Lib-Nat government urged by COVID taskforce to support new gas projects

Australia’s conservative Liberal-National federal government has been urged by its hand-picked coronavirus manufacturing taskforce to underwrite a dramatic expansion of gas supply through tax incentives and financial support for new projects.

A presentation on the final report of the National COVID-19 Co-ordination Commission (NCCC) manufacturing taskforce, seen by The Age and The Sydney Morning Herald newspapers, recommends “cutting red and green tape” to help the gas industry rapidly increase extraction and create up to 170,000 manufacturing jobs.

The report, which was finalised in late May but is yet to be published, also recommends tax incentives for the construction of gas infrastructure and letting pipeline owners charge higher prices.

A leaked draft interim report from the taskforce sparked furious debate over the role of government support for fossil fuels and the government’s energy policy.

The newspapers report Grattan Institute energy director Tony Wood endorsed the report’s recommendations on streamlining project assessments but questioned many of its other initiatives.

“Much of the report is focused on getting rid of moratoriums on gas developments and some good new regulations for gas pipelines, but the rest of it is saying we should subsidise stuff,” Mr Wood said.

“There is not one mention that gas is a fossil fuel and we are supposed to be heading towards a low-emissions economy.

“How can you seriously consider a gas strategy that doesn’t deal with that?”

The southern state of Victoria, which has a Labor state government, has allowed conventional gas production but banned fracking while a bill to ban coal seam gas in New South Wales, which has a Liberal-National state government, was defeated in parliament last month.

The presentation noted gas prices had roughly tripled since liquefied natural gas (LNG) exports started from Gladstone, Queensland in 2015, linking Australia’s isolated domestic market to international demand and pushing prices from below $3 a gigajoule to more than $10.

About 95 per cent of wholesale gas on the east coast is supplied under long-term contracts to east coast manufacturers and large energy users, and the price hovers between $8 and $9 a gigajoule.

Heavy gas users, such as manufacturers that use gas as a feedstock, have been struggling with the surge in contracted gas prices in recent years.

Some firms, including Dow Chemical, have cited rising gas prices as one of the reasons for closing their plants.

Mr Wood said increasing supply to reduce gas prices might reduce costs and help some businesses stay afloat but was not likely to generate a significant increase in manufacturing jobs and industry.

“We had gas at low prices for a long time and we didn’t get this huge load of manufacturing jobs,” he said.

Getting the gas price to $4 a gigajoule would help a lot of gas-dependent businesses.

“Some of them will probably have to close with sustained prices of $10.

“That’s bad for them, but I would question whether lower prices will create a lot more jobs.”

The newspapers report NCCC chairman Nev Power has previously nominated a gas price of $4 a gigajoule as a “stretch target” and the presentation backs a “bold and ambitious” path to $6.

However, the heads of large gas producers including Santos, Origin Energy and ExxonMobil have said gas at that price is unachievable.

Mr Wood said the report failed to grapple with the government’s commitment to transition to net zero emissions under the United Nations sponsored Paris Agreement in the second half of this century, which he said created a risk of new infrastructure developments becoming stranded assets.

“Government underwriting new investment in infrastructure that will most likely not have a long-term future doesn’t seem like a good idea,” he said.

Several NCCC commissioners and members of its manufacturing taskforce have links to the resources and energy industry, including Mr Power.

The commission was renamed this week as an “advisory board” to reflect its role.

The Liberal-National government’s $1 billion Underwriting New Generation Investment (UNGI) fund set up last year is designed to support projects that can supply dispatchable energy into the electricity grid to back up large-scale power plants.

It has compiled a shortlist of six renewable pumped hydro projects, five gas and one coal plant upgrade.

The Auditor-General has said it would look into the UNGI program after a referral by independent MP Zali Steggall.

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