Santos CEO Kevin Gallagher says Australia must take its cue from the U.S. by stimulating and encouraging unconventional shale gas development to boost manufacturing and drive down crippling energy prices.
Speaking at the South East Asia Australia Offshore & Onshore Conference (SEAAOOC) in Darwin, Gallagher said the U.S. shale boom had driven down gas and electricity prices, reignited the manufacturing sector and brought about a major reduction in carbon emissions.
By contrast, Australia had imposed onshore exploration and development bans and heavy restrictions in Victoria and New South Wales, the two biggest energy consuming states, and a fracking moratorium in the Northern Territory pending a scientific review.
Gallagher said the NT contained a potential gas resource of 260 Tcf – greater than Australia’s entire identified conventional gas resources and large enough to expand the Darwin LNG project and supply the gas famished East Coast.
“To look at the potential benefits of a thriving natural gas industry in the Northern Territory, you don’t have to look further than the U.S.,” Gallagher said.
With gas now supplying nearly 50% of all U.S. power capacity, he said electricity prices had dropped to around $30 per megawatt hour, compared to over $100 in Victoria and $150 in South Australia, a state which “prided itself on the highest penetration of renewable energy in the country.”
He said the U.S. had also cut energy-related carbon emissions by 21% since 2005, a reduction of 400 million tonnes of emissions every year.
“All of this has been as a result of the U.S. government being pro-gas and pro-development. By contrast what we are experiencing here in Australia has resulted from a series of moratoriums and restrictions to new developments, limiting new supply.”
Australia had in the past enjoyed low prices for gas, its third largest natural resource, as a result of strong supply and relatively low demand. But over the past five years increased export demand from the country’s eight new LNG plants at a higher netback, increased exploration and development costs and transport costs due to vast pipeline distances, had steadily increased the bills.
“The challenge we face is that the cheap gas has been developed and today it simply costs more to get gas out of the ground. It is then transported vast distances to our largest users who are mainly located in states that are restricting local supply and hence, becoming importers.
“Unbelievably, it costs more to transport gas around 1,000 km by pipeline from Wallambilla to Sydney, than to ship gas approximately 8,500 km from Gladstone to Shanghai, China,” Gallagher said.
“Gas producers must now become low cost manufacturers in order to compete. Technology and innovation are key to reducing production costs,” he continued. “The development of unconventional shale oil and gas in the United States became competitive through adopting a manufacturing approach to drilling and developing. Santos has adopted a similar approach and can proudly claim the title of Australia’s lowest cost onshore developer.”
Despite these efforts, Gallagher said Santos had “been in the cross-hairs of the Federal Government’s Australian Domestic Gas Security Mechanism,” which gives the Commonwealth powers to intervene in the market and force a project to default on contracts if there is a domestic supply shortfall.
“This is not the place to debate the pros and cons of this policy except to say, if there is a supply issue, there has to be a better solution than targeting the only project (Gladstone LNG) that has all its gas committed under long term offtake agreements.”