On this day 19 years ago, Esso’s gas refinery at Longford exploded killing 2 workers and plunging Victoria into 3 weeks without gas supplies and hot showers. It led to a Royal Commission and the largest class action in Australia’s history. If you were a gas customer in the late 90s then you were a party to the class action even if you did not know it (1.3m gas users).
I worked for about 4 years on the Longford Class Action as part of the legal team representing the State of Victoria and the public gas industry participants. Part of my job was to review hundreds of thousands of documents relating to the gas industry in Victoria since the discovery of natural gas in Bass Strait. It gave me an interesting insight into issues, many of which are particularly relevant today given the energy crisis which is affecting the price of electricity and gas.
In the 1960s, Esso Petroleum (Exxon) and BHP discovered oil and gas deposits in Bass Strait. Esso began pumping the deposits onshore to Longford and refining the oil for commercial production and sale. As part of the process of refining its oil it has to separate out the natural gas which it regarded as a waste product. However, the Gas and Fuel Corporation of Victora and the Victorian Government led by Henry Bolte saw the value in natural gas (until that time the principal source of gas for Victoria was conversion from brown coal). They entered into a long term contract with Esso to provide natural gas to Victorians at a ridiculously cheap price for domestic users.
Natural gas was, and is, a relatively clean and very convenient form of energy. At the time natural gas came online in 1970, the reserves Esso has tapped in gas and oil fields known as Barracouta, Marlin and Snapper were forecast to meet Victoria’s needs until about 2020. However, further supplies were located in Bass Strait over the next 25 years. As of last year Esso estimated its current reserves are about 7 trillion cubic feet (in the past 47 years, it has produced about 8 trillion cubic feet).
When the Kennett Government privatised the gas industry in the late 90s and disbanded the Gas and Fuel Corporation, the value of gas was much higher, yet the state treasurer, Alan Stockdale, negotiated with Esso/BHP to lock in consumer gas prices for another decade or so at the same or similar low domestic supply rate as that negotiated in 1970. However, in the past decade, gas prices have now reverted to market price and gas bills have sky rocketed.
When the class action was occurring, the buzz-phrase was “security of supply”. The case put against the State was that it did not have sufficient alternative sources of supply of gas in the event that supply was interrupted at Longford. At the time, a gas pipeline had only recently been built connecting Victoria with NSW. (Today, it forms part of the national energy grid.) BHP and Esso had been exploring for, and located, gas in waters off the coast of Port Campbell, but environmental concerns had stymied any significant commercial development. There were (and are) massive natural gas supplies off North Western Australia and some people had proposed building a pipeline from WA to the eastern states. However, back then the cost of building a pipeline (then about $5bn) was considered to be prohibitive.
Today, Victorians are facing supply issues of a different kind, mainly related to availability and price. Oil supplies in current known reservoirs in Bass Strait are beginning to get low. Although there are still significant reserves of gas, Exxon and BHP last year put their oil and gas fields (or, rather, their licences to use those fields) up for sale. However, this year they announced a new investment in the region (dubbed “Bass Strait 2.0”). It’s likely that Bass Strait has far greater reserves of oil and gas further off Victoria’s coastline, but searching for supplies is an expensive business. Back in the 70s, 80s and 90s, Esso would send out an exploration vehicle from overseas to Victoria only once every 5 years, typically with a view to discovering more fields which would only be brought in line well into the future. Forecasts of gas and oil reserve were deliberately conservative, no doubt to maintain the best possible price under the pretext of dwindling supply. For oil and gas companies, their operations need to be commercially viable to warrant further investment and the further from the coastline one must go to explore for oil and gas (in deeper waters) the more expensive the task becomes.
Unfortunately, nowadays, the price balance has tipped the wrong way for consumers. The push for renewable sources of energy, the costs of exploration, the profitability for oil and gas companies in exporting established plentiful WA gas supplies to countries in Asia (which have pushed up prices) and a moratorium by the Andrews State Government in relation to onshore exploration (which reduces likely competition) all make for more expensive and less readily available local gas supplies for Victorians.