By the end of 2020, 27 per cent of Australian buildings were fitted with solar systems. This is the highest proportion in the world. Partly thanks to this development, 24 per cent of the country’s electricity came from renewable energy in 2020. But, the Australian government is not taking advantage of this. Instead, they are spending AUD $600 million on a new gas power plant. This gives hope to Australia’s wealthy gas companies.
Australia is a party to the Paris Climate Agreement. This international treaty legally binds its signatories to limit global warming to “well below” 2°C, ideally to 1.5°C”, compared to pre-industrial levels. Fundamental to this goal is the peaking of global greenhouse gas emissions as soon as possible.
Achieving its target means leaving fossil fuels, including natural gas, in the ground. Yet, this is not the aim of Prime Minister Scott Morrison’s ‘gas-led’ recovery. Instead, he wants to invest in natural gas companies and projects to reduce energy costs for consumers in Australia. The result of this has been to increase exports of liquified natural gas (LNG).
Have Australia’s electricity and gas prices fluctuated at a similar pace this decade?
Between 2009 and 2019, the price of electricity in Australia rose by 100.9 per cent. This was much higher than the overall inflation rate of 23.4 per cent. In fact, electricity was second only to tobacco in its price increase over this period, according to the Australian Bureau of Statistics.
But the price of electricity has not experienced steady growth. Instead, it has been marked by fluctuations year-on-year over the past decade. For example, in 2014, the price actually fell.
Fluctuation in electricity prices in 2014
However, this reduction was due to the Australian government scrapping the carbon tax. This meant that major sources of pollution, including oil and gas companies and large manufacturers, were no longer taxed for the carbon dioxide (CO2) that they produce. The tax had reduced national emissions by 0.8 per cent in the first year of its introduction – the most significant fall in 24 years of records.
Fluctuation in electricity prices in 2017
Another fluctuation was in 2017. In that year, Australia had the most expensive electricity in the world. But, by September 2019, Australia was 23rd on the list. The downward trend was primarily driven by new renewable capacity entering the system. This included 2,338 megawatts (MW) of solar and 2,566 MW of wind.
Renewable electricity and energy bills
It is not surprising that more ‘clean’ energy sources are helping to reduce prices for consumers. Solar and wind provide the cheapest sources of new electricity generation in Australia. They outcompete fossil fuels for cost efficiency in all areas.
As the proportion of electricity generated by renewables increases, prices for consumers fall. The Commonwealth Scientific and Industrial Research Organisation (CSIRO) and Australian Energy Market Operator (AEMO) estimate that this will continue until renewable energies account for as much as 90 per cent of the grid’s energy. Eventually, the supporting infrastructure in the national grid will require investment to support a transition to renewable energies. But, even with this cost, adding new solar and wind generation will still be cheaper than non-renewable options.
Primarily for this reason, the Australian Energy Market Commission (AEMC) predicts that electricity prices will be lower in 2023, as 1,667 MW of solar and 2,580 MW of wind enter the grid. As a result, households are forecast to pay AUD $120 less in 2023. Using more renewables is better for the planet and people’s wallets.
Similar to electricity, the price of gas has skyrocketed over the past decade or so. Between 2009 and 2019, gas users saw prices increase by 75.6 per cent. This was the fourth-most inflated consumer good after tobacco, electricity, and medical and hospital services. There are various factors behind this price hike.
Gas companies and natural gas exports
First and foremost is the amount of natural gas that Australia exports abroad. Between 2000 and 2015, exports of LNG tripled. From 2015 to 2019, they tripled again. Once LNG exports began shipping from Gladstone, Queensland, domestic gas prices grew by over 130 per cent. This is because when gas companies began sending their product abroad, the price of gas in Australia became connected to export prices.
The east coast states have suffered as a result of LNG exports. Between 2011 and 2014, the domestic price of gas was on average just below AUD $4 per gigajoule. However, by late 2019, businesses and consumers there were paying between AUD $8 to $11 per gigajoule. Meanwhile, at the same time, Australian gas companies were selling LNG to North Asian customers for below AUD $6 per gigajoule. Some companies on the east coast that rely on gas have been forced to shut as a result.
Gas companies in Western Australia
Nevertheless, simply because a state exports LNG, it does not mean that prices have to be extortionate for consumers. Western Australia is a gas-producing and exporting state. But, it has a gas reservation policy to protect its domestic market. Essentially, the state government forces gas companies to keep 15 per cent of their gas output for the domestic market. This severs the connection between export and Australian prices. Consequently, Western Australian gas prices are about half the levels seen on the east coast since 2015.
Fluctuations in gas prices
Like electricity, gas prices have not risen in a smooth trajectory. Although prices have greatly increased overall in the past decade, there have been times when the cost has actually decreased. For instance, prices dropped in 2020 due to an oil price war between Saudi Arabia and Russia. As this reduced the profitability of exporting LNG, gas companies sold to the domestic market at a cheaper rate.
But, this situation was only temporary. Spot gas prices on the east coast leapt to some of their highest levels in July 2021. For instance, prices in Victoria reached AUD $20 per gigajoule – their highest point since 27 June 2016. It is highly doubtful that gas prices will ever reduce to levels seen before 2015. Today, it is cheaper for the majority of Australian households to use electricity in place of gas.
How much natural gas do we actually need?
There is no simple answer to this question. At present, the world consumes roughly 17,527 cubic feet of natural gas per capita annually. With proven gas reserves of around 6,923 trillion cubic feet, we will run out of gas entirely in 52 years. This assumes the same consumption rate and quantity of proven reserves.
But do we actually need gas? Since 2018, onshore wind and solar PV power have been cheaper than any fossil fuel option in most cases. The world is slowly transitioning to these green energies. More than 260 gigawatts of renewable energy capacity was added globally last year. This exceeded the 2019 expansion by almost 50 per cent.
On the other hand, fossil fuel additions dropped from 64 gigawatts in 2019 to 60 gigawatts in 2020. This change is crucial for avoiding environmental catastrophe. However, the current rate of progress is too slow to meet the objectives of the Paris Agreement.
Gas companies in Australia
Australia is the world’s biggest exporter of natural gas. Therefore, it follows that they have many large and powerful gas companies. At least nine major companies have significant gas operations in Australia. The largest four oil and gas companies are thought to be doubling their annual spending on new projects over the next five years. Evidently, they see a future for natural gas, despite its environmental impacts and expense.
What can we expect for Australia’s future energy bills if we do not switch from gas?
Based on trends seen over the past ten years or so, if Australia continues to rely on gas, future energy bills will only increase. Global natural gas use is growing faster than any other fossil fuel. Since 2013, Australia’s LNG exports have tripled. To meet the demand of their foreign customers, gas companies have been tapping more expensive sources of gas. The good old days of gas at AUD $4 per gigajoule are long gone.
Some gas companies can see the writing is on the wall. BHP is a multinational Australian mining company that has owned assets in oil and gas since the 1960s. But, now, it is looking to get out of the fossil fuel industry. It is possible that they will sell their petroleum business and retreat from oil and gas entirely. This is easier for BHP than other gas companies because they have other business areas, namely mining, to fall back on.
Ultimately, the only way to reduce energy bills for Australians is through expanding the use of renewables. A 2020 report by the Grattan Institute found that despite the federal governments’ best efforts towards a gas-led recovery, “Eastern Australia faces inexorably more expensive gas”. They concluded that the best role for the government is to support the development and deployment of renewable-based electricity. This would reduce costs for consumers and help Australia to achieve its climate targets.