IF INCITEC Pivot follows through with the threat to close down its phosphate fertiliser plant near Mt Isa, Australian farmers will once again be largely reliant on imported fertiliser.
Many countries import all their fertiliser and there is nothing necessarily wrong with that. However, domestic production reduces the risk of a supply shortage and limits price volatility due to currency fluctuations, both appealing to farmers who face plenty of other risks.
The reason the plant is likely to close is the high price of gas in Australia compared to the US. And the reason for that difference is America has developed its gas resources, which it calls shale gas, while the development of our coal seam gas is bogged down in disputation and bureaucracy.
In 2000 shale gas provided only 1pc of U.S. natural gas production; by 2010 it was over 20pc and there is now a surplus with consideration being given to exporting it. Since the country has never exported gas previously and completely lacks the infrastructure required to do so, this is an enormous change. Indeed, some are now anticipating the country becoming self-sufficient in energy, something Australia could not currently contemplate.
Opposition to coal seam gas development in Australia (or even exploration, which is opposed just as fiercely) is also present in other countries including the US. Indeed, it has become fashionable in some circles. As James Dellingpole put it recently, “being opposed to shale gas is the new black for every two-bit celebrity. Like having a "Free Tibet" bumper sticker on your Porsche Cayenne, it shows you CARE.”
There are some unlikely bed fellows among the opponents, including the Russian natural gas giant Gazprom and pretty much everyone with an interest in renewable energy. The environmental movement loathes shale gas because it has the potential to render expensive options like wind and solar superfluous. The big environmental pressure groups fear the subsidies paid to wind, biofuels and solar may be lost if gas gets too cheap and cuts carbon emissions too effectively.
Hollywood has joined the debate, with the movie Gasland becoming a key source of information for many. No doubt the new movie Promised Land will have a similar impact and help many feel vindicated.
But the arguments are beginning to fall apart. For example, it is now known that the famous Gasland scene of gas coming from a tap was not related to shale gas drilling. The film’s director, Josh Fox, has acknowledged there was a problem with methane in the water long before fracking started in the area. Moreover, analysis showed the gas concerned was chemically different from the gas released by fracking.
Another video from Texas purporting to show a flaming water pipe was found by a judge to be an outright fraud. The hose had been connected to the house gas pipe.
The movie Promised Land is supposedly based on the town of Dimock, Pa, where it was claimed the water was contaminated by gas. But even before the movie was released state authorities had investigated and found nothing wrong with the water. Other “pollution” cases have similarly collapsed upon closer examination.
Other concerns such as seismic disruption and chemical contamination of water have failed to materialise despite more than 25,000 wells over the past ten years. Of course, failure of the well casing or surface chemical spills happen occasionally, as in any industry. But the chemicals used in fracking are the kind that you find under your kitchen sink: disinfectants, surfactants and the like. The reality is that fears about fracking are grossly overblown.
By contrast, the environmental and economic benefits could be vast. Shale gas in the US has lowered the price of gas to a quarter of that in Europe, slashing the cost of energy, reviving manufacturing, creating jobs, halting the expansion of expensive nuclear power and cutting carbon emissions in a way that wind, biomass and solar power have failed to do.
So why are farmers, normally realistic, practical people, involved in an unholy alliance with impractical and unrealistic green groups and others with vested interests, in opposition to the extraction of coal seam gas? Especially when one of the consequences of this opposition is the likely closure of a local source of fertilisers?
The main difference between the US and Australia, from the perspective of farmers, is the ownership of mineral resources. Unlike their US counterparts, Australian farmers have no legal title over what lies below the surface of their properties. All they can do is claim compensation when its extraction harms their farming activities, and make a nuisance of themselves over access in the hope they will be bought off.
Opposition to the development of coal seam gas will ultimately prove fruitless. Its extraction might be delayed here and there, but no responsible government will ever agree that locking it up is good policy. By joining with the opponents, farmers are on the losing side and liable to end up with nothing to show for it.
Far better to have a seat at the winning table. There is every chance farmers could negotiate a change in the compensation regime to give them a share in the profits if they became more realistic.
And if the price of gas were to fall as a result of Australia developing its coal seam gas, they might even retain a local source of fertiliser.
David Leyonhjelm is an agribusiness consultant with Baron Strategic Services. He may be contacted at email@example.com