Way back in December 2004 the New South Wales government (under Bob Carr) published an “energy directions green paper” which stated that a conservative estimate of the State’s gas needs in 2030 was 200 petajoules a year – against 140PJ at that time.
The green paper also acknowledged that the supply of natural gas from the the Cooper Basin in South Australia, today still delivering 68 PJ annually, would “fall significantly in the next three to five years.”
This came back to mind when I read in the “Australian Financial Review” last week that “NSW faces a potential crisis in gas supply in the next three years,” based on a projection by Wood Mackenzie that the east coast gas market will be undersupplied from 2016 – notwithstanding the consultants’ projection that gas production will increase eight-fold by the end of the decade.
About 90 per cent of the new gas supply is destined for sale overseas as LNG.
Wood Mackenzie’s Craig McMahon said the greatest challenge to securing new gas supplies for the east coast was not technical or commercial, but rather the growing environmental and rural community opposition to coal seam gas developments and the uncertainty created by the heavier regulatory burden, a reaction to the pushback.
Piggy-in-the-middle of this situation is NSW where factors are increasingly aligning to present a bigger challenge than the one envisaged in Carr’s green paper, a situation exacerbated by lack of action by him and his successors, Iemma, Rees and Keneally.
It was still possible, of course, in 2004 to envisage building large new conventional coal-fired baseload generation plants.
It had worked for Neville Wran two decades earlier when he inherited a troubled power supply situation from the Liberals.
Government-owned generation businesses Macquarie Generation and Delta Electricity each obtained regulatory approval for 2,000 MW of new coal plant – at Bayswater and Mt Piper respectively – under the Rees/Keneally regimes but a combination of the current national political environment for carbon emissions, the O’Farrell government’s plans to sell its generation operations and a (very) different financing environment make it unlikely that these projects will go ahead.
The alternative is gas-fuelled baseload power, but there are a raft of issues to be confronted here, too. None of them is straightforward and locating adequate gas supply is now probably top of the policy tree.
It needs to be said that the mindset of just building what is needed inside NSW shouldn’t be the only option..
Substantial upgrading of interconnection with Queensland could actually see a larger supply of electricity coming from across the bordee.
On the other hand, a substantial pipeline from Queensland to the Hunter Valley would enable power stations to be built nearer to the main load centre (the Newcastle/Sydney/Wollongong conurbation).
Today NSW obtains 11 per cent of its power needs from interstate, most of it from Queensland, but congestion on the QNI interconnector combined with faster rising demand in the north raise a question mark over what may be available for import later this decade, let alone in the ‘Twenties.
The government-owned transmission businesses in both States are jointly working up a proposal to increase the capacity of the main interconnector by 25 per cent, but this is only one aspect of what should be under consideration as an energy strategy for the whole region north of the Murray.
The new Newman government in Queensland and still newish O’Farrell government in NSW might want to think about what can be done in co-operation rather than separately.
Meanwhile it needs to be borne in mind that the volume of gas NSW will need for power supply will not only be driven by baseload generation.
A large-scale development of intermittent renewable generation as well as a continuing sharp rise in peaking power needs will require a lot of extra open-cycle gas imvestment later this decade and through the ‘Twenties.
At present gas demand in NSW, 90 per cent of it coming across its borders, runs at 150 PJ a year.
About 18 per cent of this is used by the power sector.
These are ACIL Tasman numbers in a new report for Santos, which argues that billions of dollars can be added to NSW gross state product over 25 years if coal seam gas development is encouraged.
In this modelling, NSW’s requirements of gas for power supply are seen as rising to 151 PJ by 2030 – a five-fold increase in round terms.
Nor will NSW be R.Crusoe in this respect.
The Energy Supply Association submission to the federal government for the energy white paper claims that aggregate east coast consumption of gas by the generation sector could be 10,000 PJ by 2030 and that total cumulative east coast demand could reach 21,000 PJ over two decades.
This perspective is supported by the federal Bureau of Resources & Energy Economics’ projections that national gas generation output will rise from 40 terawatt hours in 2008-09 to 64 TWh in 2019-20 and 126 TWh in 2034-35, most of this on the east coast.
This outlook raises critical questions about where such a large volume of gas will be sourced, what issues will arise in transporting it from wellhead to load centres and what it will cost.
ACIL Tasman says that, in the absence of an adequate coal seam gas supply, NSW would need to source 50 PJ a year from other new sources – a gap that would be larger if the availability of supply from Bass Strait and central Australia was constrained.
Most importantly in the nearer-term, warns ACIL Tasman, NSW is “materially uncontracted” for gas post 2017, with deals starting to expire in 2015.
In the light of competing demands, say the consultants, there is no guarantee that contracts will be renewed – and a greenfields CSG project could take four to seven years to be commissioned.
Just one example of the potential contractual hassles is the question of what will happen in Victoria, currently supply 77 PJ a year to NSW, if the “clean energy future” policies do result in closure of a significant amount of brown coal generation in the Latrobe Valley?
ESAA, in its submission to the NSW Legislative Assembly Public Accounts Committee, which is examining power generation issues, calls for policymakers to appreciate not only the implications for the State of limited access to its northern coal seam gas resources, but also the ramifications for the east coast of a whole if the anti-CSG campaigns north of the Murray have a significant impact on gas availability.
Even with a supportive environment for gas extraction, questions will continue to be asked about what the fuel will cost.
Consultants Port Jackson Partners are among those who expect east LNG net back prices will send local costs to international parity levels.
What global prices will be is open to debate, too, in the wake of the emergence of the US shale gas revolution.
Assuming a rise of $4 per gigajoule in east coast domestic prices, PJP estimate that wholesale electricity prices for gas-fuelled generation could increase by $28 per megawatt hour late this decade – to which, they say, a carbon price at $27 per tonne would add another $14/MWh.
It is this sort of figuring that casts a shadow over the efforts by Julia Gillard, Wayne Swan, Greg Combet and others to wave away concerns about the carbon tax and point to electricity network charges as being the big issue.
Unfortunately for them, the PJP modelling of residential electricity prices in NSW in 2017 shows that wholesale costs (allowing for high gas prices and the carbon tax) could go from around 7.4c per kWh today to 14.9c in five years’ time.
Throw in the cost of the renewable energy target and the generation part of the bill will be 15.5c – by comparison PJP see the network charges rising from 9.7c now to 16.9c in 2017.
In looking at this situation, one needs to not lose sight of prospects for supply of shale gas from the Cooper Basin in the ‘Twenties and of natural gas from deeper resources in Bass Strait. (ESAA point out that production costs for some new fields in the Gippsland Basin could be about $7.20/GJ.)
None of this makes for easy planning by policymakers, but the need for a strategy could hardly be more clear.
It is also clear that New South Wales would be a great deal better off today if Bob Carr had followed through in 2005 with an energy white paper.
Seven years later the questions he should have addressed now urgently need a policy perspective for the medium and long terms.
Actually, the policy timeline goes back further than this.
I still have a 2001 publication from what was then the NSW Department of Mineral Energy Resources in the Carr Ministry of Energy and Utilities – it’s entitled “Electricity Reserves and Generation Options.”
This predates the shift in NSW from winter power peaking to summer as the air-conditioning rush took effect.
It also predates the emergence of coal seam gas as a major east coast fuel. The report barely canvasses the CSG issues.
A lot can change in a decade, but there is no escaping the fact that, by late 2004, the Carr government was aware of a looming State gas supply issue – nor the fact that, as he now jets around the world as Foreign Minister, the rest of us in NSW are confronted by hassles he could have addressed years ago.