Prime Minister Scott Morrison is pushing big subsidies for gas as a key part of the upcoming budget and our economic recovery from the pandemic. Subsidising the gas industry means there’s less to spend on communities who are struggling as a result of the pandemic. Recovery spending should benefit people and the environment, not just serve the interests of multinational fossil fuel companies that pay little or no tax, and employ very few Australians. This briefing covers ways public money is reportedly being considered to subsidise the gas industry, and 350.org’s top 10 key concerns.
SUBSIDIES TO WATCH FOR
The leaked interim report of the Manufacturing Working Group of the then National COVID-19 Coordination Commission (the NCCC) set out a number of measures that would see public funding to subsidise the gas industry. Recent media stories have suggested strong interest in some of these options from the Government.
- Support for gas pipelines: the government could ensure there are fixed returns to pipeline companies by underwriting volumes in gas pipelines. There are a number of mechanisms through which they can do this, including small loans, using cap and floor contracts and contract for difference. If there is any slump in demand the government and the public carry the financial risk.
- Underwriting gas supply: the government could be the buyer of the gas at a fixed price under a long-term contract and then sell it on to smaller customers.
- Loans to small and mid-cap companies: the government could provide “low cost capital” to promote gas field development.
In addition, public subsidies for the gas industry could come through specific funding provided to the Northern Australia Infrastructure Facility, the Underwriting New Generation Investments program, the Clean Energy Finance Corporation and the Australian Renewable Energy Agency.
10 REASONS WHY SUBSIDISING GAS DOESN’T STACK UP
- Putting money into the gas industry is financially risky: the above measures throw the risk of markets, pricing and demand onto the taxpayer at a time when the industry is doing major write downs of assets. The three major Queensland CSG exporters have written off $24 billion since 2014. In 2020 there have been significant write-downs from oil and gas companies with Australian LNG plants writing down $14 billion by early August.
- It’s terrible for creating jobs: the gas industry is one of the least labour intensive industries in Australia. The Australia Institute analysis of ABS data shows that a million dollars in sales income only generates 0.4 jobs mining gas – almost ten times less than the average for all Australian industries. A Credit Suisse analyst has said the pipeline proposals are at an early stage, not ready-to-invest.
- There are better ways to support manufacturing: the Australian Manufacturing Workers Union has identified six key measures to make an immediate difference for the sector, including a new $1 billion Advanced Manufacturing Investment Fund to improve access to finance for manufacturers. The Australian Industry Group has called for support for manufacturers to transition from gas to electricity, identifying it would cut costs and lower emissions with renewable energy.
- Lower gas prices are a pipe dream: underpinning the recommendations to use public money for the gas industry is the aim of driving down gas prices to assist manufacturing. The gas prices the report states are needed, $4-6 per gigajoule, are widely seen as unachievable. Shell Australia chair said they were unrealistic and below the cost of extracting gas.
- It’s a climate disaster: increasing Australia’s use of gas would increase our climate emissions. The Climate Council identify emissions from the extraction and processing of gas as a key reason for Australia’s emissions staying high. Emissions from Australia’s identified gas resources would be 13 times larger than Australia’s present annual emissions and those from the prospective fossil gas resources would be three times the annual emissions of the whole world.
- A handpicked working group and conflicts of interest: the working group members did not have to disclose potential conflicts of interest despite connections to the gas industry. This includes James Fazzino who is a director of the APA group that owns and operates gas pipelines and Andrew Liveris who is on the board of an oil and gas company. In addition, the NCCC, who set up the working group, was chaired by Nev Power who is the director and shareholder of gas company Strike Energy and one of the commissioners was Catherine Tanna, the managing director of Energy Australia that has a 20% stake in the Narrabri Gas Project.
- Gas companies are known for tax avoidance: and subsidising their activities will not lead to substantial public revenue or even the government recouping money spent. Public money spent on subsidising the gas industry will likely support companies who pay little if any tax. Analysis of ATO data by The Australia Institute shows that eleven oil and gas companies in Australia had a combined income of over $39 billion but only one company, Origin, paid any income and company tax.
- Gas-fired power generation is being used less: since 2014 gas-fired power generation in the national electricity market has dropped by 58%. Australian Energy Market Operator (AEMO) modelling sees investment in new gas generators as “less likely” and anticipates that batteries will be more cost-effective than gas-powered generators in the 2030s.
- Communities don’t want it: the proposed Santos Narrabri Gas Project attracted over 20,000 submissions with 98% of them opposed to the project. In the Northern Territory, where the Beetaloo Basin is, polling showed 86% of people were opposed to the fracking industry.
- Financiers and insurers are getting out of gas: in August, Suncorp announced that their businesses will not directly invest in, finance or underwrite gas exploration or production and they will phase out underwriting in gas by 2025.
RECOMMENDATIONS TO GOVERNMENT
- Rule out subsidies for gas including, public financing and tax incentives for gas projects and gas infrastructure, underwriting for gas demand, bulk purchases of gas by the government to on-sell at a reduced rate and cuts to regulations that safeguard communities and the environment.
- Commit to effective stimulus measures that create jobs with social and environmental benefits.
- Release the manufacturing working group report and create a transparent process around recommendations considered by the Government.
AFR, “Government considers plan to buy gas to lower prices for manufacturers”, available here.
IEEFA, Reviewing COVID-19 Advisory Board Proposals to subsidise the gas industry, available here.
AFR, 7 August 2020, “Inpex adds to pile of LNG write-downs”, available here.
The Australia Institute, 2020, Gas-fired Backfire, available here.
AFR, 2 September 2020, “Government considers plan to lower prices for manufacturers”, available here.
AMWU, 2020, “A Fair Share for Australian Manufacturing”, available here.
The Australia Industry Group, 2020, Budget Submission, available here.
AFR, 28 August 2020, “Competition not intervention the answer for gas: Shell”, available here.
Climate Council, 2020, “Primed for Action: A resilient recovery for Australia”, available here.
The Australia Institute, 2020, “Weapons of Gas Destruction” available here.
For more information, see https://fossilfuel.watch/whos-involved/.
The Australia Institute, 2020, Gas-fired Backfire, available here.
IEEFA, Reviewing COVID-19 Advisory Board Proposals to subsidies the gas industry, available here.
AEMO integrated system plan 2020, p55, available here.
Narrabri Courier, 2020, “Overwhelming opposition to Narrabri Gas Project” available here.
Protect Country Alliance, 2020, “NT Fracking Polling June 2020”, available here.
Suncorp Group, 2020, ‘Sensitive Sector Guidelines’ available here.