Grotesque greed. Thugs. Blackmail.
These are just some of the words I have heard used to describe Australia’s gas industry in the last week.
Last Friday, the Australian Government announced that it would be undertaking a substantial intervention into Australia’s broken gas market, incurring the wrath of a morally bankrupt and very powerful cartel, which is now threatening to create an artificial gas shortage as retribution.
In any other industry, this would be astonishing and outrageous. But this is the Australian gas industry, notorious for its bastardry. Anyone who has come into contact with the industry can attest to its character.
But how did we get to this point? This is the first post in a series that will attempt to answer that question. Over the next few days I will provide a very short history of Australia’s gas industry, from happy beginnings to policy failure, mega-profits to gas shortages.
For the sake of space, this post will focus on the east coast gas industry – Victoria, New South Wales, Queensland, South Australia, the ACT and Tasmania. The WA and NT gas industries are their own beasts with their own fascinating histories, so I’ll leave them for another time.
1968: Happy beginnings
Gas exploration in Australia began in earnest in the 1960s led by oil companies (the enduring relationship between gas and oil exploration remains to this day). Significant production began in the late 1960s, primarily from two major gas fields: the Cooper (Eromanga) Basin (in north-east South Australia and south-west Queensland) and the Gippsland Basin (offshore of south-east Victoria). Production in the Cooper Basin was led by Santos, while production in the Gippsland Basin was lead by ExxonMobil and BHP. The Gippsland Basin discovery – huge deposits of accessible gas relatively close to the coast – would be the spark for Australia’s love affair with gas.
Work began to build pipelines to connect south-west Queensland to Brisbane and north-east South Australia to Adelaide, while pipelines were build to connect Gippsland to Melbourne, Adelaide and Canberra. Sydney would eventually be connected to both Gippsland and north-west South Australia. You can read more about Australia’s gas pipeline network here.
As the build out of Australia’s gas pipelines continued, so households began to start using mains gas for space heating, water heating and cooking, while businesses began using mains gas to create heat to power industrial processes. Natural gas was cheap and supply was plentiful, and it became government policy in some states to connect as many households and businesses as possible to the mains gas network. This was particularly important in Victoria, Adelaide, Canberra and southern New South Wales, where gas was a far more efficient way to heat homes during cold winters than wood, coal or LPG. You can see this impact in mains gas connections today: about 83% of Victorian households have mains gas, along with 68% of ACT homes and 57% of South Australian homes (including 72% of homes in Adelaide). In contrast, just 43% of NSW homes have mains gas and only 12% in Queensland.
Before I continue, let me briefly explain the difference between natural/mains gas and LPG. The overwhelming majority of the gas used in Australia today (and the type of gas this post is about) is made of methane and often called natural gas or mains gas. This gas is present in a gaseous form within the earth, then extracted from the ground and pumped through pipes to households and businesses. It is a totally different product to liquified petroleum gas, or LPG (also called propane). As its name suggests, LPG is usually made from petroleum that has been converted into a gaseous form. It is a lot more expensive than natural gas and it is not piped across the country – instead it is usually bought in bottles (you probably have one for your BBQ). Natural gas and LPG can both be used for heating but they are totally different products.
The presence of a large supply of cheap energy close to Victoria’s shores also underpinned the expansion of manufacturing in Victoria and South Australia during this period.
These were the good times. As domestic demand for gas expanded, production surged throughout the 1970s from 1.9bcm in 1970 to 9.8bcm in 1980. Growth continued but slowed in the 1980s to reach 11.9bcm by 1990. Gas production was very profitable for the companies involved but it was also cheap for consumers – cheaper in fact than predominantly coal-powered electricity.
By 1990, 93% of the east coast’s gas was produced in Victoria and South Australia, with just 7% from Queensland. At this time, Victoria and Queensland were self-sufficient in gas, with South Australia producing twice as much as it needed, enabling it to supply NSW’s entire gas needs (NSW had no commercially viable conventional gas reserves).
But in South Australia, the peak had already past. 1989 was the best year ever for South Australian gas production and as conventional gas supplies dwindled, South Australia’s gas production slowly fell throughout the 1990s and 2000s.
Gas production continued to grow in Victoria throughout the 1990s albeit more slowly, while NSW remained a dead zone. But big changes were afoot in Queensland.
1996: The coal seam gas insurgency
In the 1990s, demand for gas was still increasing but, except for the Gippsland Basin, there did not appear to be strong prospects for growing production in existing basins. So the oil and gas industry began to experiment with new techniques for extracting gas from the ground, not just in Australia but across the world.
Getting gas out of the ground is not always straightforward. Conventional gas, including the Gippsland and Cooper Basins, could be accessed affordably with well-established techniques. But geologists suspected that Australia also had large reserves of unconventional gas, which was more expensive and technically difficult to access.
But with new techniques like horizontal drilling, acidisation and hydraulic fracturing (fracking) becoming commercially viable, new parts of Australia were opened for gas exploration and gas companies set their eyes on one state in particular: Queensland.
Queensland would become the cradle for the next big development in Australia’s gas industry: coal seam gas. The state’s existing gas production in the Cooper Basin would come to be dwarfed by this new source of gas.
Coal seam gas is methane gas that is found in coal seams (as the name suggests). It is a type of unconventional gas, meaning quite simply that it requires unconventional drilling techniques to extract from the ground (including fracking). Australia’s first production of coal seam gas was in 1996 in the Bowen Basin of central Queensland, soon followed by production in the Surat Basin of southern Queensland.
Across the 1990s, Queensland’s gas production quadrupled from 1.1bcm to 4.8bcm by 2000. Over the same period, east coast gas production increased from 11.9bcm to 15.5bcm – Queensland was responsible for much of this increase. NSW also began to produce small quantities of coal seam gas around this time, but production was tiny compared to Queensland.
Across the 2000s, gas production continued rising in Queensland thanks to more and more coal seam gas developments, reaching 7.7bcm by 2010.
Down south during the same period, Victoria’s Gippsland Basin saw a doubling in gas production from 6.7bcm to 13.6bcm. This conventional gas source was still the powerhouse of the east coast.
By 2010, east coast gas production looked very different compared to 20 years earlier: Victoria was still dominant (57%) but Queensland was catching up (32%). But something else was happening in the 2000s: gas supply began to grow faster than demand.
Demand for gas was growing fast in Queensland thanks to state government policies, with demand increasing by 122% in just 10 years (2.3bcm to 5.1bcm). But elsewhere, demand was not budging. NSW and South Australia each had just a 3% increase in gas use across the decade while Victoria, which was still by far the east coast’s biggest gas user, had increased by a modest 10%. The only other state to see substantial growth in gas demand was Tasmania and that’s because it was only connected to the gas pipeline network for the first time in 2002 (and compared to other states, demand here was tiny).
It begged the question: what to do with all this extra gas supply? The gas companies had not been living in a bubble. They had seen (and been a part of) some very interesting developments in Western Australia and the Northern Territory. They began to fantasise: what if we could ship Australia’s gas overseas and sell it for a much higher price?