tijaco

why it is an economically absurd concept

Over the last few weeks, I have been researching the idea of Australia going through a gas-fired recovery. That is to say that the Liberal government wants to facilitate even more gas-fired projects in order to stimulate the economy and create jobs to recover from the economic downturn caused by COVID-19. There is a lot wrong with this idea and, by the end of this video, I hope you too will understand just how stupid it is.

First, a note on the economy itself. The Liberals are doing their best at the moment to make it seem like the economic downturn is due solely to the coronavirus and the fact that we had to shutdown the economy. This is incorrect, but it is certainly in the government’s self-interest to have people think this. If people were to look at the graphs and see the economic health of our country before the outbreak, they would see a different picture.

One of the best journalists who sheds light on this subject is Alan Austin. He is a contributor to both Independent Australia and Michael West Media, and he has been outlining just how poorly the Coalition has been managing the economy ever since they got into office.

Now that I've noted just how poorly the Liberals have managed the economy to this point, the following stupidity might come as slightly less of a surprise. In the wake of COVID-19, Scott Morrison created the National COVID-19 Coordination Commission (NCCC) and appointed them to the mission of “mitigating the impact of the COVID-19 on jobs and businesses and to facilitate the fastest possible recovery of lives and livelihoods”. Those are the words of Nev Power, head of the NCCC – we will get to his other credentials soon.

The NCCC, like most ideas of Scott Morrison, is a complete farce. And it didn’t take long for the cracks to appear. An early leaked report from the NCCC called for the Australian government to spend big on gas projects. Anyone who looked into who was involved in the commission shouldn’t have been surprised.

As outlined by Fossil Fuel Watch and reported in Michael West Media, there are plenty of fossil fuel interests embedded in the NCCC.

The head of the NCCC, Neville Power, is a former CEO of Fortescue Metals and deputy chair of Strike Energy. What does Strike Energy specialise in? Oil and gas exploration. He also holds a handy $1.6m in shares in Strike, a solid incentive on its own. He has also advocated for a gas pipeline aimed at expanding onshore gas in Western Australia. The chairman is only the start of a familiar pattern.

Special advisor to the commission Andrew Liveris is a big advocate for the expansion of the gas industry in Australia. His directorship at oil and gas giant Saudi Aramco might have something to do with that. Also being the Deputy Chairman at chemicals and engineering company Worley Parsons along with $50k in shares at the company might go further in explaining his love for fossil fuels.

Another commissioner at the NCCC is Catherine Tanna, managing director of one of the biggest polluters in the country, Energy Australia. We are starting to see a pattern here. She is also a board member at the Business Council of Australia (BCA), one of the biggest and baddest lobbying groups in the country. They have been identified, along with the Minerals Council of Australia (MCA) as one of the biggest opponents to climate action. Nice one, Catherine.

We will end with James Fazzino, who is a member of the Manufacturing Working Group within the NCCC. He is described as a gas industry “kingmaker” and the man “who underpinned the development of south-east Queensland’s gas industry”. This is an industry, as we will shortly see, that is on the brink. Fazzino represents one of the most blatant conflicts of interest here. He is a director at APA Group, which is in the business of gas infrastructure. It will build a pipeline connecting the controversial Narrabri gas project to a separate pipeline connecting it to Sydney. That project is currently under review by the NSW government.

All of this points to a ‘gas-fired recovery’. Energy Minister Angus Taylor has talked about this prospect openly, and I will try my best to explain why this is a terrible idea on several fronts.

First, we can address the economics of gas and the fact that the whole fossil fuel industry is on the brink of collapse, only being held up by government subsidies. Gas in particular has been in trouble for the past 10 years. With more mild winters occurring around the world due to a warming climate, the need for gas to heat homes is declining. The gas companies around the world have not responded to this decline in demand, and instead have increased supply. This has resulted in an oversupply of gas in the market, and they are actually running out of space to store the excess gas. If this threshold is hit, the price of gas will go negative.

'The situation was best summed up in this clip from a recent IEEFA podcast. <podcast bit>

The International Energy Agency’s recent gas report has projected that demand will be further affected by COVID-19, and they are projecting a 4% drop in consumption in 2020. This is coming from an organisation known to underestimate the risks of fossil fuels because they tend to be affected by the garbage coming from the industry lobbyists. But the data is clear – the gas industry is collapsing globally.

With such low prices for gas globally, there is no chance of Australia being pulled out of a recession by exporting gas. There is almost no chance that a new gas project will make any money at all, let alone pulling a country out of the biggest recession since the 1930s. And all this was evident before the COVID-19 pandemic which has only worsened the situation. It’s clear that exporting gas isn’t going to drag us out of any recession. The next argument to attack is that of products which require cheap gas to produce. If we have a bunch of gas being produced in Australia, why not use that gas, make some stuff and then sell it on to the rest of the world? Could that bring us out of a recession?

To explore this, we have to focus on the Australian domestic gas industry. It is a complete mess, especially on the East coast. How a gas industry usually works is that the corporations take the gas and export most of it. But for the country where the gas is being produced, there are certain rules that the government can put in place where the gas company has to reserve a certain amount to give to the domestic market at a reasonable price. Without this policy, the gas companies can do what they want and the country itself, even though it is abundant with gas, pays whatever price the gas companies want them to pay. This is what is happening on the East coast of Australia. In Western Australia, the gas companies have to reserve 15% of their production to provide to Western Australian consumers at a reasonable price. In the East Coast, even though we have one of the biggest gas export markets, we still pay far too much for our gas because there are essentially cartels running the industry.

If a gas-fired recovery were to be feasible in Australia, you would need a low domestic gas price so that you could use that gas to create ammonia-based products or to create petrochemicals. You would also want high global prices for those products so that you can bring money into the Australian economy (God knows the cash would go to corporations’ coffers anyway). In reality, it is inversed. We have high domestic prices because of the gas cartels on the East coast, and the prices for ammonia-based products and petrochemicals are extremely low and falling even further. The logic of a gas-fired recovery in Australia is completely ridiculous.

Notice that until now, I haven’t once noted the environmental impact of the gas industry. Nor have I mentioned the health effects that are associated with gas production. I have focused purely on the economic case for a gas-fired recovery. And based on pure economics, it is a ridiculous prospect.

The environmental side of the gas industry is full of deceit and propaganda. The industry likes to promote themselves as far less polluting than coal and as a good path towards the decarbonisation of our economy. Firstly, coal is not a very high bar. Second, they’re probably wrong about that anyway. The amount of fugitive emissions that are produced in gas production often makes it just as bad, and oftentimes worse than coal.

See, when coal is dug up from the ground, unless you’re digging up a 40,000 year old cultural site, there’s not much that can go wrong environmentally speaking. When you burn the coal that you have dug up, then the emissions get produced. But gas drilling is different. In the process of gas drilling, a lot of emissions are produced at that point, before the gas is even being processed and used. This is what is called fugitive emissions, and because of the growth of the gas industry in Australia in the last decades, it has accounted for the majority of our increase in emissions through that time.

With all of these emissions being produced, and no money being made by the companies, it is baffling how the industry is remaining afloat. Tom Sanzillo best explained this on the IEEFA podcast I referenced earlier: <podcast bit> An already dying industry whose death is only being accelerated by current conditions is not going to bring us any kind of economic recovery.

To create economic growth, requires some transfer of wealth to the people who are going to spend it. Simply lining the coffers of huge gas companies is not going to stimulate the economy. This transfer of wealth can come through providing jobs at the companies themselves, or it can come through taxing the gas companies and using those funds to create jobs in more jobs-intensive industries. Neither of these avenues are open with the gas industry or with the current government, and that is precisely why a gas-fired recovery is so incredibly stupid.