OPINION: The ‘girls and boys from the bush’ who are our government politicians have bought far too much gas for electricity generation at far too high a price, which could increase costs to the Territory by $300 million per year, while Beetaloo Basin gas could be too expensive to attract local manufacturing, and too expensive to send to the east coast, writes Dr Don Fuller.
Since self-government, the Northern Territory has relied on the government to employ a very high proportion of its workforce. Around 40 per cent of total employment in the Territory work in government and community services. Mining and manufacturing employs only five per cent of the workforce.
To increase employment, exports and economic growth, the Territory needs to grow foundation industries associated with manufacturing.
Globally significant gas reserves in the Beetaloo Basin, it has been argued, could be used to propel manufacturing, domestic energy supply security, and cleaner energy production in Australia, as well as the Territory.
However, the opportunities of the Beetaloo Basin also present serious challenges.
These challenges include the remoteness and a need to better understand actual resource potential, establishing extensive supporting infrastructure, and negotiating with local communities and traditional owners.
Methane from natural gas is made into methanol and this is used to make four main products. These are ammonium nitrate, sodium cyanide, peroxide and methanol.
There are a wide range of important products made from such inputs, for example building products, paints and resins, carpeting, adhesives, agricultural products, agents for the treatment of sewage and waste water, cleaning products, fertilisers, refrigerants, medical applications, agricultural and irrigation piping, glycol for antifreeze, and surface wetters for agricultural applications. There are a number of others.
Greater natural gas production can therefore help build foundation industries and propel economic growth and exports from the Territory. It can be expected to create more jobs and reduce the cost of goods.
However, it is crucial that such gas be made available to producers, and NT government purchases, at a price that is competitive with other states if the NT is to attract industry.
It is therefore important to consider whether the NT Government has been able to purchase the right amount of gas at the right price to facilitate economic development and benefit the Territory.
This is a serious and essential challenge. The key requirement for industry and business to be competitive is that inputs be purchased at a price at least comparable and preferably lower, than in other states.
This is essential if the Territory is to be an attractive destination for business and industry.
It is even more important for the NT as it faces a number of other major cost disadvantages for business development.
These include, distance from markets and high transport costs, more difficulties accessing a skilled labour force, as well as the higher cost of such labour, less developed facilities and infrastructure to support business development, and high levels of regulations and costs on some developments on vast areas of Aboriginal Land, for example.
It is essential therefore, that the NT Government possess the required business and negotiating skills.
This is necessary for the required deals, across the table, from highly skilled and experienced corporate gas industry executives, whose main aim is to maximise profits for their corporation, at the expense of the Territory government, if necessary.
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Gas prices are currently relatively high in Australia due to government policies over the past 10 years, with some states and territories banning exploration or imposing moratoriums on developing known resources, despite an abundance of gas reserves in Australia.
This situation led to the $12 per gigajoule cap at source introduced by the current federal government.
However, in the past 12 months, following a period of prolonged inactivity, several large gas producers received conditional ministerial exemptions from the federal government’s gas cap of $12 per GJ.
The Lawler Labor government agreed to a nine-year agreement with Tamboran Resources in April 2024 to supply Beetaloo Basin gas from the second half of 2026. The government claimed this agreement was necessary to supply the electricity grid following a decline in gas produced by ENI’s Blacktip field in the Joseph Bonaparte Gulf.
The Blacktip field is currently supplying only around 10 per cent of ENI’s contractual requirements, but the company has expended hundreds of millions to drill new wells to supplement production.
According to the NT Government, the agreement with Tamboran Resources is also designed to play a major role in enabling the exploitation of fracked gas from the Beetaloo Basin.
While the NT Government has not made the cost of the deal public, the federal government’s Future Gas Strategy suggests the current cost of gas from Blacktip is likely to be $14 per GJ.
This price would likely be the minimum for gas sourced from the Beetaloo Basin, due to the undeveloped nature of Beetaloo, the need for new pipelines and the distance from Darwin.
The NT Government deal was done just before Tamboran Resources launched its initial public offering on the New York Stock Exchange last June, to continue its gas exploration interests in the Beetaloo Basin.
On July 26, 2024, the Lawler government also signed a 10-year deal with Beetaloo Energy Australia (formally Empire Energy) to supply gas from the Beetaloo Basin, with those costs also kept secret.
While on July 29, the Lawler Government also announced it had signed a six-year deal from Central Petroleum, New Zealand Oil & Gas, Horizon Australia Energy and Cue Energy from the Mereenie and Palm Valley Fields, in central Australia.
Once again, the cost is a secret.
The government went into caretaker mode on August 1, three days after that last deal was announced.
Springmount Advisory, which produced a report after the Tamboran Resources deal was announced, described the deal as a ‘terrible outcome’ for NT taxpayers that will cost billions over the next decade.
Calculations undertaken by Springmount over the life of the nine-year Tamboran Resources agreement, estimate the deal will result in a cost of between $1.8 billion and $2.1 billion. Including the 6.5-year extension, the total cost could be as high as $3.6 billion.
The company provided additional calculations to the NT Independent for the other deals, concluding at the $14 per GJ price, the Beetaloo Energy Australia contract was worth $1.3 billion over 10 years, while the Central Petroleum contract could be worth $889.1 million over six years, with a total for the three deals (without the Tamboran Resources extension) coming in at roughly $3.98 billion.
It is important to note that this $14 per GJ price is likely, once transportation is included, to be well above the current price of gas on the east coast, which has been regarded as a strong potential market for NT gas excess to domestic residential and industry use.
The prices offered by producers on the east coast for 2025 supply fell by 2 per cent between January and June 2024 to $14.77 per GJ.
The increased availability of gas in 2025, together with lower international prices, have led to a softening of domestic prices on the east coast.
If the NT Government was to try and sell gas not required for NT purposes to the east coast, this will likely be undertaken at a significant loss to the government and taxpayers, as wholesale gas prices on the east coast are lower than the likely off-take price the NT Government has struck for Beetaloo Basin gas.
Exporting gas to east coast markets will attract gas transportation cost of around $7 per GJ. Long-term forecast of gas trading prices at the Wallumbilla hub are between $10 to $14 per GJ. Wallumbilla is a major gas supply hub, being a pipeline interconnection point for the Surat-Bowen Basin, linking gas markets in Queensland, South Australia, New South Wales and Victoria.
This suggests NT gas prices need to be around $7 to $7.50 per GJ to be sustainable.
Higher gas prices will drive investment to other states, for example, Western Australia which has $7.50 per GJ.
Whilst the NT Government’s contracted gas prices are reported to be “market prices”, they are likely to be much higher than comparable gas prices in WA and Queensland, with less flexible conditions involving long-term commitments, such as 10-years, which will increase the cost of energy for projects in the NT and make it far less attractive for business investment.
The gas contracts negotiated with the main producers, Tamboran Resources, Beetaloo Energy Australia, and Central Petroleum are all 100 per cent take-or-pay contracts. Under these take-or-pay contracts, the buyers undertake to pay for a fixed annual quantity of gas whether or not they decide to take delivery of the gas.
Such 100 per cent take-or-pay contracts, while they benefit gas producers, will not accommodate the natural daily-seasonal swings in demand for gas for power generation, resulting in the NT Government having to buy more gas than required at certain times.
When all the supply contracts initiate, the gas supply is likely to be surplus to NT demand and will have to be exported to east coast markets at a loss – gas price, plus transportation costs, will exceed $15 per GJ.
To highlight the risk exposure if surplus gas ranges between 10 petajoule and 20 PJ per year, losses could range between $10 million to $100 million per year.
In addition, the NT pipeline system will require augmentation to transport that amount of surplus gas, further increasing the fixed costs associated with gas distribution.
To the extent this gas is used for NT power generation, the NT Government will be forced to subsidise the additional cost of power generation or pass the cost increases on to customers such as residences and businesses.
The government will incur further losses if it is required to take gas before pipeline upgrades have been completed.
When the new government gas purchase contracts initiate within the next two years, together with Power and Water Corporation’s existing gas purchase contracts, costs for gas purchases could increase from around $200 million to $500 million per year in 2024 dollars.
The Australian Energy Market Operator’s Gas Statement of Opportunity report calculates the NT requires 18 PJ per year for electricity and 6 PJ for industry, or a total of 24 PJ.
It has been estimated that the contracts with Tamboran Resources, Beetaloo Energy Australia, and Central Petroleum will supply over 34 PJ of gas per year.
In the meantime, Blacktip is currently forecast to produce at least 6 PJ a year and potentially far more in the future as new wells are being drilled.
PWC has stated that the shortfall in gas supply from the ENI Blacktip Field cost the NT Budget $43.4 million in the 2023-24 financial year, and was estimated to cost $24.3 million the following financial year.
The NT Government confirms they’re suing gas provider ENI, over the costly shortfall in contracted supply from the Blacktip field, with substantial legal costs involved.
The government will attempt to claw back money it lost by being forced to go to the expensive gas spot market and sign short-term deals, allegedly due to ENI’s supply issues.
Negotiations are also underway with Santos, to contract gas from its Bayu-Undan field which will increase supply further.
This indicates a total supply over 40 PJ a year, which is well in excess of Darwin requirements, particularly if negotiations proceed with Santos.
It seems clear that the NT Government has bought far too much gas at far too high a price.
The myriad of contracts without a clear linkage to demand and prevailing prices for export, appears as a ‘financial-energy shamozzle’, with taxpayers again, due to face the main hit.
In addition to the substantial financial problems associated with having to buy emergency gas supplies over Blacktip gas, it is likely that the required subsidy to make NT gas prices competitive with the east coast price (so excess gas can be sold), will put an additional hit of around $60 million per year on the over-stretched NT Budget.
This may have proved to be less of a problem if gas could actually be exported to Queensland.
However, Queensland currently, and for the foreseeable future, has an excess supply of gas.
While gas shortages are expected in the southern states due to moratoriums on gas exploration and development, these states will depend on excess gas that can be exported to them via available pipelines from Queensland.
However, the Queensland pipeline will be at full capacity and unlikely to be able to provide sufficient amounts of gas to satisfy the demand of NSW and Victoria.
The pipeline will certainly not have the capacity to accept and on-sell gas from the NT for the southern states.
No pipelines are directly available from the NT to southern states to assist meet this excess demand.
In this situation Australia, as an energy rich nation, will be in the absurd position of having to import gas from overseas to satisfy the requirements of NSW and Victoria, due to irresponsible government policies and a lack of competent planning.
Additional major problems for an overwrought NT Budget
Despite improving retail spending and rising equipment investment, CommSec’s latest State of the States report reveals that the Northern Territory remains firmly recognised as the country’s worst performing economy, ranking eighth out of eight once again.
The NT Budget will hit a record net debt of $11 billion next year, which is $2 billion more than had been previously expected.
The NT will be paying interest of $1.6 million a day, increasing to more than $2 million a day by 2026-27, with net debt forecast to hit $12 billion.
This puts the debt at roughly the very large figure of 34 per cent of Territory Gross State Product. This is very high for a small economy where a lot of wealth earned through gas exports for example, leaves the NT.
In addition, the measure of GSP does not take account of the very high interest payments leaving the NT to pay for the government debt. Taking into account these factors, debt is likely to be over 40 per cent of the productive capabilities of the NT economy.
Although provided with ongoing expert advice on the need to reduce public sector employment, it continues to expand and is the government’s single largest expenditure, at 41 per cent of overall operating expenses.
However, neither of the main parties in the NT has been prepared to face how debt should be wound back, as it requires austerity measures likely to have a relatively large impact on non-productive areas of the public service.
Beside this, mining royalties are projected to fall $30 million next financial year and by a further $65 million in 2027-28.
The NT is losing more people to interstate migration with the government unlikely to meet its population target of 300,000 people by 2030.
Plagued by high levels of crime, and with a declining economy, it is becoming increasingly difficult to attract skilled workers to the Territory.
The former Labor government introduced a debt ceiling of $15 billion in 2022, which was widely criticised at the time as being an ineffective measure to control spending.
On February 4, Treasurer Bill Yan announced that the Finocchiaro Government intended to scrap the debt ceiling and would continue to spend and incur debt.
This shows little understanding of the essential economic requirement that the private sector needs to be encouraged to expand, as pointed out by a number of independent experts, by a reduction in the size of the public sector with its associated red tape and over-regulation and economic waste.
Funding expended on non-productive areas of the public service is required to further support business and industry development.
A private sector-led economic development strategy is needed for the NT, not one led by increasing levels of public sector expenditure and business decisions made by inexperienced and naïve public servants and politicians.
The emphasis should be on building the private sector in the fields of tourism, agribusiness, energy, resources, communication and manufacturing.
The NT increasingly resembles a failed, socialist European or Southern American state, with little difference in economic development strategies between either of the main political parties and development led by public servants and politicians, unwilling and unable to listen to experts.
It is likely that amateurish NT Government-negotiated gas contracts, led by some of our ‘girls and boys from the bush’ politicians, are about to substantially add to the escalating debt problems of the Territory, and the Territory Budget, and do little to promote the economic development of the Territory.
The rising gas price and a gas reservation policy
These serious and compounding problems could have been avoided had the NT Government followed the advice of Andrew Liveris, chair of the NT Reconstruction Committee.
As early as 2020, Liveris recommended the NT have a gas reservation policy.
Born in Darwin, Liveris has extensive, high-level experience in international business and commerce having been an economic and business adviser to US presidents.
However, in typical fashion, the NT ‘girls and boys from the bush’ have always reckoned they know best and ignored high level, important advice, to the continuing serious detriment of the NT.
As pointed out by Liveris, a competitive gas price is essential if additional manufacturing is to locate in the Territory. This is because of the importance of energy in the cost structure of most manufacturing plants.
Given the importance of gas as an energy source and the fact that the Territory has large reserves of gas, it is important that this resource acts as a key competitive input to Territory manufacturing.
Prior to 2014, the east coast of Australia enjoyed a low-cost and stable domestic gas supply with prices of $3 to $4 per GJ. At various periods since then, domestic gas prices in Australia have escalated.
During these spikes in the price of gas, Australian gas prices have been substantially higher than almost all other international markets for gas.
Where there is failure in the market to operate efficiently there is a need for governments to intervene, particularly if a market, such as the gas market, is dominated by a small number of very large suppliers.
Every major gas-producing country has a form of gas reservation policy to protect local industry and the domestic and household users of energy.
Within Australia, WA has a domestic reservation policy that has been operating successfully for a number of years.
The policy is aimed at making gas equivalent to 15 per cent of exports available for WA consumers. This is important for the local market (residential, commercial and industrial users) as is means that gas supplied domestically is not priced at export prices which can be very high and subject to significant volatility.
In September 2024, the WA Government updated its domestic gas policy regarding the export of onshore gas through the existing pipeline network.
The WA Government will implement an 80 per cent domestic gas reservation policy for onshore gas projects on the existing pipeline network until December 31, 2030.
Against this background it is very difficult to understand why previous Territory governments dismissed the idea of a gas reservation policy, claiming “it would make the Territory less attractive to investors”.
This seems to be an argument favouring the relatively small number of large gas producers that have been described by some commentators as a ‘cartel gouging consumers’.
Such a policy has acted to significantly undermine Territory economic development and the diversification of the economy. It results in far higher energy prices to both Territory industry as well as households.
This is particularly the case given a five per cent domestic reservation on INPEX would meet all the NT’s gas needs, without even factoring in demand reduction from renewable energy or domestic supply from Central Petroleum.
However, once again it appears that the NT Government has been taken to the cleaners by the gas industry, at an unacceptable cost to Territorians and to Territory economic development.
There are obvious and substantial problems with the manner in which expertise is organised by the NT Government in a range of areas.
However, this is nowhere clearer than within the critical areas of Territory energy and how to proceed with economic development.
Further reading by Don Fuller:
READ: The vice-chancellor needs re-focus to make CDU a high quality university
READ: Rising social conflicts and escalating debt mean a bleak outlook for the Northern Territory
READ: Northern Territory – Failed governance, cultural clash and an uncertain future
READ: How not to manage government finances – The case of the Northern Territory
READ: The Gunner Government: A collision between Budget misuse and democratic responsibilities
Dr Don Fuller holds a first class Honours degree and PhD in economics from the University of Adelaide and has worked as a senior public servant in the Territory and as Professor of Governance and Head of the Schools of Law and Business at Charles Darwin University. He grew up in Darwin and attended Darwin High School.
He was also involved with the establishment of the first NT medical school under the leadership of Flinders University vice-chancellor Professor Ian Chubb.
Dr Fuller was also an adviser to the former CLP MLA Maralampuwi Francis Xavier, was briefly the senior private secretary to Chief Minister Paul Everingham, and is a former member of the CLP and the ALP.
Does anyone remember this fabulous 20 Nov 2020 Facebook post from a particular then-opposition CLP leader who could not win one by-election?
“Remember all that talk of “open and transparent” government? We don’t have much hope for what the Gunner Government will achieve this week in Parliament.
Last time Parliament sat, the Gunner Labor Government forced through rule changes to abolish the Legislative Scrutiny Committee and decreased the number of questions Opposition and Independent Members can ask during question time on Wednesdays.
If only the Gunner Government was as transparent as it’s $2.7m “shade” structure.”
Well guess who is the Chief Minister today?
Why cant Territorians know what the over the top and exorbitant cost of the Gas deal was?
Why cant Territorians ask questions in Parliament without it being shut down as the waterfront questions where?
Why cant Territorians lodge FOI’s to the Government without being messed around?
Are the nursing home based, CLP heavy weights (and I mean heavy) and current crop of new and wet behind the ears CLP MLA’s not worried about a total decimation in the Aug 2028 NT Election?
There was talk before the 2024 NT Election that the embarrassing and crime friendly NT ALP would be out wandering the political wilderness for 3 or 4 terms!
Given the current performance and scandals of the current CLP Administration all within one year of their first term, NT Labor are back in Sep 2028 with a majority!