Echoes of Australia’s gas ban will ring across four continents

The appeal of a good old-fashioned culture war fight is so much greater than thinking about the hard problems of energy planning and security.

So it’s hardly surprising that the decision of Australia’s Victoria state to ban natural gas connections to new properties has turned into a replay of a cooked-up US debate about a supposed federal ban on gas stoves. (No such ban was ever proposed by the Biden administration, though the House of Representatives passed a bill in June to head off the imagined threat, just in case.) We’re likely to see similar clashes play out in historically gas-rich regions from the Netherlands to Pakistan and Mexico in the years ahead.

The ban in Victoria, home to the country’s largest city Melbourne, has everything that such a hype cycle needs. It’s been proposed by left-wing state Premier Daniel Andrews who has — horrors — been photographedusing a gas stove himself and has presented the move as a principled step towards net-zero targets. It’s being opposed by an industry lobby that accuses the government of ignoring the needs of average households. And it comes on the heels of 2022’s global gas crisis, which pushed onshore prices up as much as five times above normal levels.

In truth, though, it’s a much more banal decision. Offshore petroleum was discovered in the Bass Strait separating mainland Australia from Tasmania in the 1960s, making Victoria the country’s biggest producer of oil and gas in the 1980s and 1990s. After more than 50 years in production, the natural decline that sets in at all oilfields means the Bass Strait is more or less tapped out.

The joint venture of Exxon Mobil Corp and Woodside Energy Group Ltd that has dominated production for decades is in the process of decommissioning its platforms toward a target date in 2027. A region that still supplies about 40 percent of the country’s east-coast gas market is running dry, and reforms to encourage more production (introduced in 2021 by the same premier now presenting himself as a climate campaigner) have failed to inspire viable projects.

Victoria’s gas ban is best understood as an incremental way to start addressing that looming shortage. Electric and induction cooktops and reverse-cycle air conditioners aren’t just less carbon-intensive ways for locals to heat their food and homes — they’re also cheaper, an advantage that will only grow as the decline of the Bass Strait leaves the country dependent on costlier imported gas. Rule climate issues out of the equation altogether, and a government seeking to fix that imminent crisis should still be doing everything it can to reduce demand as well as increase supply.

The same pattern is playing out around the world, as historic gas producers facing the terminal decline of their petroleum fields find themselves running short of what was once a cheap energy source. (The US, for all its kerfuffle around cooktops, is one country whose booming gas industry leaves it amply supplied).

The Netherlands, whose vast Groningen field was once so productive that it twisted the entire economy out of shape, is going through the same wrenching process. A cut-flower and high-value fruit and vegetable
industry that grew up to take advantage of the low cost of heating greenhouses struggled last year as Groningen ran dry and the invasion of Ukraine choked off alternative sources of supply. The government will ban the installation of new gas boilers in homes from 2026.

Pakistan, historically self-sufficient in gas, is suffering from the same issue. Two-thirds of its geological reserves have already been consumed, and the remainder will be used up in about 15 years at current production rates. That’s exacerbating chronic energy problems. LNG has been imported since 2015 to make up the deficit. But that product is in so much demand since the Ukraine war that Pakistan, a cash-strapped country whose debt and currency issues put its long-term ability to pay in doubt, is unable to secure cargoes. That’s leaving the country facing a looming power crunch.

Even Mexico is in similar waters. Thanks to the abundance of methane just over the border in the US, the country has seen no Pakistan-style issues in getting hold of supplies. But its increasingly gas-dependent economy made it the biggest importer of piped gas after Germany last year. Outside the Organization of the Petroleum Exporting Countries, only Egypt and Thailand among large economies are more dependent on gas to power their grids. Mexico’s over-exposure to a single imported energy source, as with Europe’s dependence on Russian methane, could become a risk as the US seeks to get higher prices for its gigajoules in the global LNG market.

The challenges faced by all these regions as they try to wean themselves from gas highlight that an energy source touted as a “transition fuel” between denser hydrocarbons and renewable technologies can be a habit as hard to kick as coal and oil. Economies have a choice of whether to build their energy infrastructure around a fickle, finite geological resource or the limitless bounty provided by renewable technologies. The short-term hit from gas won’t provide a long-term solution.

David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. Views are personal, and do not represent the stand of this publication.

Credit: Bloomberg