tag:theconversation.com,2011:/uk/topics/gas-exports-26071/articlesGas exports – The Conversation2023-05-08T09:38:42Ztag:theconversation.com,2011:article/2051972023-05-08T09:38:42Z2023-05-08T09:38:42ZWhat Australia’s new gas tax will mean for new projects, the economy and the climate<figure><img src="https://images.theconversation.com/files/524822/original/file-20230508-52143-wp8y5d.jpg?ixlib=rb-1.1.0&rect=18%2C18%2C3042%2C2018&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://photos.aap.com.au/search/Australian%20LNG%20Tanker%20Northwest%20Sandpiper">AP/Koji Sasahara</a></span></figcaption></figure><p>Treasurer Jim Chalmers has <a href="https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/changes-petroleum-resource-rent-tax">announced</a> higher taxes on gas industry profits, which he says will give Australians a “fairer return” on their natural resources. </p>
<p>On Sunday Chalmers flagged changes to the petroleum resource rent tax (PRRT) – a tax on the profits from oil and gas exports – that he says will mean the offshore LNG industry “pays more tax, sooner”.</p>
<p>Many profitable LNG projects are not paying tax under the current regime. Indeed, it has been predicted that most LNG projects will <a href="https://www.afr.com/policy/energy-and-climate/gas-tax-leaks-billions-as-energy-prices-soar-20220607-p5aro5">never pay tax</a>. </p>
<p>Changes to the tax are long overdue. As an economic “rent tax”, the mechanism seeks to capture revenue from resource extraction minus the costs of supply. Good resource tax design is a social investment that allows profits to be subject to taxes without those taxes operating as a disincentive on investment. Bad resource tax design works against this because it means those resource profits are immune from tax.</p>
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Read more:
<a href="https://theconversation.com/australia-already-has-a-uk-style-windfall-profits-tax-on-gas-but-well-give-away-tens-of-billions-of-dollars-unless-we-fix-it-soon-184938">Australia already has a UK-style windfall profits tax on gas – but we'll give away tens of billions of dollars unless we fix it soon</a>
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<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1655367201548038144"}"></div></p>
<h2>Dusting off review recommendations</h2>
<p>The changes come in response to recommendations from two reviews: the Callaghan <a href="https://treasury.gov.au/review/review-of-the-petroleum-resource-rent-tax/final-report">Petroleum Resource Rent Tax review</a> released in 2017 by then-treasurer Scott Morrison; and a subsequent <a href="https://treasury.gov.au/review/review-gas-transfer-pricing-arrangements">Treasury review</a> released on Sunday. </p>
<p><a href="https://treasury.gov.au/sites/default/files/2019-03/R2016-001_PRRT_final_report.pdf">The Callaghan report</a> recommended changes to the tax only be applied to new projects, to maintain the stability of the sector. </p>
<p>It said the tax was more effective for oil rather than gas projects because, under the existing scheme, profits are taxed after deducting earlier losses. </p>
<p>Currently, an entity’s liability is levied at 40% of the taxable profit made from its interest in the project. This 40% is levied on offshore oil and gas projects once they start making profits. </p>
<p>The level of deductions that oil and gas projects can carry forward is known as the uplift rate. Australia applies two uplift rates: the long-term bond rate plus 5% (for general losses), and the long-term bond rate plus 15% (for exploration losses). </p>
<p>The long-term bond rate can grow over time, so it effectively doubles every four years. This has meant relatively moderate exploration deductions can accumulate into significant amounts over time. This is not as much of an issue for oil projects because they start making profits relatively quickly. Gas projects accumulate deductions because they take much longer to make a return. </p>
<p>The Callaghan report found if a direct “netback” method was implemented (that is, profit minus extraction/liquefaction costs), an additional A$89 billion could be raised between 2023 and 2050 including an extra $68 billion between 2027 and 2039 at the higher prices. </p>
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<img alt="The LNG (liquefied natural gas) ship, Attalos, arrives at the Isle of Grain terminal, east of London, after travelling from Australia" src="https://images.theconversation.com/files/524869/original/file-20230508-55339-1poa47.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/524869/original/file-20230508-55339-1poa47.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=340&fit=crop&dpr=1 600w, https://images.theconversation.com/files/524869/original/file-20230508-55339-1poa47.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=340&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/524869/original/file-20230508-55339-1poa47.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=340&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/524869/original/file-20230508-55339-1poa47.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=427&fit=crop&dpr=1 754w, https://images.theconversation.com/files/524869/original/file-20230508-55339-1poa47.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=427&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/524869/original/file-20230508-55339-1poa47.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=427&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Australia is a major exporter of LNG (liquefied natural gas)</span>
<span class="attribution"><a class="source" href="https://photos.aap.com.au/search/">Gareth Fuller/AP</a></span>
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<p>Changes to the petroleum resource rent tax began in April 2019 when the uplift rate was reduced. Subsequently, onshore gas projects were removed from the scope of the tax, meaning offshore companies could no longer use them as deductions. No further amendments were implemented until now.</p>
<p>On Sunday, Chalmers finally released a <a href="https://treasury.gov.au/publication/p2023-388153">final Treasury report</a> of the tax scheme. </p>
<p>His government accepted eight of the 11 recommendations from that review and eight recommendations from the Callaghan Review (recommendations accepted but not implemented by the previous government).</p>
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Read more:
<a href="https://theconversation.com/the-gas-trigger-wont-be-enough-to-stop-our-energy-crisis-escalating-we-need-a-domestic-reservation-policy-188057">The 'gas trigger' won't be enough to stop our energy crisis escalating. We need a domestic reservation policy</a>
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<h2>Modest, balanced or weak reform?</h2>
<p>Labor’s proposed changes are too modest and are only expected to net the government about $2.4 billion over the next four years. The proposed tax scheme will cap deductions to limit the proportion of PRRT assessable income that can be offset by deductions to 90%. It will also mean that producers will start paying petroleum resource rent tax immediately rather than in 2030 as is the current expectation. </p>
<h2>How have the reforms been received?</h2>
<p>Samantha McCulloch, chief executive of industry peak body the Australian Petroleum Production and Exploration Association, said the announcement provided greater investment certainty for industry. She <a href="https://www.appea.com.au/all_news/media-release-appea-statement-on-changes-to-the-petroleum-resource-rent-tax-prrt/">went on</a>: </p>
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<p>The changes aim to get the balance right between the undeniable need for a strong gas sector to support reliable electricity and domestic manufacturing for decades to come and the need for a more sustainable budget.</p>
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<p>She called on the government “to work constructively and cooperatively with the opposition”. </p>
<p>The alternative is negotiating with The Greens and the teals. The Greens want the government to <a href="https://www.theguardian.com/australia-news/2023/may/07/federal-budget-labor-petroleum-resource-rent-tax-prrt-wage-community-services-jim-chalmers-katy-gallagher">eliminate the $284bn of accumulated credits</a> that allow gas companies to reduce their tax liability. </p>
<p>The teals want to further strengthen the tax. Independent Member for Goldstein Zoe Daniel says that while increasing the revenue take from the PRRT is a good start, “lowballing it is a wasted opportunity”. </p>
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<p>LNG exports are worth more than $90 billion per year, yet this step will yield only $600 million annually. These are Australian resources, and this is a weak step towards a fair return.</p>
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<p>There have been claims the tax hike may <a href="https://www.theaustralian.com.au/nation/politics/politicsnow-labors-petroleum-tax-hike-threatens-new-gas-projects/live-coverage/ccf6fa2a0729383aa7e5444d737a2b80">threaten new gas projects</a>. </p>
<p>West Australian energy giant Woodside Energy is expected to be <a href="https://www.afr.com/policy/tax-and-super/2-4b-gas-tax-hit-on-energy-giants-20230506-p5d695">hit the hardest</a>. Local liquified natural gas producer Santos and multinationals including Shell, Chevron, and ConocoPhillips may also be affected, media reports suggest.</p>
<h2>Real change is desperately needed</h2>
<p>Significant change to the petroleum resource rent tax is desperately needed to address budget repair and blowouts. </p>
<p>In the decade before the Gladstone LNG port opened, when Australia’s gas exports soared, company taxes and the resource tax paid by the industry were approximately 15% of revenue. Since then, it has averaged 6%, and in 2019-20 was just 3.3%. </p>
<p>In 2022, Australia exported a record 81.4 million metric tonnes of LNG, earning the industry $92.8 billion (when expected revenue was $44 billion). If all of these windfall benefits were taxed, the revenue could be used to completely rewire the nation and accelerate the shift to a clean energy future.</p>
<p>This has not happened and the weak reform proposals by Labor do little more than scratch the surface.</p><img src="https://counter.theconversation.com/content/205197/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Samantha Hepburn does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Changes to the petroleum resource rent tax (PRRT) are long overdue, but Labor’s modest attempt at reform represents a missed opportunity.Samantha Hepburn, Professor, Deakin Law School, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1879802022-08-04T05:52:15Z2022-08-04T05:52:15ZAvoiding a gas shortage is one thing, but what’s needed is action on prices<figure><img src="https://images.theconversation.com/files/477287/original/file-20220803-24-54pxzf.png?ixlib=rb-1.1.0&rect=0%2C532%2C3567%2C1975&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"></span> </figcaption></figure><p>The Albanese government <a href="https://www.minister.industry.gov.au/ministers/king/media-releases/government-responds-accc-gas-shortage-report">has accepted</a> the Australian Competition and Consumer Commission’s recommendation to “initiate the first step” to trigger the controversial <a href="https://www.industry.gov.au/regulations-and-standards/securing-australian-domestic-gas-supply">Australian Domestic Gas Security Mechanism</a> to avert a supply crisis in eastern Australia.</p>
<p>What the competition watchdog hasn’t recommended is what to do about the gas price, which has little to do with supply.</p>
<p>In its latest <a href="https://www.accc.gov.au/publications/serial-publications/gas-inquiry-2017-2025/gas-inquiry-july-2022-interim-report">half-yearly report</a> on gas supply, the ACCC predicts that, without action, eastern Australia will suffer a domestic gas shortage in 2023, and is concerned that already-high prices will go even higher. </p>
<p>The report identifies several causes. One is Russia’s war against Ukraine, which has European buyers seeking alternatives to Russian gas. </p>
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<a href="https://images.theconversation.com/files/477284/original/file-20220803-1926-be9jto.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/477284/original/file-20220803-1926-be9jto.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/477284/original/file-20220803-1926-be9jto.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=917&fit=crop&dpr=1 600w, https://images.theconversation.com/files/477284/original/file-20220803-1926-be9jto.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=917&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/477284/original/file-20220803-1926-be9jto.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=917&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/477284/original/file-20220803-1926-be9jto.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1153&fit=crop&dpr=1 754w, https://images.theconversation.com/files/477284/original/file-20220803-1926-be9jto.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1153&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/477284/original/file-20220803-1926-be9jto.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1153&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="https://www.accc.gov.au/system/files/ACCC%20Gas%20Inquiry%20-%20July%202022%20interim%20report%20-%20FINAL.pdf">Competition and Consumer Commission</a></span>
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<p>Australian liquefied natural gas (LNG) exporters have been keen to meet this demand and reap the high prices they are willing to pay. </p>
<p>But the report also makes clear there are significant problems with the Australian gas market itself, with ineffective competition between gas producers, poor compliance, and an apparent lack of real commitment by gas exporters to the agreement they made with the federal government to ensure affordable and sufficient gas for domestic users.</p>
<p>Frustratingly though, the report has little to say (beyond expressing concern) about the more immediate issue of escalating domestic prices.</p>
<h2>Looming shortage</h2>
<p>The report identifies an east coast gas supply of 1.98 billion gigajoules in 2023 – well in excess of domestic demand of 571 million gigajoules.</p>
<p>1.3 billion gigajoules of that supply is needed to meet long-term LNG export contracts. The ACCC has identified there will be a shortfall of 56 million gigajoules if the LNG producers export all of the 167 million gigajoules they will have in excess their contract obligations.</p>
<p>To avoid this shortfall, the ACCC has recommended the government take the first step in initiating the <a href="https://www.industry.gov.au/regulations-and-standards/securing-australian-domestic-gas-supply">Australian Domestic Gas Security Mechanism</a>. This involves determining if 2023 will be a “shortfall year”. Federal resources minister has said the government will take this step.</p>
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Read more:
<a href="https://theconversation.com/the-gas-trigger-wont-be-enough-to-stop-our-energy-crisis-escalating-we-need-a-domestic-reservation-policy-188057">The 'gas trigger' won't be enough to stop our energy crisis escalating. We need a domestic reservation policy</a>
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<p>If the government finds it will be a shortfall year, it can require exporters to offer their uncontracted gas to the domestic market first.</p>
<p>Whether the government will need to do that will depend on negotiations with the exporters – in particular the three joint venture exporters and their associates the ACCC says have influence over close to 90% of proven and probable eastern Australian reserves. </p>
<p>The ACCC report expresses concern that some LNG exporters “not engaging with the
domestic market in the spirit” of an <a href="https://www.industry.gov.au/sites/default/files/2021-01/australian-east-coast-domestic-gas-supply-commitment-heads-of-agreement.pdf">agreement</a> they signed:</p>
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<p>Even if the behaviour could be proven to be technically compliant, we consider that some suppliers are not engaging with the domestic market in ways that are likely to result in supply agreements being reached and market conditions noticeably improving </p>
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<p>It is also concerned the joint venture operators might be breaching the Competition and Consumer Act by effectively engaging in joint marketing without ACCC approval. </p>
<p>Another concern is the cost of transmission, with pipeline owners enjoying local monopolies. The ACCC has stopped short of recommending regulating the prices they can charge.</p>
<h2>Few clues on prices</h2>
<p>Where the recommendations fall short is on what to do about rising prices. Even before the looming shortfall, wholesale and retail prices to businesses have been climbing steadily for a year. The report says some prices have been doubled.</p>
<p>The ACCC has been operating on the superficially reasonable basis that domestic gas prices should be no higher than international ones. </p>
<p>It has been using “export parity prices” to indicate what the price would be if the federal government’s agreement with LNG exporters was functioning well.</p>
<p>On that metric, the agreement is functioning well. Domestic prices have largely followed international prices. But those prices have soared from A$3-10 per gigajoule to well above A$40.</p>
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Read more:
<a href="https://theconversation.com/why-did-gas-prices-go-from-10-a-gigajoule-to-800-a-gigajoule-an-expert-on-the-energy-crisis-engulfing-australia-184304">Why did gas prices go from $10 a gigajoule to $800 a gigajoule? An expert on the energy crisis engulfing Australia</a>
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<p>The result is windfall profits to producers and unaffordable prices for domestic users of the kind that cannot be accepted as a well-functioning market.</p>
<p>The report makes no recommendation to address this problem.</p>
<p>While there have been arguments for a <a href="https://theconversation.com/the-gas-trigger-wont-be-enough-to-stop-our-energy-crisis-escalating-we-need-a-domestic-reservation-policy-188057">domestic reservation policy</a>, a better way to address the price problem is a “windfall profit” tax on gas producers.</p>
<p>Even the threat of such a tax should be a brake on unfair domestic prices. The ACCC could set a price threshold to trigger the tax. It could be tailored to the specific circumstances and made defensible against claims of <a href="https://theconversation.com/hey-minister-leave-that-gas-trigger-alone-it-may-fire-up-a-fight-with-foreign-investors-185710">sovereign risk</a>.</p>
<h2>A windfall profits tax would be a start</h2>
<p>Most of the findings of the latest gas inquiry report are neither new nor surprising. Yet their impact on gas users is heavy, and will get worse if further action is not taken. </p>
<p>The government has most of the tools it needs. It should act on the ACCC’s recommendations to meet the possible 2023 shortfall and on joint marketing. </p>
<p>It should go further on pipeline regulation, and it should implement a windfall profit tax to avoid catastrophic consequences for Australian gas users.</p><img src="https://counter.theconversation.com/content/187980/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tony Wood owns shares in several energy and resource companies via his superannuation fund </span></em></p>Even with enough supply, local gas prices have been skyrocketing. The ACCC has squibbed on possible reforms such as a windfall profits tax.Tony Wood, Program Director, Energy, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1880572022-08-02T06:25:31Z2022-08-02T06:25:31ZThe ‘gas trigger’ won’t be enough to stop our energy crisis escalating. We need a domestic reservation policy<figure><img src="https://images.theconversation.com/files/477084/original/file-20220802-15-zh7acj.jpg?ixlib=rb-1.1.0&rect=209%2C11%2C3618%2C2393&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Australia’s east coast gas crisis is set to sharply worsen. A new report from the Australian Competition and Consumer Commission (ACCC) notes supply conditions will <a href="https://www.accc.gov.au/system/files/ACCC%20Gas%20Inquiry%20-%20%20July%202022%20interim%20report%20-%20FINAL.pdf">deteriorate significantly</a> in 2023 if no action is taken. The 56 petajoule shortfall is huge – equivalent to around 10% of domestic demand. </p>
<p>So what’s been done? You would have heard about the “gas trigger” the government is considering pulling. This trigger – formally known as the Australian Domestic Gas Mechanism – is designed to increase gas supply by limiting gas exports during periods of shortfall. </p>
<p>The problem is, it’s too weak and much too slow to respond to fast-moving energy crises like the one we are now in. It hasn’t been used once since being introduced in 2017, as Australia’s LNG exporters can easily avoid the threat of the trigger by putting the bare minimum of gas back into domestic supply. </p>
<p>As it stands, the gas trigger is a wholly inadequate measure to tackle our uncertain energy future in a globally disrupted market. It’s unfathomable why a country with abundant and diverse gas resources <a href="https://www.afr.com/policy/energy-and-climate/gas-reservation-is-not-a-bogyman-20200520-p54un3">does not protect</a> its domestic market more effectively. Remember – this gas crisis is an east coast problem. Western Australia put in place a domestic reservation policy years ago, which has worked exceedingly well. Over west, there is no crisis. </p>
<h2>How did we get into this mess?</h2>
<p>The price of gas in Australia continues to surge, which in turn has helped push up wholesale energy prices by <a href="https://www.sbs.com.au/news/article/australias-gas-prices-are-%20surging-how-did-we-get-here-and-what-is-being-done-about-it/7p3io6e7w">141%</a> in the first quarter of 2022 compared with last year. </p>
<p>This is driven by huge increases in global demand for gas following shortages in Europe caused by the Russian war on Ukraine, coupled with rising domestic demand for gas-fired power as coal power becomes less reliable with outages from ageing and retired generators. </p>
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<strong>
Read more:
<a href="https://theconversation.com/why-did-gas-prices-go-from-10-a-gigajoule-to-800-a-gigajoule-an-expert-on-the-energy-crisis-engulfing-australia-184304">Why did gas prices go from $10 a gigajoule to $800 a gigajoule? An expert on the energy crisis engulfing Australia</a>
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<p>The likely result will be much higher domestic energy prices, causing pain on the home front and resulting in more manufacturers closing. The ACCC report makes it clear a shortfall of this magnitude represents a “substantial risk to Australia’s energy security”.</p>
<p>It seems bizarre Australia – one of the world’s largest fossil fuel exporters – is in this situation. Next year, the east coast LNG market is forecast to produce 1981 petajoules of natural gas. Most of this will supply long term contracts. </p>
<p>The excess is often sold by LNG exporters on the international market. In the past, some of this excess has flowed to domestic supply. But the ACCC predicts in 2023, most excess gas will be sold on the international market – taking advantage of high prices – even though our domestic market is likely to need a lot more of it than in previous years. </p>
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<a href="https://images.theconversation.com/files/477089/original/file-20220802-15-uiuh2c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Hand with fertiliser" src="https://images.theconversation.com/files/477089/original/file-20220802-15-uiuh2c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/477089/original/file-20220802-15-uiuh2c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/477089/original/file-20220802-15-uiuh2c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/477089/original/file-20220802-15-uiuh2c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/477089/original/file-20220802-15-uiuh2c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/477089/original/file-20220802-15-uiuh2c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/477089/original/file-20220802-15-uiuh2c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Gas is currently used for manufacturing products such as fertiliser, as well as generating power.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
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<h2>It’s our gas – isn’t it?</h2>
<p>Given the gas is being extracted from under Australian soils and waters, there’s a big question we’re facing. Can – or will – the government compel LNG exporters to direct more of this excess gas to domestic use? </p>
<p>On the east coast, we’re hindered by the lack of a legally binding supply mandate. By contrast, Western Australia has laws forcing LNG exporters to reserve 15% of their gas for the domestic market. These laws have kept their market <a href="https://www.smh.com.au/business/companies/it-s-ridiculous-architect-of-wa-policy-calls-for-national-gas-reservation-20220616-p5au8q.html">relatively immune</a> to the wild rises of the globally disrupted market. </p>
<p>Australia’s east coast does not have a reservation mandate. Instead, it has an agreement between the government and LNG exporters who have committed not to sell uncontracted gas to the international market unless they first offer it to the domestic market at a competitive price. This commitment expires on January 1 next year and at this stage has not been extended. </p>
<p>That brings us to the gas trigger, introduced in 2017 as a measure of last resort but never actually used. Instead, it’s lingered in the background. Federal resources minister Madeleine King <a href="https://www.afr.com/policy/energy-and-climate/king-readies-gas-%20trigger-as-exporters-lose-social-licence-20220801-p5b690">has argued</a> the trigger can be used as a security mechanism, but that remains to be seen.</p>
<h2>How does the trigger work?</h2>
<p>The gas trigger has to be activated to have any effect. This is quite a lengthy process. To pull the trigger, the federal minister must notify the industry they are considering making a determination the following year will amount to a gas “shortfall year”. There is big delay between making a determination and imposing export restrictions. </p>
<p>Worse, the minister has to consult with the industry and other agencies. To date, the LNG industry has <a href="https://australiainstitute.org.au/wp-content/uploads/2020/12/Australia-Institute-ADGSM-Submission-1.pdf">been able to stop</a> the trigger by putting the barest amount of gas back into domestic supply to prevent a shortfall determination. </p>
<p>If a determination is made, LNG producers exporting more than they produce domestically will be subject to pro-rata volume restrictions during the shortfall year. The amount depends upon the shortfall volume the minister believes will be required.</p>
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Read more:
<a href="https://theconversation.com/4-reasons-our-gas-and-electricity-prices-are-suddenly-sky-high-184303">4 reasons our gas and electricity prices are suddenly sky-high</a>
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<h2>The slow-motion trigger</h2>
<p>There are many concerns with this trigger.</p>
<p>First, it’s extremely slow. In practice, export restrictions could take up to eight months to have any effect. As the new ACCC report indicates, this must change so the trigger becomes more responsive to immediate energy concerns. </p>
<p>Second, the estimated shortfall volume may not generate enough gas to alleviate the shortfall because export restrictions can only apply to exporters drawing more gas from the market than they put in. </p>
<p>Third, the gas trigger has never actually been used. At the first hint of a shortfall, the LNG industry has stepped in to supply the minimum amount of gas necessary to avoid a shortfall year being declared. </p>
<p>As a result, the gas trigger is basically ineffective. It’s had no real impact on domestic gas prices and has never functioned as a substantive export control capable of creating stronger domestic gas reserves. That’s precisely why the east coast gas market finds itself in this mess. </p>
<p>It’s time for a rethink. The gas trigger is an inadequate way of tackling a very uncertain energy future in our globally disrupted market. So why keep it? We don’t need to reinvent the wheel. Western Australia’s domestic reservation policy shows us very clearly what does work: laws, with teeth. </p>
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Read more:
<a href="https://theconversation.com/want-a-solution-for-the-energy-crisis-gripping-australias-east-look-west-185124">Want a solution for the energy crisis gripping Australia's east? Look west</a>
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<img src="https://counter.theconversation.com/content/188057/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Samantha Hepburn does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>There’s been a lot of talk about pulling the gas trigger. The problem is, the trigger is too slow and too easy to avoid.Samantha Hepburn, Professor, Deakin Law School, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1802472022-03-31T18:58:52Z2022-03-31T18:58:52ZThe Morrison government’s $50 million gas handout undermines climate targets and does nothing to improve energy security<p>Tuesday night’s federal budget confirmed the Morrison government will spend <a href="https://www.minister.industry.gov.au/ministers/taylor/media-releases/accelerating-priority-natural-gas-infrastructure-projects">A$50.3 million</a> on gas projects in the Northern Territory, South Australia and the east coast. </p>
<p>This decision, it says, will support the completion of seven new “priority” gas projects. Energy Minister Angus Taylor <a href="https://www.minister.industry.gov.au/ministers/taylor/media-releases/accelerating-priority-natural-gas-infrastructure-projects">says</a> the government strongly backs natural gas and accused the opposition of being “willing to risk Australia’s energy security and investment in regional Australia to appease gas activists.” </p>
<p>However, the development of new fossil fuel projects is completely inconsistent with the broader goal of achieving net zero emissions by 2050 – and will not improve energy security.</p>
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Read more:
<a href="https://theconversation.com/josh-frydenbergs-budget-is-an-extraordinary-turnaround-but-leaves-a-40-billion-problem-180123">Josh Frydenberg’s budget is an extraordinary turnaround – but leaves a $40 billion problem</a>
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<h2>Gas extraction drives climate change and extreme weather</h2>
<p>Gas is a fossil fuel and a greenhouse gas. Emissions from the extraction, processing and export of gas <a href="https://www.nationalgeographic.com/science/article/super-potent-methane-in-atmosphere-oil-gas-drilling-ice-cores.">contribute significantly</a> to Australia’s carbon emissions. </p>
<p>Globally, there is growing recognition the energy sector must change. An International Energy Agency <a href="https://www.iea.org/reports/net-zero-by-2050">report</a> last year made clear there can be no new oil, gas or coal development if the world is to have any chance of reaching net zero by 2050.</p>
<p>The methane found in natural gas is <a href="https://www.factcheck.org/2018/09/how-potent-is-methane/">25 times as potent</a> as carbon dioxide at trapping heat in the atmosphere. </p>
<p>Funding new gas projects undermines Australia’s efforts to achieve an already <a href="https://climateactiontracker.org/climate-target-update-tracker/australia/">unambitious climate target</a> of 26-28% below 2005 levels by 2030.</p>
<p>Failing our climate target would breach the global goals of the Paris Agreement to limit the increase in global average temperatures to well below 2°C above pre-industrial levels. </p>
<p>The consequences of global warming are <a href="https://report.ipcc.ch/ar6wg2/pdf/IPCC_AR6_WGII_FinalDraft_FullReport.pdf">catastrophic</a>. Australia has had recent and profound experience of extreme climate events in the form of devastating bushfires and floods. </p>
<h2>But what about energy security and Russian gas?</h2>
<p>The European Commission is <a href="https://www.reuters.com/business/energy/eu-leaders-seek-escape-russian-fossil-fuels-2022-03-10/">phasing</a> down two-thirds of Russian gas exports by the end of the year, in response to Russia’s invasion of Ukraine. This will create a gas shortfall.</p>
<p>Russia supplies nearly <a href="https://www.washingtonpost.com/climatesolutions/interactive/2022/europe-ban-russian-oil-gas-climate/">40%</a> of the EU’s gas consumption via a fixed pipeline infrastructure.</p>
<p>To phase this supply out, the EU will this year require 500 terrawatt hours of <a href="https://www.bloomberg.com/news/articles/2022-03-11/what-lng-can-and-can-t-do-to-replace-russian-gas-quicktake">additional imports</a> of liquified natural gas (LNG). </p>
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<p>This will be difficult. Global markets are tight and LNG tends to be sold on long-term contracts. Alleviating the EU shortfall will require <a href="https://ecdpm.org/talking-points/what-eu-plans-phase-out-russian-gas-mean-europe-africa/">record imports</a> of LNG over the European spring and summer period and a rapid upgrade of gas infrastructure.</p>
<p>In a recent pact between Europe and the US, the EU will receive an <a href="https://www.bloomberg.com/news/articles/2022-03-25/u-s-and-eu-reach-energy-supply-deal-to-cut-dependence-on-russia">additional 11 million tons of LNG</a> by the end of 2022. </p>
<p>It’s unclear where this LNG will come from. Much may be sourced from <a href="https://www.bbc.com/news/business-60871601#:%7E:text=Gas%20is%20already%20piped%20from,that's%20been%20chilled%20and%20liquified">non-contracted stock destined for Asia</a>. </p>
<p>However it’s acquired, the price of LNG exports will continue to rise. Indeed, the delivered price for LNG in Northwest Europe <a href="https://www.stuff.co.nz/business/world/300528078/if-the-supply-of-russian-gas-to-europe-were-cut-off-could-lng-plug-the-gap">rose</a> 29% in a day after Russian President Vladimir Putin announced his special military operation. And spot prices for LNG in Asia are <a href="https://www.reuters.com/business/energy/asia-lng-spot-prices-hit-record-high-sp-data-shows-2022-03-04/">trading</a> at near record levels. </p>
<p>Australia is one of the world’s <a href="https://www.lngindustry.com/liquid-natural-gas/06012020/australia-officially-the-worlds-largest-exporter-of-lng/">largest exporters</a> of LNG, with most going to China, Japan and South Korea. </p>
<p>Given the lock-in contracts, Australia has little existing capacity to assist the EU. Australian gas producers are, however, benefiting from the higher global prices for LNG exports caused by the EU shortfall.</p>
<p>Woodside, Santos and Oil Search have all registering significant <a href="https://www.afr.com/companies/energy/lng-price-bonanza-for-woodside-santos-20220120-p59pti">gains</a> in their share prices. </p>
<h2>Complete nonsense</h2>
<p>Taylor <a href="https://www.minister.industry.gov.au/ministers/taylor/media-releases/accelerating-priority-natural-gas-infrastructure-projects">says</a> spending $50.3 million of public money for new gas projects will: </p>
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<p>accelerate priority projects and ensure Australia does not experience the devastating impacts of a gas supply shortfall as seen in Europe.</p>
</blockquote>
<p>This is complete nonsense. </p>
<p>Australia will never face a shortfall like Europe because it’s not <a href="https://www.theguardian.com/environment/2022/mar/24/its-nonsense-for-angus-taylor-to-suggest-australia-could-face-an-energy-crisis-like-europes">import-dependent</a>. We have plenty of gas. </p>
<p>The issue for Australia is regulating the export of gas to ensure a sufficient domestic supply. </p>
<p>If the federal government wanted to improve Australia’s energy security, it would force gas producers in the east coast market to reserve a percentage for domestic consumption. </p>
<p>And it would actually use the Australian Domestic Gas Security mechanism. The measure was introduced to ensure gas supplies meet forecast energy needs, but has <a href="https://australiainstitute.org.au/wp-content/uploads/2020/12/Australia-Institute-ADGSM-Submission-1.pdf">never</a> been triggered. </p>
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<h2>An uncertain future</h2>
<p>Funding seven gas priority projects is also inconsistent with the conclusions of the 2022 <a href="https://aemo.com.au/-/media/files/gas/national_planning_and_forecasting/gsoo/2022/2022-gas-statement-of-opportunities.pdf?la=en">Gas Statement of Opportunities</a>, recently released by the Australian Energy Market Operator (AEMO). </p>
<p>This statement argues the future path for the gas sector in Australia is uncertain because the pace and impact of a transforming energy sector upon the gas system remains unclear. </p>
<p>In the short term, this statement suggests funding new infrastructure will not alleviate domestic supply concerns because it won’t be running in time.</p>
<p>In the longer term, the statement forecasts a gradual decline in domestic gas demand as consumers inevitably shift from gas to electricity or zero-emission fuels. </p>
<h2>Contrary to Australia’s climate targets</h2>
<p>Funding seven new fossil fuel projects is fundamentally contrary to Australia’s climate targets.</p>
<p>These projects will not improve Australia’s energy security or assist the EU with its supply difficulties. </p>
<p>Nor do they cohere with AEMO’s longer term conclusions about the future of the gas sector.</p>
<p>Prime Minister Scott Morrison has <a href="https://www.pm.gov.au/media/national-energy-address-tomago-nsw">argued</a> gas projects are needed to generate new dispatchable electricity which can be ramped up quickly when needed, making new gas projects integral to a national pandemic recovery plan. </p>
<p>But Kerry Schott, the former head of the Energy Security Board, disagrees. She’s made it <a href="https://www.theguardian.com/environment/2021/apr/30/australian-energy-board-chair-says-gas-fired-power-plant-in-hunter-valley-doesnt-stack-up">clear</a> there is an abundance of cheaper, cleaner alternatives. </p>
<p>Schott is right. This is where public money should be directed – to projects that represent the future, not the polluting past.</p><img src="https://counter.theconversation.com/content/180247/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Samantha Hepburn does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Supporting new fossil fuel projects is completely inconsistent with the broader goal of achieving net zero emissions by 2050 - and will not improve energy security.Samantha Hepburn, Director of the Centre for Energy and Natural Resources Law, Deakin Law School, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1591942021-06-09T12:39:49Z2021-06-09T12:39:49ZHow Joe Biden could increase pressure on Vladimir Putin if their June 16 meeting fails to deter Russia’s ‘harmful’ behavior<figure><img src="https://images.theconversation.com/files/405196/original/file-20210608-135197-1xrw33t.jpg?ixlib=rb-1.1.0&rect=0%2C37%2C3403%2C2118&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Your move, Mr. President. </span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/RussiaUSBiden/edd7d9c54b1f4ba59e8d04f22e471871/photo?Query=Putin%20AND%20biden&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=121&currentItemNo=113">AP Photo/RIA Novosti, Alexei Druzhinin</a></span></figcaption></figure><p>When U.S. President Joe Biden <a href="https://www.cnn.com/2021/06/07/politics/white-house-defends-putin-summit/index.html">meets with his Russian counterpart</a> Vladimir Putin on June 16, 2021, <a href="https://www.wral.com/biden-to-meet-with-putin-over-cybersecurity-concerns/19715138/">cybersecurity is certain</a> to be a key topic of discussion. </p>
<p>The U.S. accuses Russia of meddling in American elections and launching repeated cyberattacks, which, among what it called <a href="https://www.nytimes.com/2020/07/03/world/europe/russia-bounties-putin-afghanistan.html">other “harmful” transgressions</a>, <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2021/04/15/fact-sheet-imposing-costs-for-harmful-foreign-activities-by-the-russian-government/">prompted Biden to unveil</a> financial sanctions in April. This added to <a href="https://fas.org/sgp/crs/row/IF10779.pdf">existing sanctions targeting Russia’s oil sector</a>. </p>
<p>While the White House <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2021/05/25/statement-by-white-house-press-secretary-jen-psaki-on-the-meeting-between-president-joe-biden-and-president-vladimir-putin-of-russia/">says it has low expectations</a> for the meeting, hoping only to “restore predictability and stability to the U.S.-Russia relationship,” Biden’s <a href="https://abcnews.go.com/Politics/us-announces-sweeping-sanctions-russia-cyber-hack-election/story?id=77089976">threat to up the pressure on Putin</a> if Russia fails to change its behavior will likely loom over their upcoming chat in Geneva. He says he told Putin in a phone call “we could have gone further” with the sanctions, “but I chose not to do so.”</p>
<p>This leaves open the question of what “further” might mean – and could it be any more effective than past sanctions at changing Putin’s behavior?</p>
<h2>Russia’s strength – and weakness</h2>
<p>Experts who research global energy, <a href="https://scholar.google.com/citations?user=dCRySjIAAAAJ&hl=en&oi=ao">as I do</a>, highlight oil and natural gas as both Russia’s strength and its Achilles’ heel. </p>
<p>Russia is richly endowed with these resources and, since the early 2000s, it has been a <a href="https://www.eia.gov/international/analysis/country/RUS">top global producer and exporter</a>. Oil and gas make up <a href="https://warsawinstitute.org/russias-economy-becoming-heavily-dependent-hydrocarbons/">more than one-third</a> of Russia’s gross domestic product, and energy exports account for about <a href="https://tradingeconomics.com/russia/exports">half of government revenue</a>.</p>
<p>At the same time, the nation’s heavy reliance on oil and gas exports has made its economy highly vulnerable to fluctuations in global energy prices and to policy decisions that might reduce reliance of imports on Russian oil or gas – a dependence <a href="https://www.eia.gov/international/analysis/country/RUS">frequently noted</a> by <a href="https://www.e-ir.info/2020/02/24/the-energy-relationship-between-russia-and-the-european-union/">analyses</a> of its <a href="https://www.jstor.org/stable/24384335">energy sector</a>. For example, <a href="https://www.eia.gov/todayinenergy/detail.php?id=33732">70% of Russia’s crude oil exports</a> and more than <a href="http://www.gazpromexport.ru/en/statistics/">75% of its gas exports</a> <a href="https://www.e-ir.info/2020/02/24/the-energy-relationship-between-russia-and-the-european-union/">go to Europe</a>. </p>
<h2>Are current sanctions too weak?</h2>
<p>The U.S. and European Union imposed many of the <a href="https://www.econstor.eu/bitstream/10419/216248/1/CESifo-Forum-2019-04-p19-22.pdf">current sanctions</a> against Russia after it invaded Ukraine in 2014. The sanctions have primarily targeted the ability of non-Russian companies and government agencies to provide financing, goods, services and technology that help Russia explore and develop new oil reserves. The gas sector was <a href="https://www.atlanticcouncil.org/wp-content/uploads/2018/03/Impact_of_Sanctions_on_Russia_s_Energy_Sector_web.pdf">left out</a> by request of the EU. </p>
<p>A <a href="https://www.atlanticcouncil.org/in-depth-research-reports/report/the-impact-of-western-sanctions-on-russia/">key focus</a> was to prevent Western international oil businesses, which possess the world’s most advanced expertise and technological skills, from partnering with state-owned Russian companies in the Arctic, offshore in deep waters and shale fields. These are the areas with the greatest potential to expand Russia’s oil discovery and production going forward. </p>
<p>Analysts have been divided in evaluating the impacts of these sanctions. Some have described their effects as weak, pointing to continued increases in oil output that suggest Russian companies <a href="https://energy.skolkovo.ru/downloads/documents/SEneC/research04-en.pdf">have adapted to the imposed restrictions</a>. Other observers, however, <a href="https://www.atlanticcouncil.org/in-depth-research-reports/report/the-impact-of-western-sanctions-on-russia/">point to the Russian economy</a> as evidence they’re working. Russian GDP fell over a third from US$2.3 trillion to $1.5 trillion in 2020, which analysts attributed to factors including a drop in oil prices and the withdrawal of international financing. </p>
<p>I would also emphasize the negative impacts of the sanctions on the oil sector itself, which is largely related to Russian oil companies’ need for foreign expertise and technology.</p>
<p>Sanctions have made it harder and costlier to maintain and increase production levels. Recent data shows that <a href="https://www2.deloitte.com/ru/en/pages/energy-and-resources/articles/2019/oil-gas-survey-russia-2019.html">oil production costs have been increasing</a>, while many of Russia’s existing oil fields are producing less than they used to. </p>
<p>While <a href="https://www.eia.gov/analysis/studies/worldshalegas/">estimates suggest</a> Russia has the world’s second-largest shale oil reserves, developing these at a significant level requires Western expertise. If sanctions remain in place, some analysts project that Russian oil output <a href="https://rogtecmagazine.com/rpi-taymyr-will-support-the-drillers">will reach a peak and begin to decline by the middle of this decade</a>. </p>
<p>In other words, the Kremlin’s aggression in Ukraine and Putin’s use of cyberattacks is putting the future of Russia’s oil sector – and thus its economy – at risk. </p>
<h2>Ways to step up the pressure</h2>
<p>But so far, this hasn’t deterred Putin, as evidenced by <a href="https://www.reuters.com/article/usa-election-cyber-int/putin-likely-directed-2020-u-s-election-meddling-u-s-intelligence-finds-idUSKBN2B82PF">Russia’s meddling in the 2020 elections</a>, the large-scale <a href="https://www.npr.org/2021/04/16/985439655/a-worst-nightmare-cyberattack-the-untold-story-of-the-solarwinds-hack">SolarWinds cyberattack</a> and <a href="https://www.csis.org/analysis/unpacking-russian-troop-buildup-along-ukraines-border">Russian troops massing on Ukraine’s border</a> in March. </p>
<p>In April, <a href="https://abcnews.go.com/Politics/us-announces-sweeping-sanctions-russia-cyber-hack-election/story?id=77089976">when Biden announced the latest sanctions he said</a>, “If Russia continues to interfere with our democracy, I’m prepared to take further actions.”</p>
<p>So what else could Biden do to deter Putin if he keeps this up?</p>
<p>One approach would be to target specific projects that contribute significantly to current or future exports of oil and gas. </p>
<p>For example, sanctions could be imposed on any non-Russian companies helping to develop new oil or gas reserves in the East Siberian region. These projects – such as the <a href="https://warsawinstitute.org/vostok-oil-rosneft-starts-works-vankor-field/">Vostok Oil project</a> – have been <a href="https://www.statista.com/statistics/305356/oil-production-in-russia-by-region/">essential to Russia’s overall increase in production</a> since 2014. Sanctioning foreign investments in such Putin-backed projects would be a significant blow to Russia’s efforts to counteract production declines in older fields. </p>
<p>Another objective for increased sanctions might be the huge oil and gas project near <a href="https://www.shell.com/about-us/major-projects/sakhalin/sakhalin-one-of-the-worlds-largest-integrated-oil-and-gas-pro.html">Sakhalin Island</a>, in Russia’s Far East. Also an important source of growing oil production, Sakhalin depends to a considerable degree on Western and Japanese investment and expertise. It is a core part of Russia’s plan to <a href="https://www.reuters.com/article/us-russia-oil-exports/as-russia-expands-pacific-pipeline-a-third-of-oil-exports-go-east-idUSKBN1XV1LB">expand oil exports to China, Japan, Korea and Taiwan</a>. </p>
<p>Regarding major natural gas projects, Biden could try to limit foreign participation in the Arctic Yamal-Gydan liquefied natural gas facility. This giant project, <a href="https://www.maritime-executive.com/article/putin-inaugurates-yamal-lngs-operations/">another of Putin’s favorites</a>, uses the Arctic Route to ship gas to China and is also part of Russia’s plan to shift hydrocarbon exports to Asia. </p>
<p>In addition, the Biden administration could expand sanctions to include any export of U.S. technology, including separate components and replacement parts, for use by a Russian oil and gas company. This would make it a lot harder for Russia to develop its shale oil and gas fields, among Russia’s largest sources for future production growth.</p>
<p>Moscow also has <a href="https://www.hydrocarbonprocessing.com/magazine/2019/march-2019/columns/europe-russian-petrochemicals-industry-on-the-verge-of-large-scale-growth">big plans to upgrade and expand</a> its petrochemical sector, <a href="https://hsfnotes.com/energy/2020/12/29/russian-petrochemical-industry-gets-the-roadmap-and-achieves-its-first-milestone/#:%7E:text=In%202019%2C%20roughly%20only%2011,a%20lot%20of%20growth%20potential.&text=The%20Russian%20petrochemicals%20industry%20is,%2C%20Rosneft%2C%20LUKOIL%20and%20Gazprom">with more than $50 billion</a> in investment necessary. Limiting or prohibiting non-Russian companies and investors from helping out would make it harder for some of these projects to get funded.</p>
<p>[<em>The Conversation’s science, health and technology editors pick their favorite stories.</em> <a href="https://theconversation.com/us/newsletters/science-editors-picks-71/?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=science-favorite">Weekly on Wednesdays</a>.]</p>
<h2>A meeting of minds?</h2>
<p>Even though existing sanctions have brought less change to Russia’s anti-Western conduct than hoped for, their impact has deeply constrained the country’s ability to grow. </p>
<p>But continued cyberattacks aimed at the U.S. – including <a href="https://www.bbc.com/news/world-us-canada-57280510">those perpetrated by independent groups</a> operating within Russia’s borders – may convince Biden that more serious sanctions are needed. </p>
<p>It’s likely that this possibility will be on both men’s minds as Biden meets Putin for the first time as president.</p><img src="https://counter.theconversation.com/content/159194/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Scott L. Montgomery does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>When announcing financial penalties on Russia earlier this year, Biden hinted at the prospect of ‘further’ sanctions. An energy scholar explains what Biden may have meant.Scott L. Montgomery, Lecturer, Jackson School of International Studies, University of WashingtonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1483482020-10-27T02:36:10Z2020-10-27T02:36:10ZSuper-charged: how Australia’s biggest renewables project will change the energy game<figure><img src="https://images.theconversation.com/files/365437/original/file-20201026-21-sba7oi.jpeg?ixlib=rb-1.1.0&rect=30%2C0%2C4986%2C2948&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock </span></span></figcaption></figure><p>Australia doesn’t yet export renewable energy. But the writing is on the wall: demand for Australia’s fossil fuel exports is likely to <a href="https://theconversation.com/china-just-stunned-the-world-with-its-step-up-on-climate-action-and-the-implications-for-australia-may-be-huge-147268">dwindle</a> <a href="https://www.scmp.com/economy/global-economy/article/3105693/china-australia-relations-canberra-keeping-door-open">soon</a>, and we must replace it at massive scale.</p>
<p>The proposed Asian Renewable Energy Hub (<a href="https://asianrehub.com">AREH</a>) will be a huge step forward. It would eventually comprise 26,000 megawatts (MW) of wind and solar energy, generated in Western Australia’s Pilbara region. Once complete, it would be Australia’s biggest renewable energy development, and potentially the <a href="https://www.minister.industry.gov.au/ministers/karenandrews/media-releases/job-creating-energy-hub-given-major-status-backing">largest</a> of its type in the world. </p>
<p>Late last week, the federal government <a href="https://reneweconomy.com.au/huge-50bn-pilbara-green-hydrogen-hub-granted-major-project-status-17416/">granted</a> AREH “major project” status, meaning it will be fast-tracked through the approvals process. And in another significant step, the WA government this month <a href="https://reneweconomy.com.au/massive-asian-renewable-energy-hub-grows-to-26gw-of-wind-and-solar-49343/">gave</a> environmental approval for the project’s first stage.</p>
<p>The mega-venture still faces sizeable challenges. But it promises to be a game-changer for Australia’s lucrative energy export business and will reshape the local renewables sector. </p>
<figure class="align-center ">
<img alt="Map showing proposed location of the Asian Renewable Energy Hub." src="https://images.theconversation.com/files/365444/original/file-20201026-21-wgxgza.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/365444/original/file-20201026-21-wgxgza.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=466&fit=crop&dpr=1 600w, https://images.theconversation.com/files/365444/original/file-20201026-21-wgxgza.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=466&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/365444/original/file-20201026-21-wgxgza.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=466&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/365444/original/file-20201026-21-wgxgza.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=586&fit=crop&dpr=1 754w, https://images.theconversation.com/files/365444/original/file-20201026-21-wgxgza.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=586&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/365444/original/file-20201026-21-wgxgza.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=586&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Map showing proposed location of the Asian Renewable Energy Hub.</span>
<span class="attribution"><span class="source">AREH</span></span>
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</figure>
<h2>Writing on the wall</h2>
<p>Australia’s coal and gas exports have been growing for decades, and in 2019-20 reached almost <a href="https://www.reuters.com/article/australia-mining-idUSL3N26L0OI">A$110 billion</a>. Much of this energy has fuelled Asia’s rapid growth. However, in recent weeks, two of Australia’s largest Asian energy markets announced big moves away from fossil fuels.</p>
<p>China <a href="https://theconversation.com/china-just-stunned-the-world-with-its-step-up-on-climate-action-and-the-implications-for-australia-may-be-huge-147268">adopted a target</a> of net-zero greenhouse emissions by 2060. Japan will <a href="https://theconversation.com/japan-is-closing-its-old-dirty-power-plants-and-thats-bad-news-for-australias-coal-exports-144452">retire</a> its fleet of old coal-fired generation by 2030, and will <a href="https://www.independent.co.uk/environment/japan-net-zero-2050-emissions-climate-crisis-prime-minister-yoshihide-suga-b1251563.html">introduce</a> legally binding targets to reach net-zero emissions by 2050. </p>
<p>There are signs other Asian nations are also moving. Singapore has <a href="https://climateactiontracker.org/countries/singapore/">weak climate targets</a>, but on Monday <a href="https://www.minister.industry.gov.au/ministers/taylor/media-releases/australia-and-singapore-work-together-accelerate-low-emissions">inked a deal</a> with Australia to cooperate on low-emissions technologies. </p>
<figure class="align-center ">
<img alt="Night scene in Japan" src="https://images.theconversation.com/files/365447/original/file-20201026-19-fnu1u1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/365447/original/file-20201026-19-fnu1u1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/365447/original/file-20201026-19-fnu1u1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/365447/original/file-20201026-19-fnu1u1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/365447/original/file-20201026-19-fnu1u1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/365447/original/file-20201026-19-fnu1u1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/365447/original/file-20201026-19-fnu1u1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Japan wants to decarbonise its economy by using hydrogen.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<h2>Export evolution</h2>
<p>The Asian Renewable Energy Hub (AREH) would be built across 6,500 square kilometres in the East Pilbara. The first stage involves a 10,000MW wind farm plus 5,000MW of solar generation – which the federal government <a href="https://www.minister.industry.gov.au/ministers/karenandrews/media-releases/job-creating-energy-hub-given-major-status-backing">says</a> would make it the world’s largest wind and solar electricity plant. </p>
<p>The first stage would be capable of generating <a href="https://asianrehub.com/">100 terawatt-hours</a> of renewable electricity each year. That equates to about 40% of Australia’s total electricity generation <a href="https://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy.html">in 2019</a>. AREH recently expanded its longer term plans to 26,000MW. </p>
<p>The project is backed by a consortium of global renewables developers. Most energy from AREH will be used to produce <a href="https://asianrehub.com">green hydrogen</a> and ammonia to be used both domestically, and for shipping to export markets. Some energy from AREH will also be exported as electricity, carried by an undersea electrical cable. </p>
<p>Another Australian project is also seeking to export renewable power to Asia. The 10-gigawatt <a href="https://www.suncable.sg/">Sun Cable project</a>, backed by tech entrepreneur Mike Cannon-Brookes, involves a solar farm across 15,000 hectares near Tennant Creek, in the Northern Territory. Power generated will supply Darwin and be exported to Singapore via a 3,800km electrical cable along the sea floor.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/it-might-sound-batshit-insane-but-australia-could-soon-export-sunshine-to-asia-via-a-3-800km-cable-127612">It might sound 'batshit insane' but Australia could soon export sunshine to Asia via a 3,800km cable</a>
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<p>The export markets for both AREH and Sun Cable are there. For example, both South Korea and Japan have indicated strong interest in Australia’s green hydrogen to decarbonise their economies and secure energy supplies. </p>
<p>But we should not underestimate the obstacles standing in the way of the projects. Both will require massive investment. Sun Cable, for example, will cost an estimated <a href="https://reneweconomy.com.au/some-crazy-folks-behind-mike-cannon-brookes-20b-sun-cable-project-22944">A$20 billion</a> to build. The Asian Renewable Energy Hub will reportedly require as much as <a href="https://reneweconomy.com.au/huge-50bn-pilbara-green-hydrogen-hub-granted-major-project-status-17416/">A$50 billion.</a></p>
<p>The projects are also at the cutting edge of technology, in terms of the assembly of the solar array, the wind turbines and batteries. Transport of hydrogen <a href="https://hydrogenenergysupplychain.com/supply-chain/">by ship</a> is still at the pilot stage, and commercially unproven. And the projects must navigate complex approvals and regulatory processes, in both Australia and Asia. </p>
<p>But the projects have good strategic leadership, and a clear mission to put Australian green energy exports on the map. </p>
<figure class="align-center ">
<img alt="Red sand and tussocks of grass" src="https://images.theconversation.com/files/365441/original/file-20201026-15-1tnu3qe.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/365441/original/file-20201026-15-1tnu3qe.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/365441/original/file-20201026-15-1tnu3qe.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/365441/original/file-20201026-15-1tnu3qe.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/365441/original/file-20201026-15-1tnu3qe.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/365441/original/file-20201026-15-1tnu3qe.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/365441/original/file-20201026-15-1tnu3qe.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Australia’s Pilbara region would be home to Australia’s biggest renewables development.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<h2>Shifting winds</h2>
<p>Together, the AREH and Sun Cable projects do not yet make a trend. But they clearly indicate a shift in mindset on the part of investors. </p>
<p>The projects promise enormous clean development opportunities for Australia’s north, and will create thousands of jobs in Australia – especially in high-tech manufacturing. As we look to rebuild the economy after the COVID-19 pandemic, such stimulus will be key. All up, AREH is <a href="https://www.minister.industry.gov.au/ministers/karenandrews/media-releases/job-creating-energy-hub-given-major-status-backing">expected to support</a> more than 20,000 jobs during a decade of construction, and 3,000 jobs when fully operating. </p>
<p>To make smart policies and investments, the federal government must have a clear view of the future global economy. Patterns of energy consumption in Asia are shifting away from fossil fuels, and Australia’s exports must move with them.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/china-just-stunned-the-world-with-its-step-up-on-climate-action-and-the-implications-for-australia-may-be-huge-147268">China just stunned the world with its step-up on climate action – and the implications for Australia may be huge</a>
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<img src="https://counter.theconversation.com/content/148348/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Mathews receives funding from he Australian Research Council for research on the clean energy transition in Asia. </span></em></p><p class="fine-print"><em><span>Elizabeth Thurbon currently receives funding from the Australian Research Council (ARC) and the Academy of Korean Studies. She has previously received funding from the Academy of Social Sciences in Australia and the Korea Foundation. She is an elected member of the Executive Council of the Society for the Advancement of Socio-Economics (SASE) and a Research Committee and Board member of the Jubilee Australia Research Centre (JARC).</span></em></p><p class="fine-print"><em><span>Hao Tan receives funding from the Australia Research Council (ARC) Discovery Project 2019-2021. He previously received funding from the Academy of the Social Sciences in Australia, and funding from the Confucius Institute Headquarters under the "Understanding China Fellowship" in 2017.</span></em></p><p class="fine-print"><em><span>Sung-Young Kim receives funding from the Australia Research Council (ARC) and has previously received funding from the Academy of Korean Studies (AKS). He is Chair of the Organising Committee for the 2021 Australian Political Studies Association (APSA) Annual Conference and is Treasurer of the Korean Studies Association of Australasia (KSAA).</span></em></p>Many Asian nations are shunning fossil fuels, presenting a huge opportunity for Australia’s renewables sector. And one massive project has stepped up to the plate.John Mathews, Professor Emeritus, Macquarie Business School, Macquarie UniversityElizabeth Thurbon, Scientia Associate Professor in International Relations / International Political Economy, UNSW SydneyHao Tan, Associate professor, University of NewcastleSung-Young Kim, Senior Lecturer in International Relations, Discipline of Politics & International Relations, Macquarie School of Social Sciences, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1276122020-02-26T05:01:28Z2020-02-26T05:01:28ZIt might sound ‘batshit insane’ but Australia could soon export sunshine to Asia via a 3,800km cable<figure><img src="https://images.theconversation.com/files/317035/original/file-20200225-24651-1472rmd.jpg?ixlib=rb-1.1.0&rect=29%2C22%2C4962%2C3300&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/top-view-solar-panels-cell-farm-727265005">SHUTTERSTOCK</a></span></figcaption></figure><p>Australia is the world’s <a href="https://www.theguardian.com/environment/2019/aug/19/australia-is-third-largest-exporter-of-fossil-fuels-behind-russia-and-saudi-arabia">third largest fossil fuels exporter</a> – a fact that generates intense debate as climate change intensifies. While the economy is heavily reliant on coal and gas export revenues, these fuels create substantial greenhouse gas emissions when burned overseas.</p>
<p>Australia doesn’t currently export renewable energy. But an ambitious new solar project is poised to change that. </p>
<p>The proposed <a href="https://www.suncable.sg/">Sun Cable</a> project envisions a <a href="https://www.theguardian.com/environment/2019/nov/20/billionaires-invest-in-giant-australian-solar-farm-to-supply-power-to-singapore">ten gigawatt capacity solar farm</a> (with about 22 gigawatt-hours of battery storage) laid out across 15,000 hectares near Tennant Creek, in the Northern Territory. Power generated will supply Darwin and be exported to Singapore via a 3,800km cable slung across the seafloor. </p>
<p>Sun Cable, and similar projects in the pipeline, would tap into the country’s vast renewable energy resources. They promise to provide an alternative to the export business of <a href="https://oec.world/en/profile/country/aus/">coal, iron ore and gas</a>.</p>
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<strong>
Read more:
<a href="https://theconversation.com/australias-energy-exports-increase-global-greenhouse-emissions-not-decrease-them-118990">Australia's energy exports increase global greenhouse emissions, not decrease them</a>
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<p>As experts of east-Asian energy developments, we welcome Sun Cable. It could pioneer a renewable energy export industry for Australia, creating new manufacturing industries and construction jobs. Importantly, it could set our economy on a post-fossil fuel trajectory. </p>
<h2>Long-term cost benefits</h2>
<p>Sun Cable was <a href="https://www.theguardian.com/environment/2019/jul/14/just-a-matter-of-when-the-20bn-plan-to-power-singapore-with-australian-solar">announced last year</a> by a group of Australian developers. The project’s proponents say it would provide <a href="https://www.suncable.sg/">one-fifth of Singapore’s power supply</a> by 2030, and replace a large share of fossil fuel-generated electricity used in Darwin.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/317241/original/file-20200225-24655-1rgb5ic.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/317241/original/file-20200225-24655-1rgb5ic.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/317241/original/file-20200225-24655-1rgb5ic.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/317241/original/file-20200225-24655-1rgb5ic.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/317241/original/file-20200225-24655-1rgb5ic.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/317241/original/file-20200225-24655-1rgb5ic.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/317241/original/file-20200225-24655-1rgb5ic.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/317241/original/file-20200225-24655-1rgb5ic.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Submarine cables are laid using deep-sea vessels specifically designed for the job.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/alan_jamieson/35030875253/">Alan Jamieson/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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<p>To export renewable energy overseas, a high-voltage (HV) direct current (DC) cable would link the Northern Territory to Singapore. Around the world, some HVDC cables already carry power across long distances. One ultra-high-voltage direct current cable <a href="https://spectrum.ieee.org/energywise/energy/the-smarter-grid/chinas-state-grid-corp-crushes-power-transmission-records">connects central China to eastern seaboard cities</a> such as Shanghai. Shorter HVDC <a href="https://www.sciencedirect.com/topics/engineering/interconnectors">grid interconnectors</a> operate in Europe. </p>
<p>The fact that long distance HVDC cable transmission has already proven feasible is a point working in Sun Cable’s favour. </p>
<p>The cost of generating solar power <a href="https://www.irena.org/newsroom/pressreleases/2019/May/Falling-Renewable-Power-Costs-Open-Door-to-Greater-Climate-Ambition">is also falling dramatically</a>. And the low <a href="https://www.irena.org/newsroom/pressreleases/2019/May/Falling-Renewable-Power-Costs-Open-Door-to-Greater-Climate-Ambition">marginal cost</a> (cost of producing one unit) of generating and transporting renewable power offers further advantage. </p>
<p>The A$20 billion-plus proposal’s biggest financial hurdle was covering initial capital costs. In November last year, billionaire Australian investors Mike Cannon-Brookes and Andrew “Twiggy” Forrest <a href="https://www.afr.com/companies/energy/twiggy-joins-cannon-brookes-in-backing-sun-cable-20191120-p53cef">provided initial funding</a> to the tune of up to A$50 million. Cannon-Brookes said while Sun Cable seemed like a “<a href="https://www.afr.com/policy/energy-and-climate/cannon-brookes-plan-to-export-aussie-solar-power-to-singapore-20190924-p52u9o">completely batshit insane project</a>”, it appeared achievable from an engineering perspective. </p>
<p>Sun Cable is expected to be completed <a href="https://www.theguardian.com/environment/2019/nov/20/billionaires-invest-in-giant-australian-solar-farm-to-supply-power-to-singapore">in 2027</a>.</p>
<h2>Bringing in business</h2>
<p>The proposal would also bring business to local high-technology companies. Sun Cable has <a href="https://5b.com.au/news/press-release-5b-sun-cable-announce-plans-worlds-largest-solar-farm-northern-territory-australia/">contracted with Sydney firm 5B</a>, to use its “solar array” prefabrication technology to accelerate the building of its solar farm. The firm will pre-assemble solar panels and deliver them to the site in containers, ready for quick assembly.</p>
<p>The Northern Territory government has also shown support, granting Sun Cable <a href="http://newsroom.nt.gov.au/mediaRelease/31259">“major project”</a> status. This helps clear potential investment and approval barriers. </p>
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Read more:
<a href="https://theconversation.com/making-australia-a-renewable-energy-exporting-superpower-107285">Making Australia a renewable energy exporting superpower</a>
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<p>Across Australia, similar renewable energy export plans are emerging. The Murchison Renewable Hydrogen Project in Western Australia will use energy <a href="https://new.siemens.com/au/en/company/press-centre/2019/murchison-renewable-hydrogen-project.html">produced by solar and wind farms to create renewable hydrogen</a>, transported to east Asia as liquid hydrogen. </p>
<p>Similarly, the planned <a href="https://asianrehub.com/">Asian Renewable Energy Hub</a> could have renewable hydrogen generated in Western Australia’s Pilbara region at 15 gigawatts. This would also be exported, and supplied to local industries.</p>
<p>These projects align with the Western Australian government’s ambitious <a href="http://www.drd.wa.gov.au/Publications/Documents/wa_renewable_hydrogen_strategy.pdf">Renewable Hydrogen Strategy</a>. It’s pushing to make clean hydrogen a driver for the state’s export future. </p>
<h2>Reliable solutions</h2>
<p>Generating and transmitting power from renewable resources avoids the energy security risks plaguing fossil fuel projects. Renewable projects use manufactured devices such as solar cells, wind turbines and batteries. These <a href="https://www.nature.com/news/economics-manufacture-renewables-to-build-energy-security-1.15847">all generate energy security</a> (a nation’s access to a sufficient, affordable and consistent energy supply). </p>
<p>Australia controls its own manufacturing activities, and while the sun may not shine brightly every day, its incidence is predictable over time. In contrast, oil, coal and gas supply is limited and heavily subject to geopolitical tensions. Just months ago <a href="https://www.aljazeera.com/news/2019/09/saudi-oil-attacks-latest-updates-190916102800973.html">in the Middle East</a>, attacks on two major Saudi Arabian oil facilities impacted 5% of global oil supply.</p>
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<strong>
Read more:
<a href="https://theconversation.com/australias-fuel-stockpile-is-perilously-low-and-it-may-be-too-late-for-a-refill-96271">Australia's fuel stockpile is perilously low, and it may be too late for a refill</a>
</strong>
</em>
</p>
<hr>
<h2>Renewing international links</h2>
<p>Apart from exporting electricity produced on its own solar farm, Sun Cable could profit from letting other projects export electricity to Asia through shared-cost use of its infrastructure. </p>
<p>This would encourage future renewable energy exports, especially to the energy-hungry <a href="https://asean.org/">ASEAN nations</a> (Association of Southeast Asian Nations) – Indonesia, Malaysia, the Philippines, Singapore and Thailand.</p>
<p>This would strengthen Australia’s economic relationships with its ASEAN neighbours – <a href="https://www.eastasiaforum.org/2019/12/18/grand-opportunities-for-australias-hydrogen-industry-and-for-a-strategic-regional-rebalancing/">an importantc geo-economic goal</a>. In particular, it could help reduce Australia’s <a href="https://www.australiachinarelations.org/content/understanding-australias-economic-dependence-china">growing</a> <a href="https://www.abc.net.au/news/2019-01-15/china-economy-slowdown-will-affect-australia/10716240">export dependence on China</a>.</p>
<p>However, as with any large scale project, Sun Cable does face challenges.</p>
<p>Other than raising the remaining capital, it must meet interconnection standards and safety requirements to implement the required infrastructure. These will need to be managed as the project evolves. </p>
<p>Also, since the power cable is likely to run along the seabed under Indonesian waters, its installation will call for <a href="https://www.mdpi.com/1996-1073/11/1/200/pdf">strategic international negotiations</a>. There has also <a href="https://www.alicespringsnews.com.au/2019/11/23/20bn-sun-cable-has-national-security-risks-expert-warns/">been speculation</a> from mining interests the connection could present national security risks, as it may be able to send and receive “performance and customer data”. But these concerns cannot be validated currently, as we lack the relevant details.</p>
<p>Fortunately, none of these challenges are insurmountable. And within the decade, Sun Cable could make the export of Australian renewable energy a reality.</p><img src="https://counter.theconversation.com/content/127612/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Mathews receives funding from ARC</span></em></p><p class="fine-print"><em><span>Elizabeth Thurbon receives funding from the Australian Research Council and the Academy of Korean Studies. She is affiliated with the Jubilee Australia Research Centre. </span></em></p><p class="fine-print"><em><span>Hao Tan receives funding from the Australia Research Council (ARC) Discovery Project 2019-2021; and previously received funding from the Academy of the Social Sciences in Australia under the Australia-China (CASS) Joint Action Program and from the Confucius Institute Headquarters under the "Understanding China Fellowship" in 2017.</span></em></p><p class="fine-print"><em><span>Sung-Young Kim receives funding from the Australia Research Council and has previously received funding from the Academy of Korean Studies (AKS).</span></em></p>Sun Cable could provide Australia an alternative to the export business of coal and gas, and even reduce our export dependence on China.John Mathews, Professor of Strategic Management, Macquarie Graduate School of Management, Macquarie UniversityElizabeth Thurbon, Scientia Fellow and Associate Professor in International Relations / International Political Economy, UNSW SydneyHao Tan, Associate professor, University of NewcastleSung-Young Kim, Senior Lecturer in the Department of Modern History, Politics & International Relations, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1251302019-10-21T19:01:15Z2019-10-21T19:01:15ZAustralia has plenty of gas, but the price is extreme. The market is broken<figure><img src="https://images.theconversation.com/files/297836/original/file-20191021-56215-14jl1lf.jpg?ixlib=rb-1.1.0&rect=8%2C5%2C1907%2C1258&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Gas burning at Victoria's Longford Gas Conditioning Plant. Australia is the world's largest exporter but intends t import gas to shore up local supplies. </span> <span class="attribution"><span class="source">Joe Castro/AAP</span></span></figcaption></figure><p>Right now, two projects have been proposed to import gas from overseas to supply eastern Australia. This is an absurd prospect. Australia is a resource-rich country, and <a href="https://www.reuters.com/article/us-australia-qatar-lng-idUSKBN1O907N">exports more gas than any other nation</a>. Why then, would we need to ship it in? </p>
<p>The rate of liquified natural gas (LNG) exports from Australia has skyrocketed over the past two decades. In the past ten years, this coincided with a <a href="https://www.afr.com/companies/energy/agl-to-buy-gas-from-esso-after-lng-imports-delayed-20190925-p52une">trebling</a> in the price of gas on the east coast.</p>
<p>The situation points to a dramatic failure of management and regulation. The result is that households are struggling with soaring gas bills, and the future of Australia’s manufacturing sector is at risk.</p>
<p>It is unconscionable that Australian governments have allowed LNG producers untrammelled export growth without credible safeguards for the domestic market. The crisis could be de-escalated with stronger export controls and a regulatory regime more focused on the public interest.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/297841/original/file-20191021-56215-uqkva1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/297841/original/file-20191021-56215-uqkva1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=396&fit=crop&dpr=1 600w, https://images.theconversation.com/files/297841/original/file-20191021-56215-uqkva1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=396&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/297841/original/file-20191021-56215-uqkva1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=396&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/297841/original/file-20191021-56215-uqkva1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=497&fit=crop&dpr=1 754w, https://images.theconversation.com/files/297841/original/file-20191021-56215-uqkva1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=497&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/297841/original/file-20191021-56215-uqkva1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=497&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Prime Minister Scott Morrison during a visit to a Queensland manufacturing plant during the 2019 federal election campaign. The manufacturing sector is a major user of Australian gas supplies.</span>
<span class="attribution"><span class="source">Mick Tsikas/AAP</span></span>
</figcaption>
</figure>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/nice-try-mr-taylor-but-australias-gas-exports-dont-help-solve-climate-change-122715">Nice try Mr Taylor, but Australia's gas exports don't help solve climate change</a>
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<h2>Gas users are hurting</h2>
<p>Between 2000 and 2015, Australia’s LNG exports tripled. Between 2015 and 2019 they <a href="https://www.tai.org.au/content/high-carbon-land-down-under-quantifying-co2-australia-s-fossil-fuel-mining-and-exports">tripled again</a>.</p>
<p>But Australia must keep plentiful gas supplies for itself. Gas-fired power is vital in meeting the fluctuating demands of our national energy market as ageing coal power stations close. Gas also firms up the intermittent energy generated by renewables. </p>
<p>Almost <a href="https://www.appea.com.au/oil-gas-explained/benefits/gas-and-manufacturing/">one-third of the gas consumed in Australia</a> is used by manufacturers - as both an energy source and raw material to make metals, chemicals, plastic and building materials.</p>
<p>Since around 2015, when <a href="https://www.abc.net.au/news/rural/2015-01-06/first-lng-from-csg-ship-leaves-queensland/6002446">LNG exports began at Gladstone in Queensland</a>, gas prices have <a href="https://www.abc.net.au/news/2019-05-17/gas-exports-blamed-for-electricity-price-rises-job-losses/11121120">spiralled by more than 130%</a>. This has had a huge effect on industry and communities.</p>
<p>Australian steel giant Bluescope recently invested in a A$1 billion US expansion – where energy prices are <a href="https://www.afr.com/companies/manufacturing/cheap-us-energy-leads-bluescope-to-1b-ohio-mill-expansion-20190816-p52hxu">one-third of those in Australia</a>.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/297840/original/file-20191021-56228-17ij75s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/297840/original/file-20191021-56228-17ij75s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/297840/original/file-20191021-56228-17ij75s.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/297840/original/file-20191021-56228-17ij75s.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/297840/original/file-20191021-56228-17ij75s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/297840/original/file-20191021-56228-17ij75s.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/297840/original/file-20191021-56228-17ij75s.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">East coast gas prices have trebled over the past decade.</span>
<span class="attribution"><span class="source">Dan Peled/AAP</span></span>
</figcaption>
</figure>
<p>Sydney-based polystyrene cup maker RemaPak <a href="https://www.afr.com/companies/energy/east-coast-gas-crisis-claims-victim-as-remapak-goes-under-20190119-h1a8s4">went into administration</a> earlier this year after its energy costs increased by 400% over three years.</p>
<p>Chief executive of Incitec Pivot Jeanne Johns, whose company produces chemicals and fertilisers, this month said the A$38 billion gas-based manufacturing sector in Australia may be destroyed by high gas prices, <a href="https://www.afr.com/companies/energy/incitec-pivot-ceo-warns-of-38b-in-destruction-20191009-p52yw">describing the market as “dysfunctional”</a>.</p>
<h2>We can fix this mess</h2>
<p>LNG exporters have entered long-term contracts to provide defined amounts of gas to various overseas markets. When Australian gasfields do not provide enough gas to satisfy their obligations, the domestic market can suffer. Gas that could have been available to the domestic market is sold on international markets, and Australian gas users are starved of supplies. This has kept domestic prices high. </p>
<p>As more and more gas went offshore, domestic prices soared. In 2014 east coast gas prices were A$4 a gigajoule. In 2017 they spiked at <a href="https://theconversation.com/canavan-offers-to-fund-gas-exploration-but-what-do-we-get-in-return-79767">A$20 a gigajoule</a> and they are now <a href="https://www.forbes.com/sites/woodmackenzie/2019/10/15/gas-prices-are-falling-but-australias-east-coast-gas-market-shouldnt-get-too-comfortable/#2f906b806f1f">sitting at roughly A$10 a gigajoule</a>. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/297839/original/file-20191021-56220-1wzyi10.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/297839/original/file-20191021-56220-1wzyi10.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=388&fit=crop&dpr=1 600w, https://images.theconversation.com/files/297839/original/file-20191021-56220-1wzyi10.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=388&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/297839/original/file-20191021-56220-1wzyi10.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=388&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/297839/original/file-20191021-56220-1wzyi10.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=488&fit=crop&dpr=1 754w, https://images.theconversation.com/files/297839/original/file-20191021-56220-1wzyi10.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=488&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/297839/original/file-20191021-56220-1wzyi10.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=488&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A kitchen gas stove burner. Consumers and industry are hurting under rising gas bills.</span>
<span class="attribution"><span class="source">Dan Peled/AAP</span></span>
</figcaption>
</figure>
<p>To alleviate concern over domestic gas supplies, there are plans to import gas back from Japan to terminals at <a href="https://www.abc.net.au/news/2018-06-04/nsws-first-lng-terminal-to-drive-down-power-prices/9832486">Port Kembla in New South Wales</a> and <a href="https://www.theage.com.au/politics/victoria/agl-delays-victorian-gas-import-hub-over-environmental-concerns-20190628-p5228a.html">Crib Point in Victoria</a>. The gas would be sourced from Asia, the US and elsewhere. These proposals are expensive and bad for the climate. They are also strategically absurd.</p>
<p>That such plans are even being contemplated shows the weakness of Australia’s regulatory measures. The existing <a href="https://www.industry.gov.au/regulations-and-standards/australian-domestic-gas-security-mechanism">Australian Domestic Gas Security Mechanism</a> allows the federal energy minister to bring in export restrictions if there are forecast gas shortages for Australian users.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/gas-prices-will-stay-historically-high-the-governments-moves-while-welcome-wont-achieve-much-121494">Gas prices will stay historically high. The government's moves, while welcome, won't achieve much</a>
</strong>
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<hr>
<p>The mechanism was <a href="https://www.smh.com.au/politics/federal/malcolm-turnbull-intervenes-in-gas-market-to-tackle-surging-domestic-prices-20170426-gvsuyb.html">established by the federal government</a> with much fanfare in July 2017, but has never been used. This is largely because it is triggered by a shortfall in supply, not rising prices. </p>
<p>A much stronger mechanism, based on gas pricing, is vital. This should be overseen by a domestic board that monitors prices and acts on behalf of the public. Fair pricing could be ensured by using benchmarks set by the Australian Competition and Consumer Commission. The board would have power to enact export controls so that gas could be removed from the export market and returned to the domestic market. </p>
<p>Australia must also introduce a domestic gas reservation policy to ensure a proportion of gas is set aside for the domestic market. Such a policy has existed for a decade in Western Australia, where 15% of LNG is taken from the export market and <a href="https://www.jtsi.wa.gov.au/economic-development/economy/domestic-gas-policy">compulsorily reserved for domestic consumers</a>. This has led to a <a href="https://www.abc.net.au/news/2019-07-11/calls-for-gas-reservation-policy-to-bring-prices-down/11299032">much lower domestic price</a> in that state, where gas supplies also exceed forecast demand over the next ten years. By contrast on the east coast, shortfalls have been predicted from 2024. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/297843/original/file-20191021-56215-1w67322.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/297843/original/file-20191021-56215-1w67322.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=390&fit=crop&dpr=1 600w, https://images.theconversation.com/files/297843/original/file-20191021-56215-1w67322.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=390&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/297843/original/file-20191021-56215-1w67322.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=390&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/297843/original/file-20191021-56215-1w67322.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=490&fit=crop&dpr=1 754w, https://images.theconversation.com/files/297843/original/file-20191021-56215-1w67322.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=490&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/297843/original/file-20191021-56215-1w67322.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=490&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">An LNG tanker leaves the Port of Gladstone in 2016.</span>
<span class="attribution"><span class="source">Dan Peled/AAP</span></span>
</figcaption>
</figure>
<h2>Looking to the future</h2>
<p>Australia is soon expected to <a href="https://www.afr.com/companies/energy/australia-reaches-for-lng-crown-as-us200b-boom-ends-20190612-p51x06">export 80 million tonnes of gas each year</a>. Without strong regulatory change this expansion will continue to drive up domestic energy prices. </p>
<p>It will also drive up emissions. Producing LNG requires large amounts of electricity and fugitive emissions (from gas leaks, venting and equipment purging) can <a href="https://www.climatecouncil.org.au/australia-worlds-largest-gas-exporter/">occur at any stage of the gas supply chain</a>. </p>
<p>In the US, the export of LNG is regulated by laws that require exports to be in the public interest. Strong protections also exist in Canada. In Norway, Qatar, Russia, Malaysia and Algeria many LNG producers are controlled by the state to ensure a balanced approach to resource growth. </p>
<p>The rich resources of Australia belong to the public. They should only be exploited when it is firmly in our interests.</p><img src="https://counter.theconversation.com/content/125130/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Samantha Hepburn does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>If Australia is the biggest gas exporter in the world, why are we shipping it back in? Because the gas market is dysfunctional - and it means consumers are suffering.Samantha Hepburn, Professor, Deakin Law School, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/851752017-10-05T19:05:12Z2017-10-05T19:05:12ZThe government’s new gas deal will ease the squeeze, but dodges the price issue<figure><img src="https://images.theconversation.com/files/188927/original/file-20171005-2140-liopt8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The government has so far refrained from putting a legal limit on LNG leaving our shores.</span> <span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File%3AAlto_Acrux_Departs_Darwin_in_June_2012_(7501108978).jpg">Ken Hodges/Wikimedia Commons</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>The <a href="https://theconversation.com/price-still-up-in-the-air-as-gas-producers-sign-supply-deal-85082">deal signed this week</a> by the federal government and the nation’s biggest three gas producers will ease Australia’s gas supply squeeze, but it will do nothing to address the current high prices.</p>
<p>Under the contract, Shell, Origin and Santos have agreed to supply more domestic gas to avert the <a href="https://theconversation.com/big-gas-shortage-looming-but-government-stays-hand-on-export-controls-84610">predicted shortfall for 2018</a>. </p>
<p>In so doing, the government seemingly sidestepped the need to trigger its own powers to forcibly restrict gas exports. </p>
<p>Sighs of relief all round, then. But here’s the thing: neither the new deal, nor the legislation that governs export controls, actually addresses the issue that is arguably most important to consumers – the high prices Australians are paying for their gas. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/to-avoid-crisis-the-gas-market-needs-a-steady-steer-not-an-emergency-swerve-84701">To avoid crisis, the gas market needs a steady steer, not an emergency swerve</a>
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<p>Australia has vast gas resources, and yet somehow we find ourselves with <a href="source%20link">rising prices</a> and a forecast shortfall of <a href="https://www.aemo.com.au/-/media/Files/Gas/National_Planning_and_Forecasting/GSOO/2017/2017-Gas-Statement-of-Opportunities---Update.pdf">up to one-sixth of demand</a> in the east coast gas market in 2018.</p>
<p>This is partly understandable, given that <a href="https://www.iea.org/publications/freepublications/publication/WorldEnergyOutlook2016ExecutiveSummaryEnglish.pdf">rising global demand</a> has fuelled a lucrative export market. The primary destination is Asia, which will assume <a href="https://www.iea.org/publications/freepublications/publication/WorldEnergyOutlook2016ExecutiveSummaryEnglish.pdf">more than 70% of global demand</a>. In geographical terms this puts Australian exporters in a very strong position, and by 2019 Australia is forecast to supply 20% of the global market – up from 9% today.</p>
<p>However, the strong global demand for liquefied natural gas (LNG) does not in itself provide the full explanation for rising gas prices in Australia’s east coast gas market. This is caused by a weak regulatory environment. </p>
<h2>Policy levers</h2>
<p>The <a href="https://industry.gov.au/resource/UpstreamPetroleum/AustralianLiquefiedNaturalGas/Pages/Australian-Domestic-Gas-Security-Mechanism.aspx">Australian Domestic Gas Security Mechanism</a>, which took effect in July 2017, gives the federal resources minister the power to restrict exports of LNG in the event of a forecast shortfall for the domestic market in any given year. </p>
<p>This five-year provision was designed as a short-term measure to ensure domestic gas supply. If triggered, it would require LNG exporters either to limit their exports or to find new sources of gas to offset the impact on the domestic market.</p>
<p>To trigger the mechanism, the minister must follow three steps: </p>
<ol>
<li><p>formally declare that the forthcoming year has a domestic shortfall, by October 1 of the preceding year;</p></li>
<li><p>consult relevant market bodies, government agencies, industry bodies and other stakeholders to determine their view on the existing and forecast market conditions; and</p></li>
<li><p>make a determination by November 1 on whether to implement the measures. </p></li>
</ol>
<p>Any export restriction implemented under the ADGSM would potentially apply to all LNG exports nationwide, including those from areas with no forecast gas shortage, such as Western Australia. The minister does have the ability to determine the type of export restriction that is imposed. An unlimited volume restriction does not impose a specific volumetric limitation and can be applied to LNG projects that are not connected to the market experiencing the shortfall. A limited volume restriction imposes specific limits on the amount of LNG that may be exported and may be applied to an LNG project that is connected to the market experiencing the shortfall.</p>
<p>Non-compliance with the export limits imposed on gas projects would have a range of potential consequences for gas companies. These include revocation of export licence, imposition of different conditions, or stricter transparency requirements.</p>
<h2>The new deal</h2>
<p>The agreement signed with the big three gas producers effectively relieves the government of the need to consider triggering the ADGSM. As such, 2018 has not been officially declared to be a domestic shortfall year. </p>
<p>But the agreement is not grounded upon any specific legislative provision. Therefore it is essentially only enforceable against the gas companies that are parties to it. And in accordance with the private terms and conditions that those companies agree to. </p>
<p>The broad agreement is that contractors will sell a minimum of 54 petajoules of gas into the east coast domestic market (the lower limit of the forecast shortfall) and keep more on standby in case the eventual shortfall turns out to be bigger.</p>
<h2>But what about prices?</h2>
<p>The deal contains no specific provision regarding domestic pricing. So, although there will be more gas in the domestic market, this does not necessarily mean that the current high prices will drop.</p>
<p>In the short term, the provision of additional supply may curtail dramatic increases in domestic gas prices. However, the gas deal does not address the core problem, which stems from our enormous commitment to LNG exports and the connection of domestic gas prices to the global energy market. </p>
<p>Indeed, the commitments are so great that many LNG operators have had to take conventional gas from South Australia and Victoria to fulfil their export contracts. This has put significant pressure on domestic prices. </p>
<p>The unequivocal truth is that gas prices were much cheaper before the LNG export boom. The only way to achieve some level of protection for domestic gas prices is to implement stronger regulatory controls on the export market. This should involve taking account of the public interest when assessing whether export restrictions should be imposed. </p>
<p>The ADGSM legislation does not incorporate any explicit public interest test, despite the fact that gas is a public resource in Australia and gas pricing is a strong public interest issue. </p>
<p>Compare that with the United States, where public interest is a key principle in assessing whether to approve any LNG exports to countries with no US free trade agreement (such as Japan). Public interest tests in the United States involve a careful determination of how exports will affect domestic supply and the potential impact that a strong export market will have upon domestic prices.</p>
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<a href="https://theconversation.com/want-to-boost-the-domestic-gas-industry-put-a-price-on-carbon-76517">Want to boost the domestic gas industry? Put a price on carbon</a>
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<p>The Australian government’s decision to broker a deal with gas suppliers, rather than extend the long arm of the law, means that regulators will need to keep a close eye on the gas companies to check that they are holding up their end of the bargain. </p>
<p>That job will fall to the <a href="https://www.accc.gov.au/">Australian Competition and Consumer Commission</a> (ACCC). ACCC chair Rod Simms this week warned gas suppliers to ensure that their “<a href="http://www.dailytelegraph.com.au/news/nsw/accc-puts-gas-companies-on-notice-as-pm-gets-gas-supply-guarantee/news-story/2241b1d9144d8a4a2ebeccef185fe873">retail margins are appropriate</a>”. </p>
<p>In the absence of any explicit rules compelling gas producers that signed the deal to provide clear and accurate information and adopt stronger transparency protocols, the ACCC may face a very onerous task.</p><img src="https://counter.theconversation.com/content/85175/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Samantha Hepburn does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>By signing an agreement with the big three producers, the government has effectively made the east coast gas shortage evaporate. But there’s no guarantee the price pain will go away too.Samantha Hepburn, Director of the Centre for Energy and Natural Resources Law, Deakin Law School, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/846862017-09-27T07:19:02Z2017-09-27T07:19:02ZWhy Australia doesn’t face sovereign risk in the gas markets<p><a href="https://www.aemo.com.au/-/media/Files/Gas/National_Planning_and_Forecasting/GSOO/2017/2017-Gas-Statement-of-Opportunities---Update.pdf">Shortages</a> of gas <a href="https://www.accc.gov.au/system/files/ACCC%20gas%20inquiry%20first%20interim%20report%20%20September%202017%20-%20FINAL.PDF">in the Australian market</a> have led to <a href="https://twitter.com/billshortenmp/status/912158228187721728">calls</a> for the government to impose restrictions on gas exports. Energy industry executives <a href="http://www.theage.com.au/federal-politics/political-news/gas-crisis-three-times-bigger-than-thought-turnbull-says-20170925-gyo418.html">have responded</a> by saying that market interventions would create a “sovereign risk”, deterring foreign investors and buyers of Australian gas. </p>
<p>But this doesn’t apply to Australia for a number of geographic and geopolitical reasons. We’re on the doorstep of some of the largest gas importers in the world – and <a href="http://onlinelibrary.wiley.com/doi/10.1111/1475-4932.12368/abstract">gas is very costly to ship</a>. Qatar, one of our major competitors, is <a href="http://www.bbc.com/news/world-middle-east-40173757">mired in a diplomatic standoff</a> with its neighbours, and Russian <a href="https://www.reuters.com/article/us-russia-china-energy/russia-china-talks-over-new-gas-routes-stalled-sources-idUSKBN18Y1TX">gas negotiations with China</a> have broken down.</p>
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<a href="https://theconversation.com/big-gas-shortage-looming-but-government-stays-hand-on-export-controls-84610">Big gas shortage looming, but government stays hand on export controls</a>
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<p>To cap it off, Australia is negotiating a <a href="http://dfat.gov.au/trade/agreements/rcep/Pages/regional-comprehensive-economic-partnership.aspx">mega free trade agreement</a> with Japan, China and South Korea (all major gas importers), among others. This makes it unlikely the federal government will do anything to upset the status quo.</p>
<h2>What is sovereign risk?</h2>
<p>When governments <a href="https://theconversation.com/what-is-and-isnt-a-sovereign-risk-30612">default on debt</a> or confiscate private assets this creates concerns among foreign investors that their interests could also be affected by authorities. This is the heart of sovereign risk. It leads investors to charge higher interest rates to make the risk worth it, or forgo investment all together. </p>
<p><a href="https://www.imf.org/en/Publications/WP/Issues/2016/12/31/How-Important-Is-Sovereign-Risk-in-Determining-Corporate-Default-Premia-The-Case-of-South-18634">Research</a> shows that these higher interest rates (called a “risk premium”) can destabilise financial markets and put pressure on local companies.</p>
<p>Textbook examples of actions that created sovereign risk are <a href="http://www.historytoday.com/richard-cavendish/iranian-oil-fields-are-nationalised">the 1951 nationalisation of Iranian oil fields</a>, Argentina’s then president, Cristina Kirchner, <a href="http://www.nytimes.com/2012/04/17/business/global/argentine-president-to-nationalize-oil-company.html">nationalising the country’s largest oil producer</a> in 2012 and Venezuela <a href="https://www.reuters.com/article/us-gm-venezuela/general-motors-says-venezuela-illegally-seizes-auto-plant-idUSKBN17M08I">seizing a General Motors auto plant</a> this year. </p>
<p>However, recently <a href="http://www.theaustralian.com.au/business/companies/companies-approach-to-sovereign-risk-mistaken-john-fast/news-story/c058b1fdad6a53c02ba112ce37611666?nk=5d6ad9d220342e485ab6e1f16946cac5-1506482025">multinational companies have stretched the term sovereign risk</a> to include other government activities that have negative consequences for business profits. This could include tax increases and crackdowns, new regulations, or the removal of subsidies. </p>
<p>Under this broader definition, government interfering in the Australian gas market could be classified as a sovereign risk. However, to be realistic, nothing short of outright nationalisation of natural gas resources or retroactive price fixing would enable energy companies to successfully pursue legal remedies against the Australian government.</p>
<h2>Australia is very competitive in the gas markets</h2>
<p>In purely commercial terms, the Australian gas sector is more competitive than overseas competitors. </p>
<p><a href="http://www.total.com/en/infographics/global-gas-market-key-figures">Industry data</a> show that Asia is the largest market for LNG, importing 245 billion cubic metres of natural gas a year. Much of this goes to Australia’s closest trading partners – China, Japan and South Korea. Only 40 billion cubic metres of this comes through pipelines, mainly through Central Asia.</p>
<p>In 2015-16, <a href="https://www.appea.com.au/oil-gas-explained/benefits/benefits-of-lng/export-revenue/">Australia exported 37 million tonnes of LNG</a> with a value of A$16.55 billion. Foreign buyers are unlikely to easily switch supplier, because of the <a href="http://onlinelibrary.wiley.com/doi/10.1111/1475-4932.12368/abstract">cost</a> of sourcing gas from the Middle East and declining production in several Asian nations. The Department of Foreign Affairs and Trade <a href="https://dfat.gov.au/about-us/publications/Documents/australias-lng-exports-2003-04-to-2013-14.pdf">projects</a> that about 90% of Australian LNG exports by volume will go to Japan, China and South Korea by 2018-19. </p>
<p>On top of the geographic advantages, buyers also have geopolitical reasons to stick with Australia. In particular, the Qatari government is promoting <a href="http://oilprice.com/Energy/Natural-Gas/Can-Qatar-Really-Diversify-Away-From-Natural-Gas.html">a diversification program</a> that will reduce exports. This is mainly due to a <a href="http://www.bbc.com/news/world-middle-east-40173757">diplomatic crisis</a> with its neighbours. </p>
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Read more:
<a href="https://theconversation.com/to-avoid-crisis-the-gas-market-needs-a-steady-steer-not-an-emergency-swerve-84701">To avoid crisis, the gas market needs a steady steer, not an emergency swerve</a>
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<p>Australia is negotiating the Regional Comprehensive Economic Partnership (RCEP), a <a href="http://dfat.gov.au/trade/agreements/rcep/Pages/regional-comprehensive-economic-partnership.aspx">mega free trade agreement</a> between ASEAN and Japan, China, South Korea, India and New Zealand.</p>
<p>RCEP will lower trade barriers and improve market access for Australian exporters of goods and services, and for Australian investors. The three top natural gas net importers in Asia are participating in RCEP negotiations. Participating countries account for almost 60% of Australia’s two-way trade, 18% of two-way investment, and over 65% of Australia’s goods and services exports.</p>
<p>These numbers explain why Prime Minister Malcolm Turnbull is taking a very cautious approach to the domestic gas shortfall. Simply put, the foreshadowed export control mechanisms won’t happen because of Australia’s international trade and investment strategy and existing commercial commitments.</p>
<p><a href="https://theconversation.com/three-charts-on-g20-countries-stealth-trade-protectionism-80678">Stealth trade protectionism</a> may bring short-term relief and quick electoral gratification. However, the quarantining of Australian gas supply is not realistic in the face of so many variables in the global market. </p>
<p>As a <a href="https://www.accc.gov.au/system/files/ACCC%20gas%20inquiry%20first%20interim%20report%20%20September%202017%20-%20FINAL.PDF">recent ACCC inquiry</a> shows, the serious way forward to rein in the gas crisis appears to be more careful co-ordination of interstate domestic demand with LNG sales on international markets. A more sophisticated approach to market co-ordination and regulatory harmonisation at home and abroad promises a more balanced, long-term solution. In the meantime, consumers in eastern Australia will have to brace for steep increases in energy prices.</p><img src="https://counter.theconversation.com/content/84686/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Giovanni Di Lieto is affiliated with the Australian Institute of International Affairs (AIIA). </span></em></p>Australia’s prime location and Asia’s growing demand make it unlikely that there will be less foreign demand for our gas.Giovanni Di Lieto, Lecturer, Bachelor of International Business, Monash Business School, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/767902017-04-28T02:59:06Z2017-04-28T02:59:06ZEconomists split over Turnbull’s plan to reserve gas for Australian customers<p>The federal government has pledged to <a href="http://www.abc.net.au/news/2017-04-27/government-to-restrict-gas-exports-to-shore-up-domestic-supply/8474432">bring in legislation</a> that would allow it to restrict gas exports and force Australian producers to reserve supplies for domestic consumers, amid continuing fears of an east coast <a href="https://theconversation.com/turnbull-warns-of-consequences-if-gas-industry-doesnt-keep-its-promises-74637">supply crisis</a>.</p>
<p>The move comes after the <a href="http://www.afr.com/business/energy/gas/gas-summit-fails-to-find-energy-crisis-fix-20170419-gvnv3g">apparent failure</a> of crisis talks earlier this month, aimed at easing the forecast price squeeze.</p>
<p>But experts are split on whether domestic gas reservations are a wise move. In a <a href="http://www.afr.com/business/energy/gas/gas-summit-fails-to-find-energy-crisis-fix-20170419-gvnv3g">survey of 32 economists</a> by Monash Business School and the Economic Society of Australia, 38% agreed with the following statement, whereas 47% disagreed. </p>
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<p>In response to energy shortages around Australia, government policies requiring gas producers to reserve some production for domestic consumption are a good way to ensure that Australian consumers have access to sufficient gas supplies while still allowing for gas exports.</p>
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<p>Weighting the scores by confidence pushed the balance even further towards a negative verdict, as shown below.</p>
<iframe src="https://datawrapper.dwcdn.net/KFyLH/1/" frameborder="0" allowtransparency="true" allowfullscreen="allowfullscreen" webkitallowfullscreen="webkitallowfullscreen" mozallowfullscreen="mozallowfullscreen" oallowfullscreen="oallowfullscreen" msallowfullscreen="msallowfullscreen" width="100%" height="226"></iframe>
<p>David Prentice, principal economic adviser at Infrastructure Victoria, who <a href="https://business.monash.edu/economics-forum/polls/energy-shortages-reserving-australian-gas/overview-of-poll-results-by-david-prentice">summarised the results</a>, said the forthcoming gas supply problems had “raised a lot of concern” as Australia heads into winter. </p>
<p>Lucrative export contracts have sent huge amounts of Australian gas overseas, meaning it is now <a href="https://theconversation.com/gas-crisis-or-glut-why-japan-pays-less-for-australian-lng-than-australians-do-74438">cheaper to buy Australian gas in Japan than in Australia</a>.</p>
<p>Western Australia <a href="http://onlinelibrary.wiley.com/doi/10.1111/1759-3441.12166/full">already has a domestic gas reservation policy</a> aimed at holding local prices in check amid a boom in liquefied natural gas (LNG) exports. But Prentice said many of the economists arguing against a similar policy for the eastern states feared that it would distort the market, pushing gas prices artificially low.</p>
<p>“A common theme in many of the arguments of those that disagree with the policy is that the appropriate response to rising gas prices overseas is to let the domestic price rise and firms and households work out the best way to adjust to higher prices – that is, let the ‘invisible hand’ work,” he said.</p>
<p>In contrast, several of those who favoured the policy argued that higher prices could pose a risk for many consumers, such as businesses that may struggle to compete internationally if their gas bills are too high.</p>
<p>Read the panel’s full responses below.</p>
<p><iframe id="tc-infographic-12" class="tc-infographic" height="1200px" src="https://cdn.theconversation.com/infographics/12/07efbf09e2a5eb798747006815703208e8d0cbfe/site/index.html" width="100%" style="border: none" frameborder="0"></iframe></p>
<p><em>The <a href="https://business.monash.edu/economics-forum/polls/energy-shortages-reserving-australian-gas">ESA Monash Forum</a> is a joint initiative between Monash Business School and the Economic Society of Australia.</em></p><img src="https://counter.theconversation.com/content/76790/count.gif" alt="The Conversation" width="1" height="1" />
A survey of leading economists gave a mixed, and overall negative, view on Malcolm Turnbull’s plan to force gas producers to divert exports back into the Australian domestic market.Michael Hopkin, Deputy Chief of Staff, The ConversationEmil Jeyaratnam, Data + Interactives Editor, The ConversationLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/640192016-08-16T15:27:26Z2016-08-16T15:27:26ZIt will take more than giving people a share in shale gas profits to sway public opinion on fracking<p>Britain is due to receive its <a href="http://www.bbc.co.uk/news/uk-scotland-tayside-central-37033053">first delivery of shale gas</a> imported from the US, which will arrive at Grangemouth petrochemical plant in Scotland next month. That the UK is importing a tanker-full of shale gas from the US despite sitting on substantial resources of its own reveals just how far advanced the US shale gas industry is over that in the UK.</p>
<p>While the US was once predicted to be the world’s largest importer of natural gas, instead <a href="https://www.eia.gov/naturalgas/importsexports/annual/">by 2015 it had delivered record gas exports</a> due to its booming shale gas industry. The use of gas for generating electricity also recently <a href="http://www.eia.gov/naturalgas/weekly/archive/2016/08_04/index.cfm">reached record levels</a>. On the other hand, there is no commercial shale gas production in the UK and only a handful of wells have been drilled. In May, the <a href="https://www.ft.com/content/32d8779a-4c36-11e6-88c5-db83e98a590a">first application approval in five years</a> was given to Third Energy, to begin exploration in the village of Kirby Misperton in North Yorkshire. In Scotland, despite interest from a number of companies, development was halted by a <a href="http://news.scotland.gov.uk/News/Moratorium-called-on-fracking-1555.aspx">2015 moratorium</a>. </p>
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<a href="https://images.theconversation.com/files/134293/original/image-20160816-13017-whldfh.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/134293/original/image-20160816-13017-whldfh.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/134293/original/image-20160816-13017-whldfh.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=395&fit=crop&dpr=1 600w, https://images.theconversation.com/files/134293/original/image-20160816-13017-whldfh.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=395&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/134293/original/image-20160816-13017-whldfh.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=395&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/134293/original/image-20160816-13017-whldfh.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=496&fit=crop&dpr=1 754w, https://images.theconversation.com/files/134293/original/image-20160816-13017-whldfh.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=496&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/134293/original/image-20160816-13017-whldfh.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=496&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Shale gas as percentage of US natural gas production.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Pct_US_Natural_Gas_Production_from_Shales_2000-2013.png">Plazak/US EIA</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
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<p>According to <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/519488/PAT_Wave_17_Summary_of_key_findings.pdf">surveys</a> undertaken by the Department for Energy and Climate Change in April, public support for fracking stood at only 19%, while 31% were explicitly opposed. In an effort to win over the public and speed up the development process, the government launched a consultation on its proposals to distribute payments from the production of shale gas to the communities affected by the drilling and under which the gas lies.</p>
<p>This would be dealt with through a <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/544241/shale_wealth_fund_final_pdf-a.pdf">Shale Wealth Fund</a>, which would distribute 10% of all shale gas tax revenues to local communities. Initially there would be a maximum payout of £10m to each community associated with a shale drilling site over the period of 25 years – payments the government believes could add up to £1 billion over the fund’s lifetime. Crucially, the government proposed that payments could be made to households directly, rather than as benefits to communities through payments made to local authorities, for example. </p>
<p>This latest proposal builds on a <a href="https://www.gov.uk/government/publications/about-shale-gas-and-hydraulic-fracturing-fracking/developing-shale-oil-and-gas-in-the-uk">community benefit charter</a> that was drawn up by industry trade body UK Oil and Gas in 2013. This committed companies to community payments of £100,000 per drilling site during exploration, and 1% of revenues during production. But, unlike the government’s proposals, this would entail payments to communities as a whole, not to individual households. </p>
<h2>Playing with incentives</h2>
<p>Part of what lies behind the US shale gas boom is that <a href="http://www.publications.parliament.uk/pa/ld201314/ldselect/ldeconaf/172/17207.htm">landowners there own the rights to minerals or oil below their land</a>, so providing a financial incentive for them to allow oil and gas companies to get to work. In the UK, mineral rights belong to the Crown: the Shale Wealth Fund is essentially an attempt to create a financial incentive for those affected to look more positively towards drilling near their homes or land, and to provide a more tangible benefit than just greater employment, economic activity and tax revenues.</p>
<p>But would paying off householders actually give the industry the boost it needs? Some have reacted angrily to the proposals. Keith Taylor, Green Party MEP for the south-east, <a href="http://www.chichester.co.uk/news/politics/giving-cash-to-allow-fracking-tantamount-to-bribery-1-7524406">described them as</a> “immoral and tantamount to bribery” – a view echoed by <a href="https://www.theguardian.com/environment/2016/aug/07/fracking-bribe-public-accept-greenpeace-labour-cash">other Green MEPs</a>. A subsequent <a href="https://drillordrop.com/2016/08/15/pms-fracking-payment-plan-fails-to-win-majority-support-for-shale-gas-poll/">poll commissioned by Friends of the Earth</a> found that 33% of people would support fracking if households were paid, while 43% would still oppose fracking regardless of payments – fewer than in the April survey, but still substantial opposition.</p>
<p>Certainly, direct payments are a more progressive and ambitious step than the industry’s 2013 charter. But the government’s <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/544241/shale_wealth_fund_final_pdf-a.pdf">consultation document</a> noted that in reality such payments would be “relatively small per-household”. </p>
<p>In fact, regardless of the estimates the government provides, the ultimate value of the fund and therefore the payments it would distribute is wholly dependent on the tax regime in place when production begins, and the revenue a company derives from a shale gas site once costs are taken into account. Until actual gas production begins, it’s impossible to estimate how much tax the operating company will pay – or even if the shale industry would be a success in the UK at all. </p>
<p>As the price of oil and gas has plummeted in the last two years, the economic case for developing potentially expensive shale gas deposits has weakened. More exploration drilling is needed to determine how much gas can be produced and at what cost. But more than this, public support remains the largest hurdle to the shale sector, and in the absence of a <a href="http://www.bp.com/en/global/corporate/press/speeches/obtaining-social-license-to-operate.html">social licence to operate</a> – essentially, public support to do so – the promise of payments to communities will do little to get it up and running.</p><img src="https://counter.theconversation.com/content/64019/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Joseph Dutton receives funding from the UK Energy Research Centre (UKERC). </span></em></p>The government promises cash for communities that accept fracking, but cannot know whether it can keep that promise or not.Joseph Dutton, Research Fellow, Energy Policy Group, University of ExeterLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/601282016-06-01T15:00:32Z2016-06-01T15:00:32ZHow Trinidad and Tobago and Ghana could partner for innovation<figure><img src="https://images.theconversation.com/files/124468/original/image-20160530-7678-1kkkx1z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Trinidad and Tobago is no longer the liquid petroleum gas export powerhouse it once was.</span> <span class="attribution"><span class="source">Anindito Mukherjee/Reuters</span></span></figcaption></figure><p>Hardly anyone paid attention when Trinidad and Tobago Prime Minister Dr Keith Rowley <a href="http://www.ghanaweb.com/GhanaHomePage/NewsArchive/PM-of-Trinidad-and-Tobago-begins-State-visit-to-Ghana-today-437067">visited</a> Ghana early in May 2016. The lack of interest was probably because of economic realities. Major markets like the US and China are looking less towards West African and Caribbean nations as energy producers. There’s been a dramatic collapse in commodity prices. </p>
<p>But – with a clear approach that considers the political costs of change and some clever, targeted policies focused particularly on technological innovation in the energy and other sectors – Ghana and Trinidad and Tobago could become important allies. They have much to learn from each other.</p>
<h2>Stars on the wane</h2>
<p>Both countries had positive rates of growth from the 2000s – more than <a href="http://www.indexmundi.com/trinidad_and_tobago/economy_profile.html">8% for Trinidand and Tobago</a> (up to 2008) and <a href="http://www.ilo.org/wcmsp5/groups/public/---ed_emp/documents/publication/wcms_444515.pdf">6.6% in Ghana</a> (to the present). These were driven by high commodity prices and favourable global conditions. </p>
<p>Trinidad and Tobago was known in energy circles as <a href="http://205.254.135.7/beta/international/country.cfm?iso=TTO">a major exporter</a> of liquefied natural gas to the US. It supplied <a href="https://www.amazon.co.uk/Energy-Natural-Production-Imports-Liquefied/dp/1587331896">between 75% and 80%</a> of all the US’s liquefied natural gas needs until 2008. Then fracking became more viable and new investments in domestic energy production <a href="https://www.eia.gov/naturalgas/importsexports/annual/">took off</a> in the US. In 2015 the now sacked governor of Trinidad and Tobago’s Central Bank <a href="http://www.central-bank.org.tt/sites/default/files/Feature%20Address%20MPF.pdf">declared</a> that the country was in a recession. </p>
<p>Meanwhile, popular media touted Ghana as an integral part of an “<a href="http://www.economist.com/node/21541008">Africa Rising</a>” narrative. But this narrative has also <a href="http://www.ft.com/intl/cms/s/0/d9c39f02-1c8c-11e4-88c3-00144feabdc0.html#axzz4AEZuscn6">lost steam</a>. </p>
<p>These situations are of course connected to local policy and politics as well as <a href="http://www.counterpunch.org/2015/02/13/oil-war-in-the-americas/">international politics</a>. The US is now <a href="https://www.eia.gov/naturalgas/importsexports/annual/">producing greater energy supplies</a> for domestic consumption and export. <a href="http://www.nytimes.com/2016/01/26/world/africa/african-economies-and-hopes-for-new-era-are-shaken-by-china.html?_r=0">China’s slowdown</a> from two decades of high growth is also being felt. </p>
<p>So how can Ghana and Trinidad and Tobago adapt – individually and in partnership? What can Ghana, the younger of the two countries when it comes to its energy sector, learn from Trinidad and Tobago’s successes and failures?</p>
<h2>Possibilities for partnerships</h2>
<p>There are great possibilities for innovation in the two countries’ economies. Hydrocarbons are important to both economies: they constitute <a href="https://www.gecf.org/countries/trinidad-and-tobago">more than</a> 80% of exports and 60% of foreign exchange earnings in Trinidad and Tobago, and 26% of <a href="http://atlas.media.mit.edu/en/profile/country/gha/">Ghana’s exports</a>.</p>
<p>Trinidad and Tobago has more <a href="http://www.firstmagazine.com/Publishing/SpecialistPublishingDetail.aspx?SpecialistPublicationId=3">than a century of experience</a> in energy production and refining. It even helped pioneer certain techniques in gas exploitation and has invested heavily in improving local skills. The country could benefit greatly if it starts exporting skills to <a href="http://www.guardian.co.tt/business/2016-05-14/tt%E2%80%88signs-energy-agreement-ghana">help build</a> Ghana’s relatively new energy sector.</p>
<p>There’s a potential hitch: Trinidad and Tobago has lost opportunities in the past for connecting the oil and gas sectors with other economic sectors. Its technology policy approach has remained <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0076.1987.tb00055.x/abstract;jsessionid=CCBB7C39F1F0EF5524D55CB9287579E7.f01t0">laissez-faire since the 1980s</a>, so it’s lagged behind and is no longer a major innovator. From this perspective, the model that it has developed over the years may not be entirely appropriate for Ghana, given the structural changes in global energy markets. If Ghana wishes to gain the most from this sector, and generate more value in other sectors, a slightly different approach is required. </p>
<p>Globally, the hydrocarbon sector is technologically mature, with established processes and techniques. This leaves little opportunity for technological innovation by smaller producers like Trinidad and Tobago, and Ghana. Both countries currently import technology through multinationals. Ghana’s <a href="http://www.effective-states.org/wp-content/uploads/briefing_papers/final-pdfs/esid_bp_14_Ghana_growth.pdf">emerging sector</a> particularly <a href="http://www.effective-states.org/wp-content/uploads/briefing_papers/final-pdfs/esid_bp_15_Ghana_natural_resources.pdf">is dominated by multinational firms</a>. Its political structure has contributed to <a href="http://www.effective-states.org/what-are-our-findings-on-ghana/">inequality</a> in the share of income.</p>
<p>All of these factors show that focused, sector-specific policies are crucial. These must focus on marshalling new investments and promoting linkages with under-the-radar projects. I have discovered in <a href="https://www.academia.edu/20579096/Governing_science-industry_collaborations_in_the_Global_South_from_networks_of_power_to_developmental_coalitions">my own research</a> that state investment was instrumental in advancing low-profile projects in telecommunications; iron and steel; and information and communication technologies developed at the University of the West Indies in partnership with state enterprises in Trinidad and Tobago.</p>
<p>A negative case in point is the Tamana InTech Park, which was conceived in the early 2000s as a Caribbean-styled Silicon Valley. After several years of government expenditure, there have been few notable <a href="http://www.guardian.co.tt/business-guardian/2012-10-11/tt%E2%80%99s-high-tech-dreams-park">private investments</a>. Nor has the project generated innovative products or capabilities. It remains alive, but its work is hampered by weak policy direction, political struggles and the legacy of “free-market” policies adopted since the late 1980s. </p>
<p>Likewise, <a href="http://afrotechafrica.com/2015/01/09/top-tech-hubs-incubators-ghana/">new innovation hubs</a> have sprung up in Ghana but have <a href="http://www.idgconnect.com/abstract/9384/ghana-the-tech-startups-scene">little policy support</a>. A <a href="http://www.ox.ac.uk/news/2015-01-13-firing-bright-sparks-african-business-0">recent study</a> about the country’s innovation capacity has, however, <a href="http://www.ox.ac.uk/news/2015-01-13-firing-bright-sparks-african-business-0">shown some activity</a> – in low-tech firms. The problem is that without serious government support or strategic focus, there’s little promise of long-term growth.</p>
<h2>Policy turnaround is crucial</h2>
<p>There is some chance for a policy turnaround – in energy and in other sectors. An effective partnership between the two countries in technology promoting activities, such as the <a href="http://ifcic.center/">International Fine Cocoa Innovation Centre</a> at the University of the West Indies in Trinidad, can be fostered. Ghana is still considered a major cocoa exporting country – <a href="http://www.fao.org/3/a-at551e.pdf">the second largest</a> globally. If not closely monitored, the cocoa sector may suffer the same technological fate as the oil and gas sector. </p>
<p>While the energy sector remains relevant for the foreseeable future in terms of revenue for both Ghana and Trinidad and Tobago, innovation opportunities lie elsewhere. This effort must be directly driven by a coalition of local state officials, university stakeholders, new sector players and civil society. It can be harnessed by local firms through a renewed approach that’s focused on low-hanging fruit to effect dynamic transformation in both Ghana and the island nation.</p><img src="https://counter.theconversation.com/content/60128/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Keston K. Perry receives funding from the Government of Trinidad and Tobago's national postgraduate scholarship programme. </span></em></p>Ghana could learn a great deal from Trinidad and Tobago about how to manage its energy sector – and about what pitfalls to avoid.Keston K. Perry, PhD Candidate, International Development, SOAS, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/567482016-03-24T05:48:58Z2016-03-24T05:48:58ZWoodside’s Browse project setback shows the gas industry needs to get its act together<p>Energy giant Woodside’s decision to <a href="http://www.abc.net.au/news/2016-03-23/woodside-abandons-browse-lng-project-kimberley-coast/7269556">shelve its Browse natural gas project off Australia’s northwest coast</a> is no doubt a disappointment for many people in Western Australia, but is by no means a disaster for the state’s economy. </p>
<p>Nor is it an indication that the future of the Northwest Shelf’s gas reserves is in jeopardy. Long-term world demand for natural gas is robust, given its anticipated role in the low-carbon transition where it is expected to displace coal in power generation. </p>
<p><a href="http://www.iiasa.ac.at/web-apps/ene/geadb/dsd?Action=htmlpage&page=about#">Data from the Global Energy Assessment</a> predicts that natural gas demand will increase globally in all scenarios until at least 2050 (see below). </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/116328/original/image-20160324-18662-1yaa2jr.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/116328/original/image-20160324-18662-1yaa2jr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/116328/original/image-20160324-18662-1yaa2jr.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=356&fit=crop&dpr=1 600w, https://images.theconversation.com/files/116328/original/image-20160324-18662-1yaa2jr.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=356&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/116328/original/image-20160324-18662-1yaa2jr.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=356&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/116328/original/image-20160324-18662-1yaa2jr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=448&fit=crop&dpr=1 754w, https://images.theconversation.com/files/116328/original/image-20160324-18662-1yaa2jr.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=448&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/116328/original/image-20160324-18662-1yaa2jr.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=448&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Projected world gas use (in exajoules per year) under various scenarios.</span>
<span class="attribution"><span class="source">Global Energy Assessment</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>However, the shelving of the project should not be a complete surprise. It highlights two important issues that merit concerted action by the industry: one related to price and the other to cost.</p>
<h2>Pricing transparency</h2>
<p>At present, most of the liquefied natural gas (LNG) produced in WA is destined for Japan and other parts of Northeast Asia, where the dominant pricing mechanism is based on oil prices. The <a href="https://www.pwc.com/gx/en/energy-utilities-mining/pdf/lng_glossary_final.pdf">Japan Crude Cocktail</a>, a composite of import prices, provides a benchmark price around which the LNG price is allowed to fluctuate between set boundaries and according to a set formula. </p>
<p>Long-term contracts with built-in protection for buyer and seller against oil price volatility have increased the bankability of projects like Browse. This is because access to cheap project financing is available only to projects with less volatile cash flows and more long-term certainty.</p>
<p>Gas and oil prices are indexed together for two main reasons. First, oil and gas can substitute for one another in certain industrial processes so can sometimes be purchased interchangeably; and second, the greater liquidity and transparency in the oil market mean that price-setting is more reliable and more reflective of supply and demand conditions. </p>
<p>However, <a href="https://www.oxfordenergy.org/wpcms/wp-content/uploads/2014/02/NG-81.pdf">work by the Oxford Institute for Energy Studies</a> shows that LNG prices set in this way are not reflective of supply and demand conditions for natural gas and suggests that gas prices might be better formed at regional LNG hubs, rather than with reference to oil markets.</p>
<p>There is evidence that Japanese gas buyers have begun to move away from long-term oil-based contracts and towards spot market purchases. In 2014, spot trades represented <a href="http://www.business.uwa.edu.au/__data/assets/pdf_file/0007/2851531/Peter-Hartley.pdf">nearly 25% of all LNG imports to Japan</a>, compared with less than 10% five years earlier.</p>
<h2>Counting the cost</h2>
<p>This brings us to the question of cost, and in particular the relatively high cost of doing business in Western Australia. According to a recent <a href="http://business.curtin.edu.au/wp-content/uploads/sites/5/2015/10/bcec-the-costs-of-doing-business-in-wa-report.pdf">Bankwest Curtin Economics Centre report</a>, wage growth in WA outstripped the national average during the mining boom. During this period, real annual labour costs per worker in WA mining (including oil and gas) rose by 11.1% to A$161,000, up from A$145,400 in 2007-08.</p>
<p>Added to labour costs are the complexities of developing projects in remote regions, where factors like high transport and energy costs contribute to a lack of competitiveness with other projects around the world. Average diesel prices in the Kimberley, for example, are some 17 cents a litre higher than in Perth. </p>
<p>Scarce infrastructure and competition for highly specialised workers not only lead to higher costs but also higher project risk, increasing the likelihood of cost overruns. Couple this with Woodside’s earlier decision to use the untested technology of offshore floating LNG platforms (FLNG) at Browse, and it is easy to see why the company took the view that the risk-adjusted returns no longer justify the A$40 billion investment at this stage.</p>
<h2>Use it or lose it?</h2>
<p>There is clearly an opportunity for the industry’s players to work together to bring down costs. But a <a href="http://www2.deloitte.com/uk/en/pages/energy-and-resources/articles/collaborating-for-success-making-the-most-of-UKCS.html#">recent report</a> by consulting firm Deloitte showed that this is not really happening so far. In the UK, the newly formed <a href="https://www.gov.uk/government/organisations/oil-and-gas-authority">Oil & Gas Authority</a> is taking a tough line with the industry, insisting that companies work more closely together to address common issues – and threatening stiff penalties if they don’t. </p>
<p>One way of driving innovation might be through a tightening of the retention lease arrangements in WA. Retention leases provide security of title for petroleum resources that are not currently commercially viable but which have genuine development potential. The <a href="http://www.domgas.com.au/">Domgas alliance</a>, for instance, has been vocal in suggesting that “develop it or lose it” provisions should be strengthened, allowing companies better equipped to operate in this new environment to thrive.</p>
<p>Perhaps when the leases for Browse were last renewed in 2015 an insistence that Woodside proceed with the development or lose them might have focused the project leaders’ minds on how to do that in a way that mitigated both cost and risk.</p><img src="https://counter.theconversation.com/content/56748/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tom Houghton does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Woodside’s decision to shelve its $40 billion Browse project off Western Australia’s north is not a disaster, but it does highlight some areas where the gas industry needs to get much smarter.Tom Houghton, Senior Lecturer, Curtin UniversityLicensed as Creative Commons – attribution, no derivatives.