JACKSON HEWETT: North West Shelf approval secures WA as electoral stronghold but don’t expect cheaper gas

Fresh from seeing off the Greens at the most recent election, Labor has signalled its intention to prioritise development over environmental concerns and maintain Australia’s key position in the global energy market.

In doing so, it may also have secured Western Australia as an electoral stronghold for at least the next decade.

By approving the extension of the North West Shelf project until 2070, Labor is betting that the energy transition will take far longer than its stated ambition of achieving 82 per cent renewable generation by 2030. Globally, electricity demand is expected to double by 2050, and with many countries still trying to meet the Paris Agreement targets, the Government and Woodside are banking on continued gas demand to bridge the gap.

Environmentalists are up in arms, warning the project will emit more than 3 gigatonnes of carbon over its extended lifespan — at a time when northeastern Australia is experiencing severe flooding.

But Labor argues that more gas is consistent with its Net Zero ambitions, serving as a transitional fuel to replace ageing coal-fired power stations with gas-fired peaking plants.

The plant will benefit WA at least, thanks to the State’s gas reservation policy.

For the east coast, the project may offer limited value beyond Federal tax revenue, with gas already contributing to high energy prices.

As coal plants diminish in output due to age and renewables provide only intermittent supply, gas has had to fill the gap.

According to Open Electricity, which tracks energy input costs, gas turbine power averaged between $186 and $332 per megawatt hour over the past year and provided 5 per cent of the grid’s needs. In contrast, coal, which supplied 44 per cent, cost between $94 and $128; solar cost $33; wind $72; and hydro $174.

The core challenge is this: at times of peak demand — particularly in the evening, when solar drops off — baseload power must be topped up. The energy shocks of recent years were partly driven by the high cost of gas following the war in Ukraine.

According to the Grattan Institute’s energy expert Tony Wood, this project will not affect east coast prices, but it could pave the way for other gas projects that might.

However, those projects would also require approval from State governments. A plan for a Federal gas reservation policy collapsed alongside the Coalition’s electoral fortunes, so there is no guarantee that any future projects would deliver cheaper gas to the east.

For a government facing a decade of budget deficits, the project offers some comfort in the form of future revenue, particularly if the offtake is sold at international spot prices, rather than re-sold by Japanese buyers at a $1 billion markup, as recent reports suggest.

Josh Runciman, gas expert at the Institute for Energy Economics and Financial Analysis, warned that there is no guarantee the project will remain viable through to 2070, potentially leaving investors with a costly white elephant.

He noted that LNG demand in Europe and Japan is falling, and that China’s LNG imports are now below 2021 levels, as renewables replace coal.

Runciman predicts this could result in an LNG glut lasting to 2040, although Grattan’s Tony Wood says that’s a “big if”.

Investors welcomed the announcement, sending Woodside shares up 4 per cent. The project was also endorsed by the Australian Chamber of Commerce and Industry and by unions. The Greens, meanwhile, may be regretting preferencing Labor at the election and will now have to take their resentment to the Senate.