Now we’re all goin’ to gas!

When I wrote the article, "Solar? Wind? Forget it ... we're goin' to gas", my main concern was the difference between what the Government says and what it actually does, and that the importance of revenue means the government has no genuine interest in truly green alternative energy sources. When I investigated I was alarmed by the extent to which vested interests - both private and government - in non renewable resources have a mindset of abusing power, maximising of profits and socialising losses. The big end of town gets its way: at the top by putting pressure on politicians; in the middle by circumventing regulation and at the bottom by walking over any “little man” who gets in its way.

This could hardly be better demonstrated than by listening to Belinda Robinson of the Australian Petroleum Production and Exploration Association, who said recently on World Today that special concessions were necessary in any emissions trading scheme because:

… we could end up in the situation, because Australia is the only producing country of LNG [Liquefied natural gas] - which is subject to greenhouse gas emission reduction obligations under the Kyoto Protocol - … in the situation where we, in Australia, find it difficult to maintain our international competitiveness with other countries that are producing LNG.

We … are number five exporter of LNG at the moment. We have ambitions of being number two or number three in the world … but it is important to say that only while ever that policy distortion is in place … it would be necessary to ensure that the competitiveness of the Australian LNG industry is not undermined … through a variety of mechanisms in an emissions trading scheme.

… It is not so much about seeking special treatment. This is about seeking a level playing field.

She said on more than one occasion that she didn't like asking for those concessions, and so she should: what use is a carbon trading scheme that gives concessions to fossil fuel producers?

When government policies involve "distortions" of the free market it is because government policy, and not free market outcomes, should reflect the will of the nation. If Australia as a country ratifies the Kyoto Protocol does not the government intend that we should all be bound equally to bear the burdens of achieving its aims? So is the gas industry trying to jump the gun, to obtain its carbon tax concessions before a flood of similar applications based on the competitive disadvantage of being environmentally responsible?

Every informed Australian knows that Australia isn't prepared for peak oil, even though experts have long warned our government to plan for it. We all realise that interim energy measures, inevitably imperfect, must urgently be put into place to maintain responsible economic stability, but the government and the energy sector seem to forget that this is the only planet we have!

The article "Forget it, we're goin' to gas" generated local concerns too, particularly when I examined the structure of the gas industry itself, its relationship to government and its relationship with, and accountability to, its ultimate consumers.

In Australia, the Crown - which you may be amused to remember means all of us in a true democracy - owns petroleum resources, including natural gas. Both the Australian Government and the State and Territory governments sell rights in relation to these commodities to the private sector in exchange for taxes, excise duties and royalties.

The fact that the production chain requires large capital investments, and that our governments don't have any money - as they keep telling us, notwithstanding recurrent budget surpluses - means that commercial arrangements in the sector typically involve significant private investment in exploration and infrastructure. This is in exchange for advantageous pricing approvals, with substantial returns on investment built in, and profits hidden by confidential long term contracts for gas supply and transport both in Australian and overseas.

"Investors" like confidentiality and don't like regulation unless it provides them with security or certainty: governments like and need money, and so they accommodate the investors.

Regulation of the gas industry is already quite limited, particularly given the unique nature of gas as a valuable resource with a very promising future, and is tending towards further deregulation.

The problem is that it is too much of a one-way street. At a time when there is a limited supply but unlimited demand (and when the potentially deleterious side effects of misusing resources like water and oil and gas have been driven home to us) we are privatising our common interest in these resources and letting the privateers loose in a 21st-century neo-conservative frontier.

As long ago as February 1994 governments agreed to facilitate developments aimed at stimulating competition, and promoted “free and fair trade” in the natural gas sector. But what does “free and fair trade” mean for privateers? How far is too far?

At its most fundamental, is it too far for regional transmission and distribution systems, being natural monopolies, to be privately owned? Is this not precisely the kind of infrastructure government should be building with the primary aim of maximising long-term benefit for all Australians?

Even if private ownership is OK, why should there be a trend in the gas transport sector towards deregulation, particularly for transmission pipelines? (Some recently constructed pipelines have never been covered by the Gas Code, and coverage has been wholly or partly revoked for 14 transmission systems.)

Is it “free and fair trade” for the many pipeline owners who are not covered to be subject only to the general anti-competitive provisions of the Trade Practices Act 1974? Is it “free and fair trade” when there is no obligation on them to give access to their private pipelines or sell gas to other people who want it, and if they do decide to sell it, then can they effectively name their own price?

What message does government send (PDF 4.99MB) when reforms that are under way severely limit which pipelines are regulated,  provide for "light handed regulation" and guarantee privateers freedom from regulation with binding up-front no coverage rulings for new pipelines (PDF 247KB)?

Is this not “unharnessing” the monopolist that the government has created? Hasn’t our experience with oil companies been enough? The industry even speaks of participants getting a "regulatory holiday" from time to time as a government conferred financial reward! (I bet you've forgotten by now that it is our gas - yours and mine - we are talking about!)

And if you think I'm being uncharitable about the approach of the privateers, consider the scathing criticism of the ACCC in the Australian Pipeline Industry Association (APIA)’s July 2002 submission to the Review of the Competition Provisions of the Trade Practices Act:

The ACCC's approach has simply crystallised our concerns regarding their motives and attitudes towards the gas transmission sector:

The ACCC role is to apply, not develop, policy.

Over recent years the ACCC has sought to take a proactive, well resourced, and very self-serving role in the development and modification of government settings relating to energy and competition policy, notwithstanding the fact that they have been entrusted through legislation to implement that policy in an unbiased fashion.

The policy development and policy justification role that the ACCC has adopted … … is inappropriate given the primary role of the ACCC in implementing current competition legislation.

APIA believes that the objectives and process for regulations should be specified by government, not the ACCC, and that the regulator should focus on applying these policy decisions.

Why, one might ask, do the privateers prefer to deal with governments rather than independent regulators?

The response of TXU Electricity Ltd (previously Eastern Energy Ltd) to the Draft Greenfields Guideline for Natural Gas Transmission Pipelines is much more moderately worded, but its philosophy is just as clear:

TXU believes that regulation should only act as a surrogate for competition. Where pipeline on pipeline competition is evolving, TXU believes that the market should set the price. Applying access regulation in this case will lead to an inefficient allocation of resources. TXU believes the gas market in Australia is still maturing, and that it is essential this maturing process is facilitated rather than inhibited. The most effective way of achieving this, in TXU’s view, is to “allow the market to work”. In this environment TXU believes regulators should deliberately take a “back-seat”, providing a light-handed framework that encourages the development of a competitive emodel in the South East Australian gas market. TXU further believes that regulators should deliberately seek to minimise intrusive regulation in such a developing market where investment is so vital.

Compare that to what happens when privateers deal with the "little man", like dealing with private land holders before putting in a gas pipeline. Is it still “free and fair trade” when pipeline privateers can call on government power to force their development through?

Under the Pipelines Act 1967 lands or easements over lands are available for compulsory acquisition if the Minister is satisfied that the privateer “has taken all reasonable steps to enter into an agreement with the owner to acquire the lands or easements and those steps have not resulted in any such agreement”.

So much for ownership, or at least the little person's ownership: so much for the free market, the freedom to buy and sell, and the right of refusal. Private gas pipelines aren’t public projects, or even projects that will necessarily provide any benefit to the public, yet government power can be brought to bear on the individual landholder to enable the privateer to achieve its purpose.

If resistance is futile, as it undoubtedly is, then perhaps instead of agreeing to a single lump sum payment in exchange for permitting a pipeline to pass through their land, private landholders should offer the easement sought by the privateer in exchange for a small annual fee calculated by reference to the quantity of gas that passes through the line and its value. In the long run I suspect that just a tiny percentage would allow them to sit back, crack open the bubbly and sing along with the Paul Kelly Classic and 2020 summit theme song "From little things, big things grow".