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Coal seam gas and New South Wales' looming energy crisis

New South Wales is the only major state in Australia that does not have energy security. Its reliance on Victorian and Queensland gas, paired with the vital role gas plays in its homes and industries…

New South Wales relies heavily on gas, but gets nearly all its supply from elsewhere. Warren Rohner

New South Wales is the only major state in Australia that does not have energy security. Its reliance on Victorian and Queensland gas, paired with the vital role gas plays in its homes and industries, have put it in a precarious position.

To put it bluntly, the state is heading for a major energy crisis in the next three or four years, and that will severely affect its future living standards and economic growth.

The recently released independent report on coal seam gas (CSG) - written by NSW Chief Scientist & Engineer, Professor Mary O’Kane - recommends the government commit to a strong regulatory and monitoring system within the CSG industry, and highlights the need for world-class engineering practice. Though the report recommends this commitment and champions further research on environmental impacts, we need to move quickly.

The economic scenario

Gas is a low-cost and reliable energy source that could help us make the shift to an economy based on more sustainable energy sources. But NSW relies on other states - primarily Queensland and Victoria - for 95% of its gas.

The problem for NSW is this low-cost gas supply is disappearing. Queensland’s preference for selling gas to its export market, difficulty in processing and transporting Victorian gas, and the increased cost of extracting unconventional resources such as coal seam gas all threaten NSW’s supply.

By 2018, the state’s contracted gas supply will be almost one-tenth of present volumes. This means NSW will have to pay international prices from 2015; these are as much as three times present levels, a 300% price increase.

CoreEnergy

Worse, the demand for gas in eastern Australia will triple in the next three years. Most homes use natural gas, so other states will want to save their supplies for their own use. NSW will be left in the cold.

Most of our gas supply is used for manufacturing industries and supply of electricity. A diminished gas supply means prices for goods and services will go up too. Additional flow-on effects are company closures and job losses as some industries become incapable of absorbing the additional costs.

A diminishing gas supply sends a poor message to energy investors in NSW. Already, several CSG companies have pulled out, and international investors are keenly watching to see what happens next. International investment is dwindling because of the uncertainty within the industry.

Increasing state energy supplies though burning more coal in the Hunter is another option, but this will only worsen the environmental situation. There is also a strong wastage aspect, because approximately one quarter of the energy produced is lost in electricity transmission to Sydney.

The political scenario

NSW should produce more of its own gas for energy security. But in early 2013, in response to increasing community concerns and land-use conflicts, the NSW Government introduced legislation to restrict gas exploration. Exploration is now excluded over much of the Sydney Basin, the part of the state most likely to yield CSG.

There is also a 2km exclusion zone around urban areas and designated critical industry clusters, including agricultural land. At the same time, the government commissioned Professor O’Kane to undertake a comprehensive independent review of the industry.

The report found the industry can be “effectively managed through high standards of engineering, rigorous monitoring, and supervision of operations”. It calls for further research into environmental impacts. The report suggests commitment to CSG extraction, with the following caveats:

  • The industry must follow worlds-best practice.
  • We need comprehensive and accessible data-repositories (providing information and transparency).
  • Baseline data has to be collected for future reference.
  • Industry participants must be trained and certified.
  • Any extraction must include significant and ongoing research and monitoring.

People are concerned about CSG’s effect on groundwater. Chief Scientist & Engineer, Mary O'Kane 30 July 2013

Of the 230 submissions to the review, 75% mentioned groundwater as a key issue.

O’Kane’s report does not ignore this, and is consistent with results from the 2011 Namoi Catchment Water Study and the 2012 study by Dr John Williams, former Chief of CSIRO Land and Water Division. They all indicate the surface footprint of CSG operations is modest compared with other human activities, but issues still exist around potential groundwater impacts.

Dr Williams suggests the most rational path forward is to develop fact-based regulations on what is currently known, but continue research for information to support controls in the future.

A way forward

The NSW government can avert the looming energy crisis. It has shown due diligence, proceeded cautiously, and identified the issues around land use and water. Professor O’Kane has made some excellent recommendations to take the industry forward, including the need for significant and ongoing research.

But the priority must be about securing energy for the population and keeping energy prices down. The government can minimise risks using the knowledge already at hand to regulate the industry, continue to monitor the process, and take a longer term approach to fully understand the environmental impacts though research funding.

There is no time to do it the other way round.

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12 Comments sorted by

  1. David Arthur

    resistance gnome

    It's a bit concerning that Queensland would rather export its produced gas than supply it to NSW; matter of fact, if NSW doesn't get its own gas supplies organised, it will wind up having to pay world prices for gas - three times as much as it does at present, according to the article.

    Perhaps it's the presently low prices charged in NSW that explains Qld's enthusiasm for exporting gas overseas rather than over the border; if and when NSW pays world prices, there'll be no shortage of sellers eager to meet NSW demand.

    On the other hand, NSW could rapidly proceed to destroying the aquifers underlying the Liverpool Plains to get the gas - but even then, there's more money to be made by selling it overseas.

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  2. Michael Shand
    Michael Shand is a Friend of The Conversation.

    Software Tester

    Terrible article, Gas is not a renewable energy source, this isn't addressing the issue of having Carbon based economy in an era of climate change

    We could move to off shore wind, CSP, PV, on shore wind, tidal and biofuels at this point but instead we only seem to think inside the carbon box

    Depending on Gas for our energy is condeming the next generation to a life of scarcity

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    1. Trevor S

      Jack of all Trades

      In reply to Michael Shand

      It's a decent article, if the forecasts are correct. I completely disagree with the premise. Using CH4 is a complete horses arse solution to AGW, sure less CO2 but C02 equivalent when the CH4 is added in sees similar levels of heating, let alone the environmental concerns of fracking. It offers no real advantages in terms of mitigation over coal, so why bother. If the masses are happy to travel the road to oblivion, I would rather they didn't do it by putting a well in my rural back yard.

      Decarbonising is a non issue for most people eg. looking at the "ABC Compass Voting" indicator, there seemed to be a 9% concern for Climate Change. Most people are concerned with the cost today, with very little concern for the cost for decades to come and a 4 degree warmer world will see a staggering impost economically and humanely but not enough care to make a difference and the politicians are simply a refection of the voters, as they have to be, or they'll never get into Government.

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    2. Edwin Flynn

      I am a early retired executive at Worked in Local Government, Education and Financial Services Industries

      In reply to Trevor S

      "the politicians are simply a reflection of the voters, as they have to be, or they'll never get into Government."

      Wrong Trevor, that is in fact precisely the problem. Politicians have a responsibility to lead not only reflect the views of voters. Often the masses are totally off course and need strong leadership to direct effort and innovation in the right direction. There has not been any strong leadership in any state of Australia or even at the Commonwealth level for at least 4 decades. That…

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  3. George Michaelson

    Person

    The article presumes that failure to renegotiate a contract now risks huge price rises. Is it not possible the gas purchasing people believe they have a hedge in the dropoff in international production and a chance that global production will cause oversupply in 2015, leading to cheaper marginal-rate contracts negotiated later in 2014?

    The article says gas demand will triple. Since electricity demand has fallen overall, both as a function of price driven shifts in demand, and the declining economy…

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  4. R. Ambrose Raven

    none

    Laberal politicians have through their own incompetence, negligence and contempt for the public interest (such as not imposing any gas reserve for domestic use) created a gas shortage by falling over themselves to rubber-stamp Big Energy's arrogant export demands, despite having been forced by public opposition to limit the environmental destruction that is CSG.

    Big Energy and the politicians it owns are now exploiting the problems they've created in the Eastern States to Big Energy's advantage…

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  5. John Newlands

    tree changer

    Instead of thinking of England residents in affected areas must think of NSW as they drink water contaminated with carcinogenic fracking chemicals. As the bore water pressure collapses perhaps they can leave the farm for a few centuries hoping the pressure comes back.

    My suggestion is to prioritise the use of gas . Absolute last priority is LNG export from Gladstone. Gas fired base and intermediate load electricity from combined cycle could be replaced by load following nuclear, possibly available…

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  6. Michael McNamara

    logged in via email @gmail.com

    Firstly, the notion that "unconventional gas", whether it be Coal Seam Gas (CSG), tight sands gas or shale gas, provides a pathway to a more sustainable energy future is a nonsense. It is just another fossil fuel industry seeking to extract the last dregs of petroleum based energy sources.

    The focus on a "looming gas crisis" in NSW is a distractor. A BHP-Billiton spokesperson was quoted in the Sydney Morning herald in May 2011 saying that they had more than sufficient reserves in the existing…

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    1. Michael McNamara

      logged in via email @gmail.com

      In reply to Michael McNamara

      Also - we don't "import" and "export" products and services between the states in Australia. The Australian Constitution guarantees free and untrammeled trade between the states, so talk of NSW "importing" gas from other states is a legal and economic nonsense.

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    2. David Bindoff

      manager

      In reply to Michael McNamara

      "Worse, the demand for gas in eastern Australia will triple in the next three years. "

      I can't see any support for this assertion. Energy efficiencies are real and substantial and when coupled with distributed solar pv and thermal plus demand management the potential is there to decimate demand from residential and small commercial users. Taking this direction is clearly of advantage for energy security and nett energy costs but big corporate and goverment motivations are aligned differently. Unless we can come up with valid biomass gas alternatives it might be better to let the gas infrastructure wither in a managed way and focus resources on the genuine long term sustainable alternatives. It is very interesting to me that none of the fossil fuels except oil can survive with world parity pricing in Australia. Renewables are well and truly ahead now in that sense.

      So I am agreeing with MM.

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  7. Garry Baker

    researcher

    This editorial reads like a CSG industry blurb to me. Rattling the tin for some economic activity. For a start, the NSW extraction programs have come to a halt for good reason - Industry slackness to properly address long term concerns with the states groundwater supplies. Indeed, lies and deceptions have been ever present with their moves, yet our clean water supplies are the basis for life itself

    Next is the big frame, where the corporate world want to make more money by exporting the resource…

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  8. Ben Rose

    Environmental Consultant

    Sounds as if corporations wanting cheap subsided energy to increase their profits are behind this article. More expensive gas will matter little to residents - we are awash with cheap electricity and electric heat pumps are more efficient than gas. It is industry that want cheap gas to increase thier profits

    About time we all woke up to the fact that world gas prices are rising, ours will rise with it and we'd better adapt by making industry more energy efficient. Our competition overseas will…

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