This is the final post in a four-part series on the history of Australia’s gas industry.
2022: The gas industry spits in Australia’s face
In the period from 2015 to 2022, the gas industry cartel more or less did what it wanted, partly thanks to a complaisant Federal Government, partly due to an excellent campaign of obfuscation and blame-shifting lead by lobby group APPEA and the rest of the gas industry.
But as with any organisation or individual that has gotten away with doing whatever it wants for a long time, hubris and entitlement eventually creep in.
In February 2022, Russia invaded Ukraine. Europe substantially cut piped gas imports from Russia, which had been one of the world’s largest gas producers. Now much of Europe was trying to import liquefied gas to fill some of the gap to avoid energy shortages.
This was a bonanza for liquefied gas exporters. Liquefied gas prices had already been rising in late 2021 due to supply chain constraints as global demand recovered from covid lockdowns. But with a surge in liquefied gas demand in Europe, things got totally out of control.
Remember that graph of domestic gas prices from Part 3? Well, I actually chopped off the end of the graph. This is what the complete graph looks like:
Graph 1. The domestic gas price by state (complete). Source: AER
The increase in gas prices in 2022 is truly astronomical and without precedent.
The graph below is from the ACCC and shows the liquefied gas netback price – effectively the price a gas exporter can expect to receive for selling their gas overseas.
Graph 2. The price of liquefied gas by month. Source: ACCC
In 2016 and 2017 it averaged $5-10/GJ. Between January 2016 and September 2021, it had only risen above $15/GJ once. Then things went crazy. In October this year, the price peaked at an eye-watering $67/GJ. Now it is $34/GJ, still three to four times higher than it was in mid-2021.
It doesn’t need to be this way. Over in Western Australia, the average price of gas from July-September was just $6/GJ. In large part thanks to their long-standing domestic gas reservation policy, Western Australians are paying as much as 91% less for their gas than those of us on the east coast.
Let’s be clear about what the impacts of sustained extreme gas prices are: manufacturers and other large energy users will go bankrupt and household energy bills will skyrocket. These high gas prices are also driving up the cost of electricity (for complex reasons which I won’t go into here), driving up inflation, which in turn is driving up interest rates. This is a national crisis. And it had to be brought under control.
But the gas industry seems oblivious, or perhaps indifferent, to the real world suffering caused by their war profiteering. The cost of producing gas has not changed over the last year – gas companies were already making very healthy profits. One study has estimated that gas production on the east coast is still profitable at $7/GJ. But if you can price gouge, why not? The gas cartel had been doing what it wanted for years and when the liquefied gas price went bonkers, I doubt they even contemplated the possibility that the government might step in to stop them.
Perhaps under the previous government they would have been right not to be concerned. But the new Labor Government – which to be clear, has been friendly with the gas industry for a long time – clearly felt like it had no choice but to act.
This week, the government introduced a temporary price cap of $12/GJ and a mandatory “reasonable price” provision in gas contracts.
The gas cartel was indignant and furious. First Shell and now Woodside, cheered on by parasitic investment banks like Credit Suisse, have threatened to withhold gas supply and create an artificial gas shortage for Australian households and businesses if this law is passed. Interestingly, they seem far angrier about the “reasonable price” provisions than the price cap – the price cap is temporary after all and at $12/GJ, gas companies will still be making large profits. But a reasonable pricing provision, depending on how it is applied, could permanently limit their ability to price gouge Australian businesses and constrain their ability to artificially limit gas supply.
At the time of writing, the Federal Government’s legislation has just sailed through the Parliament, just 6 days after it was first announced.
Conclusion: Will the gas industry finally get what it deserves?
So where does this sorry history leave us? A broken energy pricing system, an angry, rich and powerful cartel, an emboldened Federal Government, and ropeable businesses and households. A volatile mix for sure – but will it change anything?
Has the gas industry’s period of unchecked power come to an end? Can the government harness near-universal community anger to enforce a permanent price cap, a gas reservation policy or a super profits tax? Certainly Industry Minister Ed Husic seems up for the fight. Or will the gas industry regroup and come to an accommodation with the government that keeps their power largely intact? Only time will tell.
But there is one thing we do know: this crisis has made it abundantly clear from Europe to China, India to Japan that gas is unaffordable. The argument that gas can be a “transition fuel” to renewables is dead. The gas industry may keep getting very rich for a few more years but their obsession with super-profits is speeding up demand destruction. Maybe one day we will look back on 2022 as the beginning of the end of gas.
Much of the information in this series of posts I have learnt over several years working within and adjacent to the energy sector. I have only included references for controversial or more recent events.
Data on gas production and consumption was sourced from the Australian Government’s Australian Energy Statistics, particularly Tables N and Q. Data on mains gas connections was sourced from the Australian Bureau of Statistics (unfortunately this eight year old dataset is the most recent source available on this subject).
This is the third post in a four-part series on the history of Australia’s gas industry.
2015: The east coast’s liquefied gas nightmare begins
It quickly became apparent that there were a few wrinkles in the gas industry’s grand plan. Firstly, the gas companies had signed long-term contracts with customers overseas (primarily in Japan, China and South Korea) to supply them with a fixed quantity of gas at a fixed price. The problem was that many of these contracts had been signed before all the gas supply had been developed.
In some cases, companies had overestimated the size of their gas reserves. In other cases, opposition from landholders concerned that coal seam gas extraction had been poisoning the land and underground water sources meant that prospective resources could not be developed. This opposition coalesced into the Lock the Gate movement in 2010, bringing together large parts of regional Australia to oppose gas developments on farmland, particularly coal seam gas. All this meant that gas companies were having difficulty running their new expensive export facilities at 100% capacity.
But this was a small problem with an easy solution for the gas companies. Some of Australia’s gas was sold domestically on the spot market – that is, the gas is not tied to a particular customer under a long-term contract (it goes to the highest bidder). Prior to the export facilities coming online, gas was often sold in Australia for around $4/GJ. But the gas exporters could easily afford to outbid these prices – after all they could sell gas to customers in Asia for two or three times this amount.
So the gas exporters began buying up gas intended for the domestic market. Suddenly, energy-intensive manufacturers were having to match overseas prices to keep being supplied by gas. The price of gas in Australia skyrocketed. And as long-term gas supply contracts with industrial users began to expire, gas companies realised they could start demanding higher contract prices.
The vertical integration of some gas companies made these problems even worse, as many gas producers for the domestic market (eg. Santos) held part ownership of the export facilities.
So began the east coast’s gas nightmare, which has continued to this day.
You can see the doubling in the domestic gas price in the graph below from the Australian Energy Regulator. Prices remained around $5/GJ prior to 2015, before surging upwards to $10/GJ in 2018. (Prices alleviated somewhat in 2019/20 primarily due to the pandemic but they never returned back to pre-2015 levels).
Graph 1. The average domestic gas price by state (edited). Source: AER
Each year since 2015, the same routine has played out:
Large energy users are forced to compete with gas exporters for gas supply. The gas exporters buy up so much gas that the ACCC and AEMO warn of potential gas shortages – but the gas exporters sit down with the government at the last minute and commit to keeping just enough gas onshore to prevent a shortage (but not enough to cause the price of gas to fall). And each time, the gas industry takes the credit for saving Australia from blackouts, lamenting that this could all be avoided if Australia kept opening up more and more areas for them to dig for gas.
Let’s pause for a minute to reflect. In 2000, the east coast produced 15.5bcm of gas. We consumed about 15.6bcm of gas that year – supply and demand were pretty much balanced. In 2010, 23.9bcm was produced and we used 19.7bcm – a surplus of 3.2bcm. In 2020, 57.8bcm was produced and we used 21bcm – a surplus of 36.8bcm. Australia’s demand for gas grew slowly in the first half of the 2010s, and it has actually fallen since its peak in 2017.
Australia has never produced more gas than it does now. And we are using less gas. Yet prices have never been higher. What gives? Any economist will tell you that in a functioning market supply and demand are linked: if supply is high or demand is low, prices should fall. If supply is tight or demand is high, prices should rise. Why doesn’t Australia’s gas market reflect these realities?
As many energy analysts have pointed out, calling Australia’s wholesale gas supply market a “market” is not really accurate. The gas industry isn’t made up of lots of individual players competing with each other to provide the best value product. The gas industry is a cartel, where companies work together (directly or indirectly) to create artificial scarcity to keep prices high. It is market in name only, where gas companies say “we will sell you gas for this price, and if you don’t agree we won’t sell you gas, and you won’t be able to get gas from anywhere else, so you’ll have to shut down”.
It has been noted by the ACCC “that almost 90 per cent of the proven and probable (2P) [gas] reserves in the east coast in 2021” were controlled by liquefied gas exporters, either directly or indirectly.
But what can be done about a powerful cartel controlling an essential resource and extorting Australian businesses? The Federal Government can intervene of course. But Australia’s free market-inclined Coalition and Labor Governments do not like the idea of interfering with one of Australia’s most powerful cartels. And honestly, they are probably scared of them too. Governments of any stripe will not intervene unless the gas cartel does something so wildly irresponsible that they are left with no choice. And the gas industry is smart enough to avoid that.
This is the second post in a four-part series on the history of Australia’s gas industry.
2006: Starting a liquefied gas industry
The idea of selling gas overseas was not a new one. Russia had been exporting gas to Europe for decades via an extensive pipeline network. But Australia is an isolated island – an international pipeline was not possible. But commercial development of liquefied gas export facilities in the United States in the 1960s and 1970s pioneered another way of exporting gas.
Liquefied natural gas or LNG (not to be confused with LPG) is natural/mains gas that has been converted into a liquid (another example of very self-explanatory energy jargon!). This process occurs in liquefied gas export facilities, that use large amounts of energy to cool gas to negative 162 degrees Celsius. This enables it to be shipped in high density in special tankers, which transport the now-liquid gas to other countries. When the liquefied gas arrives at its destination, it is converted back into a gaseous form so it can be burnt.
Australia’s first liquefied gas export facility opened in Western Australia in 1989 supplied by gas from the offshore Carnarvon Basin in the north-west of the state. This huge project was one of the biggest resources projects of any kind in the world, developed by some of the world’s biggest energy companies: BHP, BP, Chevron, Shell, Woodside, Mitsubishi and Mitsui & Co.
A second export facility opened in 2006 in Darwin, aptly named Darwin LNG, supplied by the offshore Bayu-Undan gas field. This project was dominated by Santos, with Eni, Inpex, JERA and Tokyo Gas all taking smaller stakes.
If the names of these companies sound familiar, it is because many of Australia’s most powerful gas companies were involved in one of these two early gas export projects – it made them very rich. Woodside pioneered gas discoveries in WA’s Carnarvon Basin, Santos were major producers in the Cooper Basin of South Australia and Queensland, and Victoria’s Gippsland Basin was dominated by ExxonMobil and BHP. Between them, these are still the major players in Australia’s gas industry today.
Back to the east coast.
With easy access to coal seam gas in Queensland, gas companies began to advocate for the development of gas export facilities in the state. To justify the tens of billions of dollars it would cost to build an export facility, gas companies needed a few things: a large supply of proven gas reserves, an even larger supply of prospective gas reserves to feed the facility for decades into the future, big customers to sign long-term contracts to guarantee revenue and regulatory approvals.
Gas companies had done a lot of exploration in the Surat Basin (southern Queensland) and the Bowen Basin (central Queensland) and believed there was more than enough gas here to power the export facilities long into the future, even if not all this gas was commercially viable to produce yet. The Queensland Government had been giving the gas companies free reign across the state and they expected this open access to continue. There was also substantial exploration going on in NSW – maybe one day its gas could be exported too.
Next, the companies went touring Asia to sign up customers with offtake agreements. These customers were primarily located in Japan, China and South Korea, with some of these companies’ buying stakes in the export facilities.
Finally, the gas companies turned to the Queensland and Federal Government to get approvals, which were swiftly granted. This included the Queensland Government rejecting a recommendation to require gas producers to set aside a portion of their gas for domestic supply, a decision that would have major repercussions in the future.
But what about Australia’s gas needs? No problem, the gas companies assured us. Australia was awash with gas and if anything, linking Australia to the export market would encourage more investment in domestic gas supply (so the argument went).
Rather than collaborating to build one or two facilities, each gas company wanted to develop their own facility, resulting in seven different export facility proposals! Four of these projects eventually fell over, with the three remaining competing groups all racing to get their facility built first. These groups were Queensland Curtis LNG (operated by Shell, formerly BG Group), Santos GLNG (operated by Santos with Petronas, Total, and Kogas) and Australia Pacific LNG (operated by Origin Energy with ConocoPhillips and Sinopec). The three facilities were all located immediately next to each other on Curtis Island – see the photo below.
So in the late 2000s and early 2010s, billions of dollars were invested into three new export facilities and new gas field developments across Queensland’s Surat and Bowen Basins to supply them. This vertical integration – whereby gas producers and exporters were often the same companies – would also have serious implications for competition down the track.
Everything was all set for Australia’s east coast gas export boom.
In 2014, the gas fields started to come online, marking the end of era: Victoria, for the first time since gas production began in 1968, was overtaken by Queensland as the east coast’s largest gas producer. Gas production in Queensland had increased from 8.5bcm to 12.5bcm in just one year. But this was just the beginning.
In January 2015, Shell’s Queensland Curtis LNG sent off its first shipment of liquefied gas.
In October, Santos’ GLNG followed with its first shipment.
And in January 2016, Origin’s Australia Pacific LNG sent its first shipment.
By 2016, Queensland gas production had exploded to 36.9bcm – a mind-blowing four-fold increase in just three years. Queensland was now responsible for 72% of the east coast’s entire gas production, producing three times more gas than Victoria.
The gas companies’ dreams had come true. Queensland was now a globally significant exporter of liquefied gas.
But for the rest of us, this was when the nightmare began.
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?
Vote counting in the Victorian lower house is complete so it is time to look back on the Victorian election two weeks ago. This post is a companion piece to my last post pre-election, where I outlined eight key questions and speculated on the results.
For the second election in a row, Labor had a thumping win. In seat terms it was remarkably similar to the last election: Labor won 56 seats (up one) to the Coalition’s 28* (up one), Greens 4 (up one) and independents zero (down three). Within the Coalition, the Liberals had another shocker and won 19* (down two) while the Nationals had a great result with 9 seats (up three).
This relatively static seat result masked some pretty interesting variation across the state, which I will explore more below.
The media narrative going into this election was that it would be a close result, with a high probability of a hung parliament.
As I said before the election: “There hasn’t been a tonne of polling this election, but the polling that does exist shows Labor more likely than not to be returned with a majority, all else being equal. Unless the Greens and independents do very well, I see no reason to doubt this conclusion.”
Nonetheless, I massively underestimated the scale of Labor’s victory. Not only did all the independents completely flop but the Liberal offensive was insipid. Despite a state-wide swing of 2.7% to the Coalition, which “should” have halved Labor’s majority with a uniform swing, the Liberals won just two seats off Labor while losing four of their own, a net loss of two seats. The Liberals lowest hanging fruit was in the eastern suburbs and the outer south-east, but they actually went backwards in the eastern suburbs while in the outer south-east it was more or less a status quo result.
If you had told me before the election that there would be a ~3% swing to the Coalition but that Labor would gain seats, I probably would have called you an idiot.
Now, let’s answer those eight key questions.
Questions and answers
The 2018 election was a disaster for the Liberals and a thumping success for Labor. The Liberals can only go up and Labor only down from here. But by how much? A uniform swing of around 7% would be needed to endanger Labor’s majority (assuming no seats are lost to minor parties or independents, more on this below) but a swing of closer to 10% would be needed for a Coalition majority.
In terms of vote share, Labor’s vote did fall. The preliminary two-party preferred result was 54.9% to Labor, a swing of 2.7% to the Coalition. That wasn’t even close to the 7% swing needed to endanger Labor’s majority. On the primary vote, Labor’s vote fell much more steeply (5.8% swing) but the Coalition also fell (0.8% swing).
(Incidentally, the final Newspoll of the campaign found Labor winning with 54.5%, almost bang on the actual result. Can the media please stop second-guessing public polling now? Yes, it missed the 2019 federal election but that was over three years ago – it has been pretty damn good since then. By all means exercise healthy scepticism, but next time a poll comes out showing Labor comfortably ahead while an anonymous source tells you the Liberals are in a winning position, don’t report it as “the result could go either way”. Give the polling the benefit of the doubt).
On the face of it, a 2.7% swing should have taken a chunk out of Labor’s seat total but left their majority intact. The swing did leave their majority intact, but Labor actually gained a seat! Why? Because the swing towards the Liberals was almost maximally inefficient (or if you’re Labor, maximally efficient).
The table below lists Labor’s ten most marginal seats versus the Coalition pre-election (so excluding Northcote, which is a Labor v Greens seat). These seats were the lowest hanging fruit for the Coalition – they had to win them to be competitive. Winning these seats should have been at the core of their campaign.
Table 1. Labor’s 10 most marginal seats versus the Coalition pre-election.
ALP pre-election margin (%):
Swing to Coalition (%):
ALP post-election margin (%):
-1.7 (Liberal gain)
-6.7 (Liberal gain)
-4.4 (Nationals gain)
But the Liberals could only gain Labor’s two most marginal seats, Hawthorn and Nepean (the Nationals also gained the seat of Morwell, which was held by a retiring independent but was classified notionally as a Labor seat due to the redistribution). Not only that, but in five of these must-win seats the Liberals went backwards (Ashwood, Ripon, South Barwon, Box Hill, Ringwood). The Liberals did gain swings towards them in Pakenham and Melton but the swings were so weak that Labor held on. Remember, the Liberals were coming off a terrible result in 2018, so all these seats should have been winnable. That they weren’t is a case study in how not to run a campaign.
So the answer to the original question? Labor’s vote did go down as expected but this had negligible impact on the seat total, with Labor increasing their seats from 55 to 56. If there is anyone out there who predicted Labor to increase their seat total with a swing against them, kudos to you.
2. Labor has a lot of long-serving lower house MPs retiring at this election (13 MPs compared to 4 Liberals and 1 National). Will the loss of this personal vote endanger Labor seats on larger margins that normally would not be competitive?
Labor lost just one seat where they had a retiring incumbent (Richmond, which they lost to the Greens), so this didn’t have much of an impact in the end. Although it will not have escaped Labor’s notice that in four of the eight Labor-held seats that saw swings against them of more than 9%, they had no contesting incumbent.
3. The Liberals have sensationally announced that they will be recommending preferences to the Greens ahead of Labor in the Lower House for the first time since 2006. This would seem to doom Labor’s hopes of retaining Northcote and Richmond, which were always going to be close. But if the Greens have a really strong result, could they also gain other seats like Albert Park and Pascoe Vale, seriously damaging Labor’s hopes of winning a majority?
Well, the Liberals preference decision got the Greens close in Pascoe Vale, Preston and Footscray but Labor held on. The Greens did gain Richmond (by a large enough margin that Liberal preferences were probably not decisive) but they fell short yet again in Northcote, where their primary vote fell by almost 10%, back to levels not seen since 2006.
Overall, the win in Richmond aside, I think there are real reasons for the Greens to be concerned about their performance at the state level. In seats where they should be competitive, there has been hardly any primary vote growth over the last decade:
Northcote: substantial vote erosion, worst result since 2006
Preston, Footscray: Virtually stagnant vote for a decade
Pascoe Vale: Minor increase over last decade
Albert Park: virtually stagnant over the last decade, but solid increase in 2022
Of course this could be due to resource allocation. Their vote has grown strongly in Prahran and Brunswick over the last decade, as well as Richmond. However, in the electorate of Melbourne, the Greens primary has now gone backwards two elections in a row, despite having an incumbent MP. This is highly unusual – an incumbent minor party or independent MP generally builds up their base of support and increases their vote; in the overlapping federal electorate of Melbourne, Adam Bandt has increased his support at every election for over a decade. The party must be wondering whether this state MP is an effective local member or not.
One of the more curious aspects of this election was the strength of the Victorian Socialists in a range of seats in the inner north, winning between 5-10% in a number of seats. Most of these votes flowed back to the Greens as preferences but still, they must be a tad alarmed that they have a challenger on the left.
4. There has been a substantial redistribution of electoral boundaries in Victoria in response to population growth over the last decade – two new seats have been created in Melbourne’s west and north, and another seat created on the outer south-eastern fringe. In contrast, two seats have been abolished in the stagnant eastern suburbs and a third seat abolished in the south-east. The redistribution has clearly been beneficial to Labor. (You can compare the old and new boundaries here.) But with many MPs representing new areas, will this lead to greater unpredictability?
5. In the Federal election, there were substantial swings to the Liberals in some safe Labor seats in the outer suburbs, while marginal inner suburban seats swung to Labor. Will this phenomenon repeat at the state election, resulting in wildly different swings in different parts of the state?
This phenomenon certainly has repeated. Labor experienced swings against them of greater than 9% in eight seats in the outer north and outer west – the record was Greenvale with a gargantuan 15.1% swing. You might think this would have gained the Liberals some seats or at least made some Labor-held seats marginal. But no: the Liberals didn’t come close to winning any seats in the west or north, and the election finished with just one extra seat in this region on a margin under 6% (Yan Yean, 4.5%), joining already-marginal Melton (4.6%). With the exception of these two seats, the Liberals are not well set up to win any seats in this region in 2026.
In contrast, Labor experienced swings towards them across the eastern suburbs, strengthening their grip on Ashwood, Box Hill and Ringwood, while gaining Bayswater and Glen Waverley off the Liberals. The swing to Labor in Bayswater was 4.8%, the third highest in the state (first was the Geelong-based marginal South Barwon and second the safe Nationals seat of Euroa).
However Labor didn’t do well in the wealthy inner east and southeast that is historically Liberal heartland. Labor gained big swings in this ‘old money’ belt back in 2018 but won only one seat (Hawthorn). This time the region swung back to the Liberals and Labor lost Hawthorn (to new Liberal leader John Pesutto). This is the only silver lining out of this election for the Liberals: it is still possible to hold onto their heartland (albeit six seats is not a very large heartland).
6. Will the widely covered independent challengers to Labor in the western suburbs end up having any impact? Labor only holds two seats in the western suburbs with margins under 12% (Melton 5% and Werribee 9.1%). It would require gargantuan swings for Labor to lose any seats above 12%.
Well this is an easy one: no. Independents in the west were a complete and utter flop. In the three seats where media pundits expected independents to be most competitive, these were the independent primary votes:
Melton: 9.1% (plus 6.1% for two other independents)
Point Cook: 6.9% (plus 3.3% for two other independents)
Werribee: 5.9% (plus 0.7% for two other independents)
7. Prior to the 2022 Federal election, independents had been most successful in regional areas. Will prominent independents in Benambra and South West Coast defeat incumbent Liberal MPs? And can independents retain Mildura and Shepparton?
This is one of the more curious and harder to explain results of the election. Not only did the independent in South-West Coast flop while the Benambra independent fell just short (again), but the Nationals defeated incumbent independents in Mildura and Shepparton. That’s pretty unusual. So Victoria has gone from having three country independents in the last parliament to zero in the current one. I’ll be interested to hear theories explaining this.
Speaking of independents…..
8. Finally, there’s the topic on everyone’s lips: the Teal independents. After their extraordinary success in the federal electorates of Kooyong and Goldstein, will they manage to defeat any inner suburban Liberal MPs (or the Labor MP in Hawthorn) at the state level?
I am relieved that I did not underestimate the Teals again. Instead, I over-corrected and over-estimated them.
In the end, the only Teal independent to make the final two was Kate Lardner in Mornington, who fell 0.7% short (ironically, this was the Teal candidate I gave the least chance to). Independents in Hawthorn and Kew ran decent campaigns but both ended up in third place behind the Labor and Liberal candidates, missing out on the final two.
Overall, a poor result for independents. And a rare source of encouragement for the Liberal party.
I will conclude by comparing Victorian election results over the last decade. The following table shows seat total by party for the last four elections. Labor has now gained seats at three elections in a row, while the Liberals have gone backwards. There is rightly much scrutiny of the Liberal party and its campaign machinery after so many poor results. But more analysis should go into understanding how Victorian Labor, and Premier Dan Andrews, have managed to achieve such a sustained period of electoral success.
Table 2. Seats won by party over the last four Victorian elections.
*The election in the previously safely Liberal-held seat of Narracan was voided after a candidate died, so this seat is currently vacant. In this post, I have assumed the Liberals will win the supplementary election, getting them to 19 seats.
It is a bit over 48 hours until polls close for the Victorian state election. After eight years in office, Labor is running for a third four-year term under long-serving leader Daniel Andrews, while the Coalition is attempting to return to government with recycled leader Matthew Guy.
A Labor victory would mean that by the time of the next election in 2026, Labor will have been in power 23 out of the last 27 years, an extraordinary era of electoral dominance in Victoria.
Media commentary in the lead-up to elections in Australia is always dominated by “the vibes” rather than empirical analysis, a source of great frustration to yours truly. It is no different this election – except that there is even less empirical data than normal, so we are flying blind even more than usual! Given the limited data, in this post I will consider some of the uncertainties and conclude with my own read of “the vibes” (which you should take with a grain of salt).
There are some key questions going into this election:
The 2018 election was a disaster for the Liberals and a thumping success for Labor. The Liberals can only go up and Labor only down from here. But by how much? A uniform swing of around 7% would be needed to endanger Labor’s majority (assuming no seats are lost to minor parties or independents, more on this below) but a swing of closer to 10% would be needed for a Coalition majority.
Labor has a lot of long-serving lower house MPs retiring at this election (13 MPs compared to 4 Liberals and 1 National). Will the loss of this personal vote endanger Labor seats on larger margins that normally would not be competitive?
The Liberals have sensationally announced that they will be recommending preferences to the Greens ahead of Labor in the Lower House for the first time since 2006. This would seem to doom Labor’s hopes of retaining Northcote and Richmond, which were always going to be close. But if the Greens have a really strong result, could they also gain other seats like Albert Park and Pascoe Vale, seriously damaging Labor’s hopes of winning a majority?
There has been a substantial redistribution of electoral boundaries in Victoria in response to population growth over the last decade – two new seats have been created in Melbourne’s west and north, and another seat created on the outer south-eastern fringe. In contrast, two seats have been abolished in the stagnant eastern suburbs and a third seat abolished in the south-east. The redistribution has clearly been beneficial to Labor. (You can compare the old and new boundaries here.) But with many MPs representing new areas, will this lead to greater unpredictability?
In the Federal election, there were substantial swings to the Liberals in some safe Labor seats in the outer suburbs, while marginal inner suburban seats swung to Labor. Will this phenomenon repeat at the state election, resulting in wildly different swings in different parts of the state?
Will the widely covered independent challengers to Labor in the western suburbs end up having any impact? Labor only holds two seats in the western suburbs with margins under 12% (Melton 5% and Werribee 9.1%). It would require gargantuan swings for Labor to lose any seats above 12%.
Prior to the 2022 Federal election, independents had been most successful in regional areas. Will prominent independents in Benambra and South West Coast defeat incumbent Liberal MPs? And can independents retain Mildura and Shepparton?
Finally, there’s the topic on everyone’s lips: the Teal independents. After their extraordinary success in the federal electorates of Kooyong and Goldstein, will they manage to defeat any inner suburban Liberal MPs (or the Labor MP in Hawthorn) at the state level?
Take this with a grain of salt but here are my thoughts on likely answers to the questions above and possible results:
There hasn’t been a tonne of polling this election, but the polling that does exist shows Labor more likely than not to be returned with a majority, all else being equal. Unless the Greens and independents do very well, I see no reason to doubt this conclusion.
There may be a lot of volatility across the state. Labor was so dominant in 2018, their vote will likely fall everywhere – but will the biggest falls be in their most marginal seats or in very safe seats? I expect bigger swings against Labor in the outer suburbs but this will probably only cost them seats to the Liberals in the outer south-east that are on smaller margins (Pakenham, the new seat of Berwick, Hastings, Nepean, Bass, Cranbourne). I also expect Labor to lose some/most of the eastern suburbs seats they gained in 2018 (Ringwood, Ashwood, Box Hill, Hawthorn). In contrast, I think Labor will probably hold their seats in regional areas (and maybe they will win Morwell too).
It is very hard to get an objective read on independent campaigns. Pollster Kos Samaras, who predicted the Teal independent surge at the Federal election, reckons that Benambra, South-West Coast, Kew and Mornington are all looking strong for independents, with Hawthorn very close. Roy Morgan Research, another pollster predicts independents will win Benambra, Kew, Hawthorn, Brighton and Melton. My thoughts on each of these seats:
I agree regional independents have an excellent chance against the Liberals in Benambra and South West Coast.
Kew, Hawthorn and Brighton, all seem the most logical wins for Teal independents, along with Caulfield (which strangely, neither pollster mentions). I’ll predict that the independent wins Kew – retiring incumbent Liberal Tim Smith has done his best to alienate his constituents there – but I’m not sure they’ll break through in the other three seats. The Hawthorn independent seems to be relatively high profile, but the local Liberal candidate (an ex-MP) also has a high profile and by all accounts has run a very strong ground campaign. In Brighton and Caulfield, I don’t even know the independents’ names – I doubt they have enough name recognition to break through. (At this point, I should disclose that I was a hard Teal sceptic at the federal election – I thought they’d retain Warringah, gain Wentworth and maybe North Sydney, but I gave them no chance in Mackellar, Kooyong, Goldstein and Curtin. So I could very well be underestimating them again.)
I agree Melton is the best chance for a conservative independent victory in the western suburbs. If they cannot win Melton, they are not winning anywhere else.
I have no clue why Mornington keeps being talked about as a possible independent victory. There is absolutely nothing about the demographics of this seat (one of the oldest and whitest electorates in the state) that would indicate it is fertile ground for an independent, not to mention the abject failures of independents in the local area at the last two federal elections.
So to summarise: regional independents probably win Benambra and South West Coast, a Teal wins Kew and maybe one other, and a conservative independent wins Melton, resulting in 1-2 Labor seat losses and 3-4 Liberal seat losses. This assumes I am not systematically underestimating inner city independents.
Prior to the Liberal announcement that they would recommend preferences to the Greens ahead of Labor, I thought the Greens were a good chance to gain Richmond and perhaps Northcote as well. Since the Liberal announcement, it seems virtually certain that the Greens will win these two seats. The question then is what about seats like Albert Park or Pascoe Vale? If I had to guess, I would say Labor hold these seats. Labor and Daniel Andrews still seem pretty popular in the inner suburbs so I don’t expect Labor’s vote to fall enough here to put these seats at risk.
If you’ve been adding up my vague seat predictions above, you would get to about 43-46 seats for Labor. Given Labor needs 45 seats for a majority, this puts them right on the verge of minority or majority government. Having said that, I expect it is more likely than not that Labor will overperform than underperform on a seat-by-seat basis – they are the incumbent government after all.
My bet on the scenarios from most likely to least likely:
A narrow Labor majority of 1-4 seats.
Labor falling 1-3 seats short of majority, ultimately forming government with regional independents or Teals.
A comfortable Labor majority of 5 seats or more.
A hung parliament with Labor falling 4 or more seats short of a majority.
POSTSCRIPT SAT MORNING: We finally have a Newspoll released late Friday night, showing Labor up 54.5% on two party preferred. If that result is replicated tonight, scenario 1 (a narrow Labor majority of 1-4 seats) and scenario 3 (a comfortable Labor majority of 5 seats or more) are much more likely than a minority government.
Sometime before May 2022, Australia will have a federal election. As well as voting for the House of Representatives, around half of the Senate will be up for election. This post will provide an overview of the current state of the Senate and consider possible scenarios for the make-up of the next Senate.
This post shouldn’t be red as a forecast – merely an assessment of different scenarios at this moment in time.
First, the basics. There are 76 seats in the Senate. 72 senators serve fixed six-year terms, with half of these seats up for election every three years. Each state gets 12 senators. 4 senators represent the ACT and the NT, who each get two senators and face voters every three years.
This means that the term of half the state senators will expire on June 30 2022, while the other half of the state senators (who were elected at the 2019 election) will continue serving until June 30 2025.
39 seats are required to pass legislation. It is extremely rare for one party to win a majority in the Senate, so governments are required to negotiate with minor parties and independents (crossbenchers) to pass legislation. If these crossbenchers are ideologically aligned with the government or centrist, passing legislation is usually manageable with a bit of horse-trading. If not, passing laws can be more challenging.
To summarise: there are 36 state senators serving until 2022, 36 state senators serving until 2025 and 4 territory senators serving until 2022. Confused? Okay!
A note on the territories
Every Senate election in the ACT and NT has always resulted in the Coalition and Labor winning one seat each in each territory. Although this is not guaranteed into the future, the result has never been particularly close in the past. In the absence of polling showing a collapse in either party’s support in the ACT and NT, I am going to assume that this result will be repeated at the next election. As such, to simplify the following analysis, I will not mention the territories again.
So let’s start this analysis by looking at the 36 Senators who we know will be in office until 2025 and will serve in the next Senate regardless of the next election result.*
The 2019 result: Senators serving until 2025
These 36 senators were all elected at the 2019 election. This election was relatively close, with the Coalition winning the two-party preferred vote by a couple of points. The seat results by party were:
Jacqui Lambie: 1
One Nation: 1
The sum ideological split is 18 right (Coalition plus One Nation), 17 left (Labor plus Greens) and the hard-to-classify Lambie.
Let’s consider the results by state. In NSW, VIC, WA and SA, the seat breakdown was very straightforward, with three seats going to the right (all to the Coalition) and three seats going to the left (2 Labor, 1 Greens). I will call this the ‘default’ result.
In Tasmania, the left won three seats but the right only won two seats, with Lambie taking away enough of the right’s vote to win a seat herself.
In Queensland, the Labor vote collapsed to such an extent that the left only won two seats (one Labor and one Greens). The right won four seats, with the Coalition winning three and One Nation winning one. I have summarised all this in the table below.
Table 1. Senate results by state in 2019.
What does this tell us? Unless a minor party or independent has a relatively high primary vote (eg. Lambie in TAS) or a major party’s primary vote collapses (eg. Labor in QLD), the most likely result is each state electing three senators from the right and three senators from the left.
Scenario 1: A three-three ideological split
With a three-three split being the ‘default’ result, let’s consider the scenario where this result eventuates in every state at the next election.
If each state does in fact elect three senators from the right and three from the left, this means that:
The right will hold exactly half the seats in the Senate.
The left will be one seat short of holding half the seats.
Lambie will be the sole non-ideologically aligned senator.
In this scenario, Lambie will be extremely significant. If she votes with the right, she can pass bills. If she votes with the left, she can deadlock the Senate.
If this scenario eventuates, it will have major implications depending on whether the Coalition or Labor form the next government (more about this in ‘Summing Up’).
Of course, this is only one possible Senate scenario. There are at least two other plausible scenarios:
The left or right manage to win four seats in one or more states.
A centrist or non-aligned candidate is elected in one or more states.
Let’s consider these alternative scenarios.
Scenario 2: A 4-2 ideological split
Which state is most likely to deliver a 4-2 ideological split? The Coalition and One Nation achieved this in Queensland in 2019 and could do so again. And after WA Premier Mark McGowan’s truly crushing election victory in March, it is tempting to think Labor and the Greens could win 4-2 in WA.
But federal polling shows things are much closer. Newspoll’s latest quarterly breakdowns for each state (covering the period January to March) do not show either Labor or the Coalition with substantial leads in any states.** In two-party preferred terms, the polling in NSW, VIC, QLD and WA shows a result of between 53-47% in the Coalition’s favour to 53-47% in Labor’s favour. In SA, Labor is leading 55-45%.
What does this mean? At this point in time, it doesn’t appear that the left or right has anything like the dominance needed in any state to achieve a 4-2 senate result. SA is the only state that comes close – but even a 55-45% split is unlikely to be enough.
Of course, this situation may change over the next 12 months – the Coalition or Labor may experience a surge in support or the polling could be wrong – but I think at this point it is fair to consider a 4-2 split in any state unlikely.
Scenario 3: Minor parties and independents
But what about the prospects of minor parties and independents?
Since the removal of undemocratic group voting tickets in the lead-up to the 2016 election, which enabled minor parties to win seats despite getting hardly any votes, getting elected requires actually winning a reasonably large chunk of votes. In 2019, the only minor parties elected in any state with a primary vote of below 10% were the Greens in NSW (8.7%), Lambie in TAS (8.9%) and the Greens in QLD (9.9%). The largest vote for a minor party that did not win a seat was One Nation in WA (5.9%).
Considering there has only been one half-Senate election under the new voting system, it is risky to make sweeping generalisations. But I think we can tentatively say that a minor party has a good chance of getting elected with a primary vote of over 8% while it is very hard to get elected with a primary vote under 6%. The 6-8% range is a bit of a grey zone.
So how are the minor parties polling?
Newspoll shows the Greens polling above 10% in every state making them highly likely to win a seat in every state (if an election were held today). Conversely, One Nation is polling 4% or below in every state except QLD, where they poll 8%. So One Nation have a good chance of holding their only seat in QLD but do not look like they have much chance of winning any others.
As for other minor parties or independents, none even come close. There are currently two incumbent crossbench senators from South Australia who are both up for election. Both are centrists: Stirling Griff from the Centre Alliance and Rex Patrick, an independent formerly of the Centre Alliance. Neither of these senators are showing up in the polling and I struggle to see either of them getting elected. Neither of them seem to have much of a public profile in South Australia (at least from what I can tell). And at the 2019 election the Centre Alliance completely bombed, winning just 2.6% of the vote. Is there a bastion of support for Griff and Patrick that is hard for outsiders to see? Perhaps. Could one or both senators significantly increase their profile in the next 12 months? Perhaps. But I think the safe assumption at this point is that neither senator will be re-elected.
Which other minor parties or independents could get elected? Honestly I can’t think of any with a realistic chance. Maybe Lambie will endorse another Tasmanian candidate to run with her backing. Maybe some new independent will throw their hat into the ring and gain a significant following. But it’s anyone’s guess.
None of this post is predictive. A LOT can happen over the next 12 months. But right now, the most likely Senate make-up after the next election appears to be 38 senators on the right (Coalition and One Nation), 37 senators on the left (Labor and Greens) and 1 Jacqui Lambie.
Both the Coalition and Labor would find this Senate a tough proposition. A Coalition Government will always need the support of either:
One Nation AND Lambie, or
But the situation for a Labor Government would be even worse. Passing bills will require the support of either:
Greens AND Lambie AND One Nation***
This could have a significant impact on a future Labor Government’s legislative program. They are not going to be proposing progressive legislation if they need to rely on the support of One Nation or the Coalition to pass it.
Perhaps Labor could tempt a Coalition MP to defect and become speaker? But now I’m really speculating.
*Unless the government calls a double dissolution election. But let’s not go there.
** Newspoll does not publish a state breakdown for Tasmania.
***If One Nation hold two seats, Labor wouldn’t need the support of Lambie in this scenario. But let’s face it, if Labor aren’t getting the support of Lambie, they aren’t going to get the support of One Nation.
Newspoll’s latest quarterly breakdowns, used in this post, show the Coalition leading 53-47 in Queensland and Western Australia, a 50-50 split in New South Wales and Labor leading 53-47 in Victoria. If this were to eventuate at the next election, this would represent a 2% swing to Labor in WA and NSW, a 5% swing to Labor in QLD and no change in VIC. This could very well give Labor a narrow majority in the House of Representatives. So a scenario where Labor forms government while the Coalition and One Nation hold a blocking majority in the Senate is not far-fetched.
Major policy issues generally follow one of these three paths:
Resolution: A government can respond to a major policy issue in the face of public and elite pressure by developing and implementing an adequate policy response. Remember gay marriage? This was a major political issue in the mid-2010s and a key topic of discussion during the 2016 election. But the government (eventually and reluctantly) legalised gay marriage and resolved the issue. It has long since ceased to be a topic of mainstream discussion.
Stalemate: A government can respond to a policy issue by denying that the issue exists and therefore refusing to develop an adequate policy response. The issue may then remain in the mainstream of political and media discussion indefinitely. The iconic Australian example of this is climate and energy policy – the Federal Government does not take this issue seriously and does its utmost to make the issue go away. But strong interest from the public and political and media elites means that, even though interest peaks and troughs, the issue fails to totally go away and remains a live mainstream issue.
Apathy: This is the most depressing trajectory: a government refuses to develop an adequate policy response to a major issue but manages to persuade a critical mass of public and elite opinion that it has developed and implemented a policy response, thereby “solving” the issue. Without sufficient attention from political and media elites, the public loses interest, creating a vicious cycle whereby the issue leaves mainstream discussion and cannot break back in.
This latter route, sadly, has been the path of asylum seeker policy in Australia. Asylum seeker policy was a huge political issue at the 2010 and 2013 elections, and arguably the most hot-button political issue in the first half of the 2010s (alongside climate change). But since then, it has mostly faded into the background, only coming to the fore in relation to other political issues (eg. the medivac legislation, which was intertwined with the Federal Government’s loss of control of the House of Representatives in late 2018 and early 2019).
Despite the mainstream view, encouraged by the Federal Government, that this issue has been “solved”, the fact is that the Nauru and Manus Island detention centres remain open, as do a number of domestic detention centres holding asylum seekers. In recent years, even hotels have been turned into prison cells for asylum seekers.
In total, 239 asylum seekers remain in offshore detention, with 130 on Manus Island and 109 on Nauru. A further 442 asylum seekers are in onshore detention. That’s a total of 681 asylum seekers locked up by the Federal Government. (This does not include a further 1,053 people currently locked in onshore detention centres, primarily for visa violations).
The United States resettlement deal, negotiated by Malcolm Turnbull when he was Prime Minister, whereby asylum seekers are given the option of permanently resettling in the United States, has been the only bright spot (as deeply problematic as it is) in this bleak era of policy failure. 395 people were resettled in the US in 2018, 214 in 2019 and 243 in 2020. One can hope that most of the remaining people in offshore detention will experience freedom in the US in the not too distant future.
But that will not be the end of the matter. A further 12,255 people, the vast majority of asylum seekers, are no longer in detention and have been released into the Australian community on a bridging E visa. Although certainly preferable to detention, these people have no path to permanent residency. That means there are 12,255 people living in Australia, many for a number of years, who have not been provided with any assurance that they will be able to remain here in the long-term. I cannot imagine how difficult it must be to live a life with such uncertainty.
Asylum seeker policy is not an issue I normally write about in this blog. I draw attention to it not only to remind people of the immense human tragedy of Australia’s asylum seeker policy failure and the intense, unspeakable suffering it has caused. It is also a cautionary tale.
Not all policy issues are resolved or end in stalemate – some are just forgotten.
If you are trying to read the data tables on the Department’s website, note that the Federal Government makes heavy use of Orwellian Newspeak. For example, asylum seekers are called “illegal maritime arrivals” or IMAs. Hotels and other facilities not designed to imprison people are called “alternative places of detention” or APODs.
With the closure of Australia’s dirtiest coal power station recently brought forward to 2028, now seems a good time to publish a post I began writing late last year but never finished, which analyses five of the most important factors that influence when coal power stations close.
A quick overview of Australia’s coal fleet
There are 19 operational coal power stations in Australia located across four states: eight in Queensland (Gladstone, Tarong, Tarong North, Millmerran, Kogan Creek, Stanwell, Callide B, Callide C), five in New South Wales (Liddell, Eraring, Vales Point, Bayswater, Mt Piper) and three each in Victoria (Yallourn, Loy Yang A, Loy Yang B) and Western Australia (Muja CD, Collie, Bluewaters). In the three eastern states, they supply between 70 and 80% of each state’s electricity. In Western Australia they supply about 40% of the power in the state’s main electricity grid.
They range in size from the 340MW Collie power station to the gigantic 2,880MW Eraring power station. In age they range from 12-year-old Bluewaters to 50-year-old Liddell.
Don’t we already know when coal power stations will close?
In theory, yes. The Australian Energy Market Operator (AEMO) requires all power station owners on the east coast to publish their planned closure dates here. The owners must provide at least five years notice of any closure, and risk penalties if they don’t. If we take this at face value, just four coal power stations are expected to close by 2030: Liddell and Vales Point in NSW, Yallourn in Victoria and Callide B in Queensland.
But it would be unwise to take this at face value. If a company is bleeding money on a coal power station and they see no hope of things changing, they are not going to let themselves go bankrupt – they’ll close it down. Even substantial fines are unlikely to deter this. Coal power stations can cost hundreds of millions of dollars every year to maintain and keep safe as they get older. I expect most companies would rather pay a substantial fine to shut a power station early than pump more money into assets that are unprofitable.
So take the official closure dates with a grain of salt. Instead, consider the following five factors.
Age is the most obvious factor influencing coal closure. As coal power stations age, they become increasingly expensive to maintain and increasingly prone to faults as machinery reaches the end of its technical life. Australia’s coal power stations are generally pretty old. Just five have been built since the year 2000 and the four oldest were built back in the 1970s (Liddell, Yallourn, Vales Point, Gladstone). Age also has an impact on the following factor: flexibility.
Coal power stations are often described as providing ‘baseload’ power. This means they are designed to operate at close to full capacity 24 hours a day, 365 days a year. That makes them poorly fitted to the modern electricity grid, with wind and solar providing a varying supply of electricity at different times of the day, forcing other power stations to also vary their supply in response. Electricity demand is also becoming increasingly varied over the course of the day, with demand falling significantly in the middle of the day and then quickly rising in the evenings.
It is true to say coal power stations are not designed to ramp their supply up and down but this doesn’t mean they cannot. All coal power stations have to ramp to some extent these days. But it takes its toll on the machinery. Generally speaking, the older the power station, the more difficult it is to ramp up and down, the higher the maintenance costs and the more likely the faults.
For example, the near-50 year old Yallourn power station in Victoria has real difficulties ramping up and down, so it avoids doing this as much as possible. In contrast, the Mt Piper power station in NSW, which was built in the 1990s and is a lot younger than Yallourn (although it is still almost 30 years old) is much more versatile and often ramps and down.
The more flexible a power station, the better its chances of hanging on into the future.
Cost competitiveness and electricity prices
Part of the reason coal power stations provide so much of Australia’s electricity is that they are relatively cheap to run – before wind and solar came along, coal power stations were the cheapest source of electricity in Australia, providing power at a far lower cost than gas and hydro.
But that is no longer the case. Wind and solar can provide power with virtually no running costs. As more and more wind and solar farms have been built across the country, the wholesale price of electricity has fallen and the most expensive coal power stations have been put under a lot of financial pressure.
According to an excellent recent analysis from IEEFA, the cost of running Australia’s coal power stations (know as the short run marginal cost) varies from $12/MWh to $42/MWh (unfortunately this analysis didn’t include WA). The three cheapest coal power stations are all in Victoria (Loy Yang A, Loy Yang B, Yallourn). The three most expensive power stations are all in NSW (Eraring, Mt Piper, Vales Point).
Cost competitiveness is not just important on a national level; within-state competitiveness is crucially important. For example, the Yallourn power station is the third cheapest coal power station on the east coast, but it is the most expensive in Victoria, so it loses out to its most direct competitors Loy Yang A and Loy Yang B. Conversely, the Vales Point power station is the third most expensive on the east coast but two other power stations in NSW, Eraring and Mt Piper, are more expensive than it is. So Vales Point is less at risk than they are.
Why is NSW home to the most expensive coal power stations and Victoria to the cheapest? The biggest factor determining running costs is the cost of coal supply. All of Victoria’s coal power stations (and about half of Queensland’s) get coal from mines co-located with the power station and owned by the same company. All of NSW’s coal power stations (and half of Queensland’s) must get their coal from other companies who own coal mines.
The price of coal from these coal mines is heavily influenced by the international market price. If the seaborne coal price goes up, then so does the price of coal for domestic coal power stations. (This does not apply to Victoria because we are not connected to the international market – our coal is so dirty and has such a low energy content, no one would pay to import it).
Coal power stations have a range of different owners with varying incentives when it comes to closures.
Most of Queensland’s and WA’s coal power stations are owned by their respective state government. This insulates them to an extent from profitability concerns. WA’s coal power stations in particular are very unprofitable – if they were to be privatised, I would expect a significant amount of capacity to close very quickly.
Private companies also have different incentives. The Vales Point power station is the primary income stream for Delta Electricity – closing it would kill off much of their profit. But equally, if Vales Point becomes unprofitable, Delta is far more likely to suddenly close it than one of the big energy companies because they cannot absorb the losses. For the big gentailers, AGL, EnergyAustralia and Origin, who between them own six of the eight coal power stations in Victoria and NSW, their coal power stations are just one income stream of many (albeit a large one).
There are also a couple of niche cases. The Gladstone coal power station, the oldest and largest in Queensland, is owned by Rio Tinto and primarily exists to supply power to Rio’s Boyne Island aluminium smelter. The wholesale price of electricity is therefore not very important. As long as the smelter remains open, Gladstone is also likely to remain open as long as it physically can. And the reverse is true: the closure of Boyne Island will almost certainly lead to Gladstone’s closure.
There are also varying supply-demand dynamics in the different states. Over the last decade, there has been a rapid increase in renewable energy generation in most states. This has been accompanied by a fall in electricity demand in NSW and Victoria. This has placed a lot of pressure on the coal power stations in both states and lead to a number of closures, with renewables outcompeting coal and eating into its market share.
In contrast, Queensland and Western Australia have seen growing demand for electricity over the last decade. This has meant that even though renewables have been growing in both states, coal power stations have not lost much of their market share. This is particularly the case in Queensland, which has seen only a very small reduction in coal capacity to date.
So, which power stations are in the firing line?
Weighing up all these factors, a few power stations stand out as being particularly vulnerable.
Victoria: Yallourn is clearly the most vulnerable. It is the most expensive in the state, the oldest and most polluting and will increasingly be unable to compete with the flood of new renewables. Owners EnergyAustralia recently announced that they would bring forward the closure date from 2032 to 2028 but that still seems wildly optimistic. I expect units at Yallourn to begin dropping off within the next four to five years, and I definitely wouldn’t rule out a full closure by 2025/26.
New South Wales: We already know that the Liddell coal power station will begin closing in April next year and fully close by April 2023. This will leave four coal power stations left standing in the state. The owners of these four power stations will likely wait to see if electricity prices go up again in the wake of Liddell’s closure before announcing any closures. If prices don’t rise or if any rise is short-lived, expect another coal closure announcement in 2024.
Eraring is clearly the most vulnerable – it is the most expensive coal power station on the east coast and Origin already seems to be managing expectations for an early closure. Eraring is so gigantic that you shouldn’t expect the whole thing to close at once – Origin will likely close one unit at a time. But depending on exactly how much pressure Eraring is under, I wouldn’t be surprised if an announcement for a partial closure is made even before Liddell closes – perhaps even within the next 12 months.
Vales Point is a bit of wild card – it is marginally cheaper to run than Eraring but a bit older. And its owners (Delta) are less able to absorb big losses. If things get bad at Vales Point and Origin hold out on an early closure announcement for Eraring, don’t be surprised if Vales Point goes very suddenly.
Mt Piper is the country’s second most expensive coal power station, but it is the youngest and most flexible in NSW. Expect the owners (EnergyAustralia) to endure the current low prices in the hope that Eraring or Vales Point close first, especially as they are likely to have their hands full with an early Yallourn closure in Victoria.
Queensland: I continue to think an early coal closure in Queensland is underrated. The state has seen a surge in solar generation in the middle of the day that is continuing to grow and the state’s coal fleet simply cannot continue to absorb it. With six coal power stations owned by the Queensland Government, expect them to announce the mothballing or closure of at least one in the next couple of years. Perhaps Callide B or a unit at Tarong/Tarong North? Gladstone also looms as a wild card: if Rio Tinto shuts the Boyne Island smelter or enacts a plan to transition it to a clean supply of electricity, Gladstone will likely close.
Western Australia: The WA Government has announced the closure of the two ‘C’ units of the Muja CD power station by 2024. It would not be surprising if this were to be brought forward and a closure date also announced for the two ‘D’ units in the next couple of years. Muja CD is the state’s oldest coal power station by a long distance and, like in Queensland, it is struggling to absorb the rapid growth in rooftop solar in the middle of the day.
This post concludes a series I began back in this blog’s early days looking at coal production in Australia. The first two posts looked at Western Australia and Victoria and Queensland. Today we turn to New South Wales.
Firstly, an explanation for the delay in profiling NSW. There is a frustrating lack of official, publicly available information on coal production in New South Wales. The state government does provide quarterly reports on coal industry statistics but you must pay $506 to read them! This is a disgrace, clearly intended to limit access, avoid scrutiny and make money. It stands in stark contrast to the Queensland Government, which provides a wealth of data on the state’s coal industry for free.
I have spent much time trying to find another comprehensive and publicly available data source but to no avail. That means that this post will be less comprehensive than my posts for other states and rely on a wider range of sources, some of which are quite out of date.
Coal in New South Wales
New South Wales has 38 operating coal mines. Unlike Queensland, which has two distinct coal regions in the south and centre, New South Wales’ coal mines are geographically concentrated in eastern New South Wales. Many of these coal mines are located relatively close to Sydney, in contrast to Queensland, Victoria and Western Australia, where coal mines are located fairly long distances from the capitals.
New South Wales’ coal mines can be divided into roughly two regions, one to the north of Sydney and one to the south. (I have been unable to find an especially good map of NSW coal mines but the least bad one I have found is from the New South Wales Minerals Council).
The large Northern region, which includes the Hunter Valley, the Western Coalfield and the Gunnedah Basin, begins in Narrabri in the north-western corner, running directly south down to Lithgow then east to Lake Macquarie before heading north along the coast to Newcastle. From there it continues up the coast towards Port Macquarie before heading back inland towards Narrabri. This region includes 34 of the state’s operating coal mines and produces around 95% of the state’s coal. Most of the coal in this region is exported via the Port of Newcastle.
All five of the state’s coal power stations are located in this region. The Bayswater* and Liddell power stations (owned by AGL) are located right next to each other near Muswellbrook in the Upper Hunter. The Eraring power station (owned by Origin) and Vales Point power station (owned by Delta) are located near Lake Macquarie south of Newcastle. The Mt Piper power station (owned by EnergyAustralia) is located on the western edge of this region near Lithgow.
The Southern region, which includes the Southern Coalfield, begins south of Sydney running along the coast to Wollongong before heading inland to Moss Vale then north-east to Campbelltown. This region is far smaller than the Northern region, including just four coal mines and producing 5% of the state’s coal. Most of the coal in this region is exported via Port Kembla near Wollongong.
New South Wales is the most coal-reliant state in Australia, with the most coal power station capacity generating 79% of the state’s electricity in 2020. The ageing Liddell power station is scheduled to close in 2023, which should lead to a drop in coal generation.
There are a handful of new proposed coal mines in the state, although a number of these projects are having difficulty getting developed and they are located in existing coal basins. Unlike Queensland, where there are still plans for massive coal expansion, New South Wales coal production has probably peaked.
Like Queensland, New South Wales is a massive coal exporter and exports about 85% of its coal. But its export market is significantly more concentrated than Queensland’s. 87% of New South Wales’ coal exports go to just four countries: Japan (39%), China (22%), South Korea (13%) and Taiwan (13%). This highlights just how much the future of the state’s coal industry is dependent on the energy policies of just four countries.
Another crucial difference between New South Wales and Queensland is the type of coal exported. In Queensland, 72% of exported coal is metallurgical coal, which is used in steel-making. Metallurgical coal will likely take longer to phase out than thermal coal (used to make electricity).
The opposite is true for New South Wales: 85% of the state’s coal exports are thermal coal and just 15% metallurgical coal (as of 2015-16). This means New South Wales is going to experience the brunt of the energy transition much earlier than Queensland, with the state’s major coal markets currently drawing up plans to phase out coal power stations and by extension, thermal coal imports. New South Wales needs a plan to manage the decline in thermal coal exports or the state’s economy and mining regions will be hit very hard over the next decade.