to take a larger role in electricity generation, which in the past was seen as the main growth opportunity for the gas industry.
Carbon prices at current and anticipated future levels are too low to result in a major power generation switch from coal to natural gas. Higher gas prices will make it more difficult for gas to increase its share of the electricity generation market.
If, as is widely anticipated, wholesale gas prices in eastern Australia rise to double or even triple their historical levels, gas-fired generation will not be able to compete with base load coal-fired generation, even if carbon prices rise well above current levels.
The gas industry will undoubtedly survive, and may even thrive, but if it is to achieve its potential, it will need to adapt flexibly as its role in the domestic energy supply mix evolves.
How do you think the gas industry should respond to the skills shortage?
There are no simple answers here. In the long term, these pressures tend to sort themselves out through the operation of market forces – spiralling labour costs reduce our national competitiveness in attracting investment dollars and put a brake on the pace of new developments, and strong graduate job opportunities and high wage offerings entice more students into the industry.
But of course, this provides little comfort to those projects currently facing acute skills shortages. The short-term effects of the skills shortage will be manifested in the form of project delays and cost overruns.
What role should the government take in the development of the gas sector? And in the energy industry more generally?
The government’s role in the gas industry should basically be about facilitation of private investment in exploration and production.
Governments have an important role in managing energy and mineral resources to ensure that their value to the community is maximised in the long run, while taking into account the need to ensure that extraction and utilisation occur in a safe and environmentally responsible manner.
Governments need to set up and maintain an efficient framework within which markets can operate, and then let them work, intervening only where there is clear evidence of market or policy failures.