The energy case: the world loves our resources, why don’t we?

By Cameron O'Reilly

Monday December 1, 2014

Recently, the Business Council of Australia released a somewhat ironically titled report — Australia’s Energy Advantages — in which it reflected upon how we as a nation were squandering the very advantages to which the report referred. That our pre-eminent business lobby group felt compelled to issue such a report should cause us to sit up and take notice.

Australia is indeed blessed with ample energy reserves to meet its development needs. More fortunate perhaps is the location of those reserves close to our major cities. The La Trobe and Hunter Valley coal deposits helped to ensure that Australia’s largest cities enjoyed cheap electricity for much of the 20th century, enabling us to develop a comparative advantage in energy intensive industries like aluminium smelting.

Gas discoveries in Gippsland and Bass Strait, once again located in close proximity to a major centre in Melbourne, also served to establish that city as the hub of manufacturing. For cars and textiles, tariffs were essential to their development, but where energy was a major input, Australia could realistically compete in international markets.

As the BCA noted, today our advantage in low-cost electricity is gone. With it has gone a range of energy intensive jobs, contributing to a decline in electricity demand. The culprits are easy to identify and include overbuilt electricity networks, profligate subsidies for renewables and a short lived experiment with a high fixed carbon price.

By no means have energy prices been the only cause of a loss of industrial load. A high dollar and high labour costs have been major factors, but it was the combination of all three occurring at the same time that added to the impact of poorly designed energy and climate change policies.

Now the focus on the east coast has shifted from what’s gone wrong with electricity to what is happening in gas. As the day approaches when east coast gas becomes an export commodity in the form of liquid natural gas, a range of domestic industries are claiming that there is no gas available for long-term contracts, or that it can only be acquired at a crippling price.

Meanwhile, the traditional domestic sources of natural gas like the Cooper Basin, Bass Strait and Gippsland are depleting, but fortunately for Australia, are able to be easily replaced by non-conventional sources like coal seam gas. The problem, of course, being that the CSG extraction process, or “fracking”, has generated major political controversy in New South Wales and Victoria, leading to restrictions on its development. Again, when added to fact that gas now has a market offshore, we are going to end up with high gas prices in a country replete with gas reserves.

“To the outside observer, Australia’s domestic energy costs must be hard to fathom.”

To the outside observer, Australia’s domestic energy costs must be hard to fathom.

We have so much coal we are the world’s largest exporter of the commodity. We are the third largest producer of uranium, despite bans on the industry in many states which restricted the number of mines. And soon, once existing developments are completed in Western Australia, the Northern Territory and Gladstone in Queensland, we are likely to become the largest or at least second largest exporter of LNG in the world.

The world loves our energy. So why don’t we?

The United States, which treats energy as a matter of national security, is revelling in the development of unconventional gas and shale oil and enjoying the simultaneous benefits of greater energy security, reduced emissions — as gas generation supplants coal — and a jobs bonanza in energy intensive industry. Russia is throwing its weight around Europe with its energy advantage and Canada is ready to prosper if politicians can win approval for the controversial Keystone pipeline linking its oil fields to the refining capacity of Texas, and the massive domestic market of the US.

Most of the world’s energy-rich countries know which side their bread is buttered on, and cultivate their advantage. Australia is the exception.

Perhaps because our energy exporting states provide far fewer seats in our federal Parliament the industry suffers from a lack of policy voice. Perhaps because there are few jobs in energy in and around our major cities the industry can be constrained without obvious political consequences.

Australia is overwhelmingly a service economy and our two largest cities account for half of our population, and therefore seats in the national Parliament. In the suburbs of Sydney and Melbourne there is little to remind people that our national wealth, commodity based as it’s always been, will increasingly be attributed to energy exports. This enables us to be self-righteous about the need for action on climate change and call for more support for renewables and restrictions on CSG, while still complaining when such policies increase our electricity bills.

None of this is to suggest that we flagrantly exploit our fossil fuel advantage and ignore climate change. It just might be better if Australians developed a little introspection about why we enjoy the living standards we do. Killing demand in our country and exporting jobs is not really a recipe for global climate change outcomes. Sharing our energy wealth wisely and collaborating on nuclear power, carbon capture and storage and hydropower (Snowy Hydro and Hydro Tasmania have been doing advisory work in Asia for decades) with countries like China and India, who we need to take a less emissions intensive development path that we did, is likely to do more for humankind that anything Australia might do on the domestic front.

We are the “lucky country” when it comes to energy. We don’t need to hate ourselves for being so.

The views expressed by Cameron O’Reilly are his own

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