Archive for September, 2013

The focus on gas

After the New South Wales government energy security summit last week (which mainly focussed on gas), we move to Adelaide tomorrow (1 October) for an important Australian Petroleum Production & Exploration Association conference on onshore gas.

The conference (and the summit before it) are taking place when the eastern Australian gas market is undergoing fundamental change, heavily influenced by the LNG developments based on Gladstone and by the imbroglio over coal seam gas in NSW.

Any intervention that involves 1,550 petajoules a year of extra demand (the LNG requirement) is naturally going to impact on all the rest of the east coast market — and this impact is already arriving (ahead of the 2014-15 commissioning dates for the LNG projects) in the form of new domestic contracts that include prices consistent with export network levels.

As the NSW summit reinforced last week, the east coast market’s biggest issue — but not the only issue — is that the State’s supply contracts are expiring in the same time frame (2015-18) that the export projects come on line.

To quote a new Australian Energy Market Commission review of the situation,included in a scoping study report just released, “conditions are expected to continue to tighten over the next three to five years as domestic customers compete with each other, and potentially LNG proponents, to secure supply from a much smaller set of producers.”

Martin Ferguson, reacting to jibes about the the supply situation from manufacturers in the NSW summit audience, asked pointedly whether they had not taken a punt on the supply situation and now find themselves in deep water? Ferguson will be prominent at the APPEA forum, too.

In an environment where some commentators and various radical greens are arguing that the NSW “gas crisis” is a confection, it is interesting to see the AEMC paper say: “Whether or not there will be sufficient gas available to domestic customers during this period (2015-18) is another question.”

It adds: “The critical question is whether domestic production will be able to expand rapidly enough to address the supply shortfall that is expected to arise.”

Not, dare I point out, whether we can build sufficient wind farms and solar power farms on the east coast to satisfy the carboneers.

As needs constant repeating, the issue is not a shortage of gas.

As AEMC says, a number of new sources of supply have been mooted — these include the Kipper field in the Gippsland Basin, the Gunnedah Basin, the Gloucester Basin, the Ironbark field in Queensland’s Bowen/Surat Basin, unconventional sources in the Cooper Basin and the South Nicholson and Isa Super basins in the Northern Territory and north-west Queensland.

This is where the focus of the APPEA conference tomorrow and Wednesday really becomes important: are the policies and regulations imposed by governments good enough to bring these copious supplies to market in the time frame faced by users — and at what price?

AEMC’s comments are relevant here, too. “Bringing these new sources of supply on line will require a significant investment in upstream facilities and, in some cases, new transmission pipelines,” it says.

To put this another way, all the political rhetoric in the world has no value unless investors are prepared to put their funds to work.

The radical green movement has spent years advocating throwing government money at alternative electricity supply — and has succeeded to the substantial cost of consumers and taxpayers — but this will not wash in the gas supply zone: if you want the gas, the private sector has to be prepared to spend billions of dollars and has to be assured of an appropriate return.

The AEMC paper ackowledges that the precise effect of the fundamental changes in the east coast gas market is unclear and it reports four “general perceptions” in the marketplace:

First, conditions will continue to tighten as LNG projects ramp up and a large number of supply contracts expire.

Second, in the relatively short term, more gas from Victoria is likely to be the means of meeting needs in NSW, the ACT, South Australia and potentially Queensland.

(This is the “elephant in the room,” a phrase that got a real workout at the NSW summit, at the APPEA conference, which is focussing on onshore issues — the Victorian gas, of course, being located offshore.)

Third, gas prices across the east coast will “converge towards the LNG netback.”

Fourth, the other expected driver of  eastern Australian gas requirements this decade — gas-fired electricity generation — is really no longer an issue as power demand continues to decline and no new power stations are required unless conditions in the “NEM” change materially.

Releasing the scoping study, AEMC chairman John Pierce, not a speaker in Adelaide but a key contributor to the Quest Events conference on the Eastern Australian energy market outlook later this month (an event with which I am heavily involved), makes the point that we need a strategic plan for gas supply on the east coast focussed on the next 10-15 years.

In this, he is absolutely right and one can hope that the federal government report on eastern Australia’s gas market, commissioned by Gary Gray last May and due for delivery by the end of this year, will reinforce the point — and that new federal Industry Minister Ian Macfarlane will be able to cajole and drive his State and Territory counterparts (through the CoAG process) to deliver a strategy.

Some 400 people will be in Adelaide tomorrow for the APPEA event and the opening salvo of the conference includes talks by the South Australian Premier Jay Weatherill, the Northern Territory Chief Minister Adam Giles (who wants a north/south pipeline), Ferguson (whose paper is titled “Australia’s place in the golden age of gas”) and Chatham House professor Paul Stevens (speaking on “Success needs unconventional thinking on policy”).

The focus on gas today has no precedent in national public debate since the 1980s (when the LNG industry was getting off the ground and federal Labor was recovering from the Rex Connor push to build a west/east pipeline to bring the north-west gas to the east coast).

Finally, as I am forever pointing out, it’s context that matters in these debates — and it is the cost of gas for east coast users that is the central issue today.

The AEMC consultants’ report observes that the supply shortfall period of danger is 2015 and 2016 — consider this against impending elections — and the impact on retail prices will strike home in 2015-18.

A doubling of wholesale prices could result in a 33 per cent rise in retail prices.

On any reckoning, gas suppliers and users face a bumpy journey over the rest of this decade — whether this will see travellers caught up in detours, collisions or worse remains conjecture

Bye-bye

This morning I fielded a phone call from a friend highly irritated by the “Bye-bye Bondi” front page story in the Fairfax Sydney Sunday tabloid, using a fake photo to illustrate how global warming will lead to the loss of the famed beach and “regular flooding” of Sydney beachside and inner west suburbs.

The peg is the new report of the Intergovermental Panel on Climate Change.

“What can we do about this stuff?” my friend asked. (He is engaged at least in part in helping the energy business handle its issues management.)

Well, for a start, I replied, suggest to all your acquaintances that they shouldn’t buy the rubbish that purports to be newspapers, especially on Sundays.

The Fairfax Sydney Sunday paper saw its circulation fall 20 per cent in the past year anyway. The News Limited Sunday Sydney tabloid dropped 10 per cent.

Hasten their end. Pass the word.

Not only is a large part of their Sunday content not worth reading, but consider their impact on the environment.

I would like the ever-so-green-leaning Fairfax company to prominently publish an independent report on its use of trees, of (mainly coal-fired) electricity and of water as well as the aggregate supply-chain emissions of greenhouse gases in its newspaper operations, including those of the suppliers of paper and of electricity.

The wind farm business likes to tell us how many households can be supplied by the output of aeolian project energy; let’s get Fairfax to tell us how many average households are represented by its emissions.

How many acres of trees – measured in the average size of suburbs in, say, Sydney – are felled each year to produce these “newspapers?”

I even have a headline that will fit on a tabloid front page in 144 point type to put over these revelations: “Is it worth it?”

And if companies selling cars and alcohol and so on want us to buy their products, should they be contributing to this elephantine footprint on our precious environment?

This has nothing to do with the freedom of the media, you understand?

Electronic media will be as free as ever, under the law, to throw their versions of news and their views at us. I frequently disagree with a lot of what these media publish – and defend their right to do so to the hilt.

But is it wise for this 19th century version of news dissemination to continue to be foisted on our fragile environment.

Add the overall Fairfax impact to that of all the other newspapers of the western world and of the developed nations of Asia, Africa and South America and do you not have something here that should come to an end in the interests of saving the planet?

After all, why do the owners of these newspapers continue with this meretricious practice when they have electronic alternatives?

It’s nothing but greed for profits – from sales of their products and of the advertising in their products.

They are “big polluters” – I’d be really rich if I had $5 for every time the Fairfax media alone has used that phrase over the past seven years – and, as writers for Fairfax, the ABC and elsewhere tell us constantly, all such should be given short shrift when they squeal about their environmental sins being revealed and pursued.

And we, dear readers, literally have it in our hands to do something about this: stop buying these “newspapers;” start with the Fairfax Sunday tabloid that is so concerned about Bondi beach etcetera.

Will our doing so help save the planet?

Oh come now, isn’t that what Fairfax and “our” ABC and others in the media have been suggesting and saying for ages about our households moving to the use of rooftop solar power, for example?

What about the jobs involved in the newspaper supply chain?

Alas, how can these be considered different to the jobs involved in coal mining, for example, an industry for which Fairfax newspapers, for one, have few kind words?

Will this herald the end of newsagents across the country, businesses that are part of the fabric of our suburban life?

Sorry, but you really do have to think of the big picture.

Do you want to be part of behaviour that leads to Bondi beach “shrinking to a thin ribbon of sand because sea levels can be expected to rise 80 centimetres by 2100”?

Dwell on these words from the “Sydney Morning Herald,” hailing the new IPCC report: “Future generations will look back, see the clear evidence of human-induced climate change in this and previous reports and wonder why more wasn’t done sooner to tackle the problem?”

Well, my fellow Australians, here is an opportunity to do something positive and to save yourself money at the same time – why delay?

Ghost who walks

Now let’s see if I have this right.

First, the Greens oppose all coal seam gas developments, both because it is a fossil fuel and they have a pathological opposition to hydraulic fracturing.

Second, in New South Wales they are currently claiming that the State’s impending problems with gas supply are a “phantom crisis created by the rush to export gas to Asia.”

Do they, I wonder, ever stop to ask themselves what we would have without a coal seam gas industry?

The answer is simple: a substantial pipeline delivering natural gas to Queensland and further south from Papua New Guinea, 4,000 farmers (and counting) without quite lucrative deals for use of their land, a loss of 30,000 jobs, no royalties and taxes flowing to our government revenues from the CSG industry and a rather large dent in GDP over the next 10-12 years.

As well, in terms of price, manufacturers wanting a reservation policy might care to note, in these circumstances, they would be paying an international parity price to PNG suppliers plus the cost of pipeline carriage – let’s say $10 or more per gigajoule.

All of this is something of a sideshow.

The main game right now is how Premier Barry O’Farrell and his cabinet handle the urgent need to resolve the current CSG impasse in New South Wales.

The “energy security summit” his government held at Darling Harbor yesterday – with Sky News managing to lead its bulletin on the event with the fact that a literal handful of demonstrators had been shooed out of the Convention Centre – covered a considerable amount of ground, not all of it about gas, but the real “elephant in the room,” a phrase that got trotted out rather often, was whether the O’Farrell government can expedite approval for the Pilliga Scrub, 3,000 square kilometres of semi-arid woodland near Narrabri, heavily exploited for forestry until 2005 when Bob Carr put it under a conservation order, to become the State’s next source of gas.

Given a go-ahead, developer Santos targets being able to contribute gas to the State from the Pilliga by early 2017, aiming to deliver a quarter of NSW needs.

The pro-CSG theory is that, as in Queensland, once the State’s community sees a successful operation under acceptable regulatory scrutiny, it will become less difficult to pursue developments in other areas.

The perspectives on the outlook once the current supply contracts for NSW roll off by 2017 if the Pilliga project is baulked are many and varied.

(Except for the Greens, who are clear the whole thing is a spook story.)

The extent to which extra supply from Victorian gasfields can be sourced, what this would cost and how long it would take to bring it to the market are fertile ground for debate.

New federal Industry Minister Ian Macfarlane came to the Darling Harbor forum to do three things – stress the need for O’Farrell’s government to show “leadership” on this issue, warn that there could be long-term dire consequences for industrial employment if the mooted crisis occurs and signal the Abbott government’s desire to help facilitate a breakthrough.

On cue, the “Sydney Morning Herald” conjured up Nature Conservation of NSW to warn that this isn’t about meeting State needs but to “accelerate the development of an export industry.”

The forum attendees – all invited by State Energy Minister Chris Hartcher – were also visited by Northern Territory Chief Minister Adam Giles to suggest that there is another way: link the considerable NT onshore resources to the south by a pipeline through Moomba.

Interesting, said Labor South Australian Premier Jay Weatherill in Adelaide, but for a different reason: such a pipeline would open access to Darwin for export of SA’s considerable unconventional gas resources!

I thought AGL Energy, the biggest NSW gas retailer, won the day’s biscuit for this comment from its Sydney HQ: “We will welcome more gas supply options at a reasonable price to address the potential shortage in NSW later this decade.”

That’s the phantom shortage, right? The one the Greens and adherents can see right through?

(En passant, may I record that, at the latest count, the Greens attracted 336,652 votes in first preferences in the NSW Senate contest. The Coalition picked up 1,491,672 versus Labor’s 1,373,341.

(The Greens were solidly outpolled by the Liberal Democrats – who drew 414,071 votes in what is widely regarded as a case of mistaken identity, people thinking they were putting their hand up for that Mr Abbott — but there’s another set of numbers that are worth noting.

(The Stop CSG group drew 4.145 votes, rather less than the Stop the Greens mob with 7,748 or Smokers’ Rights with 8,377 or the Bullet Train group with 9,173 or the Pirate Party with 14,382 or the HEMP group with 29,756 or the Sex Party with 44,403 or the Shooters & Fishers with 54,358 or Fred Nile’s bunch with 72,029.

(In fact, if you add up the Sex Party plus Fred’s folk plus the Shooters plus HEMP plus Clive’s coterie plus One Nation plus Wikileaks supporters, you get 436,485 NSW Senate first preferences, rather more than pledged themselves at the ballot box to total opposition to CSG development in the State.)

Coming back to the NSW government forum, which drew State Treasurer Mike Baird for a time, the core message from Hartcher can be paraphrased like this: “People are looking for a resolution. Our energy security is being challenged. Coal seam gas is our best chance to maintain this security. We are trying to develop common understanding among major stakeholders.”

Some context was provided by Jim Snow, a director of consultants Oakley Greenwood and one of the keynote speakers.

As Snow sees it, the likely outlook is that NSW will be relying on gas from Victoria and South Australia under tight east coast supply constraints from 2015 onwards.

Tucked away in the data he showed the forum is a point that caught my eye: on the present outlook, we are heading towards a residential gas price above $40 per gigajoule by 2017 – and electric reverse cycle air-conditioning will cost up to $25/GJ.

This might have an interesting impact on the winter household need for warmth later in the decade – with greater demand for electricity mostly fuelled by black coal-fired generation and with new pressure for the NSW peak power load (which is highest in winter).

Did I hear a Green saying “What about solar power?”

We are talking about the winter, silly.

We need a plan

While New South Wales is struggling to come to grips with its immediate energy future – holding an all-day forum on the issue in Sydney tomorrow (26 September) – its neighbour, Queensland, is further down the path, seeking to establish a 30-year strategy for electricity.

In the week after the federal election, the Queensland Energy Minister Mark McArdle tabled in the State parliament a discussion paper pursuing his government’s efforts to develop a strategy, following up an initial paper produced late last year and a spell of consultation across the community and with leading stakeholders.

McArdle told the parliament that the Newman government wants to establish “a resilient, cost-effective and customer-focussed electricity sector” with consumers “as the pinnacle.”

The discussion paper, titled “Powering Queensland’s future,” can be readily found on the Web.

In 2011, McArdle’s fellow Queenslander, Wayne Swan, then federal Treasurer, along with Greg Combet, unveiled the Gillard government’s energy plan that purported to tell us in detail which generation technologies will deliver electricity in 2050.

Yet another Queenslander, the new federal Minister for Industry, Ian Macfarlane, intends to revisit the energy white paper (published in December last year) over the course of the next 12 months with a particular focus on “energy security.”

McArdle told the Brisbane parliament “We cannot even envisage what (power) technology will look like in 30 years” – which is perhaps a bridge too far, although, as I have written a number of times, I defer anyone to tell me they were envisaging a coal seam gas export industry in the 1980s.

As the discussion paper explains, the State government actually wants to do two things: address the issues that need attention for the next five years and set in place a roadmap for power supply for the longer term “to facilitate and encourage change.”

Hanging over the government is the fact that electricity prices in the State have effectively doubled (in nominal terms) over seven years, upsetting householders, small businesses and large commercial and industrial users.

What the Chamber of Commerce & Industry Queensland wants the government to do is to focus on five issues:

First, “what is more important, electricity price competitiveness and sustainability or network reliability?”

Second, what can be done to promote further retail competition in south-east Queensland and to facilitate competition in the other 97 per cent of the State?

Third, improving the efficiency of the “underperforming” supply sector.

Fourth, what can be done to diversify the generation mix and the location of power stations? (Is nuclear energy a realistic option, CCIQ asks?)

Fifth, should the State-owned assets be privatised?

The scenarios produced for the government by its Department of Energy & Water Supply don’t propose answers to these or other current questions but to paint three pictures of what may lie ahead.

They are worth reading in detail.

One of the prospects used in the modelling is growth in the State’s power demand from around 44,000 gigawatt hours a year now to between 61,000 GWh and 71,000 GWh annually by 2032, climbing on the back of continuing population growth and strong onward resources development.

Everyone will have his or her own view of the future for the electricity supply system. We are harangued almost daily by green-tinged views that see it going to mostly renewable energy.

Personally, I note with interest the scenario in which the Queensland modellers comment that the State system is “in for a bumpy ride,” with slow demand growth and inefficient use of assets creating ongoing price pressures.

This outlook includes investor uncertainty impacting on building of new generation, continuing hassles in sourcing finance and no viable, cost-effective, low-emissions technology being ready to hand.

It’s a scenario where there is ongoing difficulty addressing customer (ie mass market) confusion about power pricing and hesitation about taking up products offered by retailers.

This is an environment where many customers expect government to go on “managing the market” and “the price debate remains highly contentious and imposes a financial burden on the State.”

All this, the scenario postulates, eventually forces suppliers to deliver new services for accommodating customer needs and to pursue technologies that enable them to deliver electricity more efficiently.

No silver bullets here.

This paraphrase does not do justice to even one scenario – and the other two offer a whole smorgabord of alternative views of the world.

All of this reinforces the Australian Industry Group comment, in a submission to the review, that “all future technology options have strong detractors and involve community concerns, whether about carbon emissions, local environmental impacts, aesthetics or safety.”

As AiG adds, what’s needed is a policy and regulatory framework that is stable, open to innovation and minimises intervention in the market while enabling technologies to compete on their merits.

Harder to do than to say and applicable to way beyond the borders of Queensland.

Reality check for green romantics

Why are Michelin and Airbus metaphors for a debate that needs to be given high prominence here as well as in some other parts of the western world?

I’ll explain in a moment.

Let me start by making the point that today German voters are sitting in judgment on Angela Merkel and her government.

Unlike Kevin Rudd, “Muti” – that’s “mother,” her nickname – is unlikely to lose her job but she may have a different set of coalition partners.

(According to a major political research company, Forsa, one in two Germans is unhappy with the way Muti’s government is managing energy issues even as they support greening the generation sector. How will that play out in the official poll today?)

As well, this is a week when the Intergovernmental Panel on Climate Change will release its first report in five years and it’s a racing certainty that the new Abbott government here will be deluged with propaganda from the Greens, “our” ABC and the Fairfax Media – interchangeable in some respects – about how big a mistake it is making in pursuing its intended carbon policy revisionism.

It’s also a week in which you can expect some media waffling locally about the dodgy government of Francois Hollande announcing that it is going to impose a levy on nuclear power as well as a tax on fossil fuels to fund a 20 billion euros a year francophone version of Muti’s energiewende.

Hollande’s prime minister, Jean-Marc Ayrault, announcing the move (to loud applause from the Greens) this weekend, did not bother to explain how the Socialist government plans to square this with its election pledge that it will halve France’s nuclear use and keep down consumer energy bills.

Which brings us back to Michelin and Airbus.

The French tyre producer has announced it is building its next major plant in South Carolina rather than expanding existing ones in Hamburg and Toulouse — while Airbus, an iconic European business, is to build its next A320 assembly plant in Alabama.

They are far from alone.

Royal Dutch Shell, headquartered in Holland, is to build its next multi-billion dollar petro-chemical plant in Pennsylvania.

Dow Chemicals is opening a new plant in Texas and closing facilities in Belgium, Holland, Spain and Britain.

And so it goes.

As Antonio Tajani, the European Union commissioner for “industry and entrepreneurship,” is warning: “We face a systemic industrial massacre.”

Energy costs are a big part of the shift across the Atlantic.

This includes substantially lower crude oil costs in America, helping to attract investment from companies making plastics, pharmaceuticals, industrial chemicals and the like, as well as the impact of shale gas on direct users of the fuel and on power generation.

Market researchers IHS predict that US chemical production will double by 2020 while European output will fall by a third.

The Merkel government has tried to stem the outflow of investment and jobs by making power available to large, energy-intensive industries at low rates.

Initially when she introduced the renewable energy subsidies, Merkel exempted businesses using 10,000 gigawatt hours a year of electricity.

This has been lowered to 1,000 GWh annually, allowing the local versions of Coles and Woolworths to add up all the energy their stores consume for lighting, heating and cooling to claim a handout.

The European Commission has declared the practice “unacceptable” – that’s EU speak for unlawful – and any legal proceedings have been carefully delayed until after the German elections today.

In the aftermath of the poll, once the machinations to form a new coalition are concluded, Merkel will have to step in to start controlling electricity costs – that is to reduce renewables handouts.

And she will have to curb the industrial rort on power prices or have her hand forced by the European Commission (which admittedly moves at the same pace as the mills of God.)

Perhaps “our” ABC and others will mount a special effort to explain to us why Abbott doing this is a catastrophe for the planet while Muti’s moves are just good green housekeeping.

Reuters are reporting this weekend that an overhaul of German policy on renewables will be a priority after the election.

The main German industrial association, BDI, wants the new government to rule that only green technologies at the early stages of their development should be eligible to receive premiums over the market price of power.

Perhaps the point that translates most sharply from Germany to here comes from Christoph Schmidt, chairman of the Sachsverstandigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung.

The German media call it “Funf Wirtschaftsweisen” or “Five Sages of the Economy.”

It’s the expert council of economists that has been advising the German government and parliament since 1963 and it is appointed officially every five years by the German president (but of course chosen by the federal cabinet).

Last week Schmidt called for a radical rethinking of Germany’s energy policies.

“We need a drastic policy shift,” he said. “(Proper) attention has not been paid to costs. These are now huge. There have been too many mistakes.”

BDI, not surprisingly, was out of the starting blocks like Usain Bolt once Schmidt spoke, declaring that “green romanticism is playing havoc with German power supply.”

The government’s policy is not “joined up,” added BDI, echoing the same point, as I have reported here before, that the Little Hoover Commission has made to the Californian governor and state congress – and this also is the issue that is bedevilling our own approach to energy security and affordability with a reduced environmental footprint.

The failure of Rudd, Gillard, Swan, Wong, Combet and (briefly) Rudd again to come to terms with “joining the dots” and the true costs of our current set-up are at the heart of our problem.

Put another way, far from being Attila the Hun, Tony Abbott is heading in broadly the same direction that the industrial powerhouse of Europe will have to go and other European nations face following (other than monsieur Hollande, which probably only serves to further underline the point).

As Gunther Oettinger, the EU energy commissioner puts it, “we need industry – we cannot be the good guys for the world if no one follows suit.”

Can you imagine how “our” ABC, the SMH, “The Age” et al would react if Tony Abbott said this?

Gas fires more debate

Former federal Resources & Energy Minister Martin Ferguson is putting himself about a bit on the gas scene at the moment.

First he will co-chair next week’s New South Wales Energy Summit being held in Sydney by the State government and then he will figure prominently in the onshore gas conference being staged in Adelaide by the Australian Petroleum Production & Exploration Association.

Apart from an address to the APPEA onshore conference, Ferguson will take part in panel discussion on the topic “Conflict to harmony: getting it together” also featuring National Farmers Federation president Duncan Fraser, APPEA executive Rick Wilkinson, Paul Zealand (CEO of Origin Energy’s upstream operations) and Australian Conservation Foundation president Ian Lowe – a debate moderated by journalist Ali Moore.

Wilkinson is also speaking at the NSW meeting. He says the State’s householders and businesses face a “rude shock” if the coal seam gas impasse there cannot be resolved.

APPEA is using its $5 million advertising campaign on gas issues to highlight the contribution the upstream petroleum industry is making to the community through paying royalties and taxes – pointing out, as I write this, that its members have paid $6.34 billion since New Year’s Day “to fund schools, hospitals and infrastructure.”

The Conservation Foundation, on the other hand, wants a moratorium on “all CSG mining” until environmental protection issues are resolved.

(In passing, it may be worth noting that, on the Australian Electoral College numbers to date, three times as many voters in NSW gave their first preferences to the Pirate Party than to the Stop CSG group, which also received half the votes of each of the Stop the Greens, Smokers’ Rights and Bulletin Train groups. In the Senate poll in NSW, the Greens pulled 7.62 per cent of the preferential vote.)

Ferguson made his personal view clear earlier this month, in speaking at another forum, where he called for political leadership in NSW to overcome the “misleading campaign” against coal seam gas development.

CSG production is needed in the State, he said, to avert a domestic price spike in 2015 or 2016. He urged governments – and especially the one in NSW” to “call out ideological crusaders opposing CSG and almost any form of wealth-creating development” while carefully regulating projects.

Two first ministers will speak to the APPEA event – South Australia’s Jay Weatherill and the Northern Territory’s Adam Giles – during two days where the focus will be strongly on the regulatory scene, as exampled by a paper entitled “Red tape, green tape – navigating the changing CSG regulatory environment” to be delivered by AGL Energy’s Suzanne Westgate.

Among the papers likely to get a fair bit of media attention are two by Santos’s James Baulderstone (on gas opportunities in eastern Australia) and by the Grattan Institute’s Tony Wood (on what the “gas revolution” means for Australia).

The NSW government event is another step by the O’Farrell regime along the tortuous path of trying to reconcile upstream petroleum industry and agricultural interests – amid much waving by the radical arms of the environmental movement – in order to avert a crisis in the State’s gas supply.

The new federal Minister for Industry, Ian Macfarlane, a Queenslander, has lost no time since the election to rub in some salt for NSW, telling the “Australian Financial Review” that it is “inconceivable” his native State could now have 4,000 farmers on individual contracts with CSG companies but “next to none” – actually about 200 – across the Tweed River.

(It says something about the media’s hassles in getting across these issues when a paper like the “Fin” can go on to point out that “current NSW wells will run dry by 2016.” Of course, they won’t but they provide just five per cent of the State’s gas supply, with the rest coming from interstate and these contracts starting to roll off at the end of next year and being all expired by 2017.)

NSW Resources & Energy Minister Chris Hartcher, who is convening the meeting, says the future energy mix for the State is more than a political issue. “It’s a community issue.”

He has lined up a strong cast to start the summit ball rolling, engaging talks from Business Council president Tony Shepherd (“Seeking energy security in NSW”), Deutsche Bank chief economist Adam Boyton (“The economic challenges facing NSW”), Oakley Greenwood executive director Jim Snow (on energy supply and demand trends for the State) and Deloitte partner Kumar Padisetti (a presentation dubbed “The NSW picture: implications and impacts.”)

Ferguson’s co-chair at this forum will be Robert Webster, a Coalition energy minister in NSW in the early 1990s, a grazier and a director of Brickworks, a manufacturer with vocal concerns about rising gas prices.

The juxtaposition of the APPEA and NSW government conferences is sheer coincidence, but, together, they will provide some much-needed extra context for the vexed issue of east coast gas development.

The NSW problems with gas supply are not trivial, as two submissions to a Legislative Assembly committee make clear.

First, EnergyAustralia, which says: “After decades of stability, it is currently unclear where the NSW economy and households will source gas in the second half of this decade and at what price.”

Second, AGL Energy chief economist Paul Simshauser, who told the committee: “There will be upward pressure on gas prices over the coming years and genuine risks to the security of gas supply in winter peak periods in the latter half of this decade.”

While these conferences will fire more debate, the point at issue is that this situation needs resolving asap.

A tough gig

If you can be bothered to wade your way through and round the media nitpicking about Tony Abbott’s first ministry, there is a piece in “The Australian Financial Review” on Tuesday that is well worth reading.

For me, part of the context in reading it is the inherent problem of Abbott sort-of reincarnating Ian Macfarlane’s original portfolio in his new set-up.

John Howard appointed Macfarlane Minister for Industry, Tourism and Resources in 2001, a twist on the musical chairs game with energy that stretched back to the Hawke government’s shift to “super-ministries” in the 1980s when the sector found itself riding a sheep’s tail in Primary Industries & Energy.

In the Abbott government, Macfarlane becomes Minister for Industry (an outcome of the electorate of Indi clobbering Sophie Mirabella) and Minister for Resources, Energy & Science.

This is a strenuous workload, as indicated by Macfarlane’s comments after the announcement that salvaging the car industry is the biggest challenge in the industry portfolio.

One could write a longish list of the big challenges in the energy part of his portfolio, too.

Macfarlane is experienced and personally well-briefed across the energy issues.

The outgoing Minister, Gary Gray, repeatedly paid his respects to both Macfarlane, a political opponent, and his predecessor, Martin Ferguson, who quit over the ongoing rifts in the Labor Party over Julia Gillard’s prime ministership, when he spoke at conferences in his few months in the portfolio.

He didn’t have to do it, but it was acknowledgement that much of the ground on which he stood had been laid by the pair over a decade.

A serious challenge for Macfarlane will be how much time he can now devote to energy issues, which are a major factor in politics and economics today, while handling all else on his plate.

He will be supported by Bob Baldwin, as parliamentary secretary for industry, also a reprise of a position held in the closing two years of the Howard government.

The toughness of the gig Macfarlane is taking on again is underlined by the commentary in “The Australian Financial Review” to which I referred above.

Written by Ferguson, it is a reaction to criticism by Tony Wood of the Grattan Institute that national energy market reform has languished in recent years.

(Wood is not alone in holding this view; the Productivity Commission grumbled about the “tardy” management of electricity-related issues through the Council of Australian Governments in its recent report on networks.

(Robert Pritchard, executive director of the Energy Policy Institute of Australia went further this week. Also writing in the “Fin,” he opined that “energy and climate policies are in disarray” and that they “lack any unity of purpose (and) any enabling mechanism” to work towards that unity.

(My own concern, expressed repeatedly in the past year, is that the Gillard government’s energy and carbon policies lacked a cohesive design, an over-arching plan – despite all the rhetoric from Gillard, Swan and Combet – and, in particular, lacked a dispassionate, comprehensive assessment of the total cost of implementation.)

Ferguson’s short essay (which the paper has chosen to headline “Good energy policy must be marinated”) deserves to be read in full.

My shorthand of its thrust is that (a) reform cannot happen overnight, (b) the responsibility is shared with the States and (c) no matter what the CoAG energy ministers may agree, the policies still have to be accepted by first ministers and cabinets.

Ferguson can’t resist adding: “ (over) the past six years, we have seen a range of governments sometimes act without proper process, putting the policy horse before the cart” and “in reaction, interest groups have often led counter-productive campaigns against legitimate reform.”

Right on both scores.

The key point, I think, is that Ferguson found it a hard slog just dealing with resources and energy plus tourism.

Macfarlane is taking on R&E plus industry plus science (notably the CSIRO). Even with Baldwin’s support, this is a significant stretch.

Apart from the challenges in manufacturing (several of them affected by energy input costs), the new federal government has a raft of energy-related issues (dominated by choice by its aim to kill the carbon price regime) on its hands – and a large set of stakeholders for whom time is a key concern along with its impacts on their plans, their risks and their costs.

That Macfarlane is aware of all this is a given. Ferguson was (and is) no less aware of it.

The critical issue is how far and how fast better policy can emerge from the process, bearing in mind Ferguson’s stricture that any energy minister is not a one-man band.

The proposed RET review, the proposed new energy white paper and the raft of factors at play (including the report Gray commissioned for delivery in December) in sorting out east coast gas supply issues to ward off significant problems are not molehills on the terrain Macfarlane is surveying as he waits to be sworn in.

Out of air, into ground

One of the touchstones of how the new Abbott government addresses greenhouse gas abatement is going to be the approach it takes to carbon capture and storage.

Contrary to the media myth that this a coal issue, CCS is also relevant to gas-fired power generation, cement production, chemicals manufacture and iron- and steelmaking.

As a big exporter of coal (30 per cent of the world coal trade) and of LNG, Australia has skin in this game for international as well as national reasons, but the local efforts to promote CCS research and development over about a decade have been less than stellar.

The Swan-song budget earlier this year paid lip-service to maintaining a $1 billion funding program for CCS over seven years from 2013-14 while slashing $500 million out of the allocation for the upfront three years.

The Coalition government now moving in to office has such funding in its sights for the budget cuts it needs to pursue its surplus promises.

Against this background, it seems rather ironic that Australia is on the cusp of launching the world’s largest CCS project – the sequestration of three million tonnes a year of carbon dioxide beneath Barrow Island as part of Chevron’s development of the massive Gorgon LNG operations.

This will start next financial year.

The Reuters news agency made the point last week that at present there are five CO2 injection projects – in locations ranging from Canada and Norway to Algeria – handling more than a million tonnes a year and that storage needed to be scaled up a thousand-fold to make a meaningful contribution to global abatement.

(I seem to recall the Global CCS Institute saying a while ago that there are eight operational capture projects currently preventing 23 million tonnes of CO2 a year from reaching the atmosphere and projecting this would reach 37 Mt annually by 2015.

(Whatever the total, this still represents only a virtual toe in the water.)

The International Energy Agency, of course, highlights CCS as “one of the essential strategies to limit climate change,” but it is hard to see from the present vantage point how the world is going to resolve the agency’s concern that “there is no climate-friendly scenario in the long run without CCS.”

I was struck by comments from the Grattan Institute’s Tony Wood in a newspaper commentary back in July. It was perplexing, he said, why the coal and gas industries in Australia were not making more fuss about what the Gillard government had been up to (excluding CCS from Clean Energy Finance Corporation support and steadily reducing financial support for R&D) and what the Coalition plans to do in this space.

This is the more perplexing so far as Labor is concerned because the Treasury work undertaken for its “clean energy future” policies foresees an important long-term role for CCS in power generation as well as mooting a big step up for wind, solar and geothermal energy in the national electricity supply mix.

(If I don’t add while ignoring nuclear opportunities, some readers will shout at me.)

I wonder what feedback on CCS Canberra gets from our High Commission in London?

The Brits are wrestling hard with accelerating CCS although it is by no means clear just how far the Cameron government is willing to push the process.

The Energy Technologies Institute in the UK – a public/private partnership focussed on accelerating the development of “affordable, secure and sustainable” technologies – made some points in a recent commentary that could (and should) resonate here.

“Although CCS appears an expensive addition to power generation,” the institute said, “it is one of the most important strategic levers this country could use for decarbonisation of the economy.

“Making early CCS projects investable and economically attractive is a key priority,” it went on. “Technology around CCS requires major investment now to build its viability and extend its role in energy system design.

“CCS is policy dependent,” it added, “so investors are sensitive but public-private partnerships and co-ordination mechanisms can help provide a financial solution.

“Technology which reduces (abatement) costs and accelerates deployment for new builds and retrofits by 2030 is a critical challenge.”

We could say much the same about the situation here, couldn’t we?

It would take rather a lot of space to set out all the challenges the Abbott government confronts in providing secure, affordable energy with a reduced environmental footprint but moving CCS along is surely one of them.

As the government moves towards being sworn in, this ball is at the feet of Ian Macfarlane, Joe Hockey and Greg Hunt in particular.

Even with Martin Ferguson working hard to promote CCS while he held the energy portfolio, the Rudd-Gillard-Rudd government did less to achieve the task set out by the UK’s Energy Technologies Institute than is needed locally.

The very least the new government here can do, I suggest, is ensure there is a rigorous audit of where Australia is at with CCS, what steps we could pursue to meet the IEA’s (and our Treasury’s) perspective and where we should be heading in the rest of this decade.

The armchair observers are free to see CCS as a pipedream, but a prudent government, overseeing Australia’s particular set of circumstances, would be well-advised not to be reliant only on improving energy efficiency, kicking along low or no emission sources of power and paying owners of old plants to shut down.

China conundrum

What’s happening in China is fertile ground for guesswork by government and corporate analysts as well as the chattering classes, and nowhere more so than in energy.

This week I see “Forbes” magazine headlining “The War on Coal Goes Global” on the back of statements about future approaches to coal-fired generation projects near three huge cities, Beijing, Shanghai and Guangdong.

And here is a quote from a mining website: “King Coal seems to have its days numbered as two of the most important consumers, the US and China, are ready to ban the construction of new coal-fired power plants.”

“Our” ABC, the Fairfax media and the Web’s green commentariat in Australia will no doubt be close behind.

“The Weekend Australian” today refers to “China stalling new coal-fired power stations” in a story about Queensland’s Galilee basin.

Context would be useful in such coverage.

Chance would be a fine thing.

Let’s start with the most basic of data: last calendar year China consumed 4.9 trillion kilowatt hours of electricity (to use the reporting mode they prefer).

This is an increase of 610 billion kWh over the 2010 level (or more than three times the east coast consumption in Australia).

Three-quarters of the Chinese power consumption is in industry.

At the end of 2010 fossil-fuelled generation capacity was 707,000 megawatts (mostly coal) and this rose to 758,000 MW at the end of 2012. (By comparison, in round terms, east coast Australia’s generation capacity is 48,000 MW.)

In July last year the Chinese government had plans for 557,000 MW of new coal-fired development, a 75 per cent increase in this capacity and most of these plants are not intended to be near the three big cities named in the recent announcement.

Put bluntly, for China, the “war on coal” line in the media is bulldust.

What may well constrain construction of these new projects – apart from the three giant cities move, which is related to the politburo being seen by China’s urban population to be trying to curb air pollution – is a lack of availability of water for plant cooling.

Sixty per cent of the proposed developments are in six provinces containing only five per cent of China’s water resources – provinces where competition for water between householders, agriculture and industrial users is already high.

It’s only a guess, but I should think water stress is second only to air pollution when China’s policymakers think about energy issues – where global warming comes in their discussions is an interesting question.

Now the green-tinged in the West want us to understand that China is becoming more reliant on renewable energy all the time – which is true, but most of it is large-scale hydro-electric power, like the Three Gorges project that greens hate with a passion.

Aside from hydro power, the real Chinese quest for zero-carbon electricity (in terms of energy sent out) is in the area of nuclear energy, with current expectations that reactor capacity will rise from 12,500 MW today (about the same as Victoria’s generation fleet) to 50,000 MW in 2017.

What it all means is that the percentage of coal in China’s generation mix is falling slightly – it is expected to be 65 per cent in 2017, down from 67 per cent last year – but the absolute amount of coal being burned to make power continues to climb.

By 2020, it is expected that Chinese coal consumption will be 30 per cent higher than in 2010.

A “war on coal,” eh?

The big driver of electricity consumption in China is its urban areas – where, for example, heat and humidity sent use of air-conditioning through the roof last month, achieving new peak demand records.

It is the growing unwillingness of the new middle class to put up with choking smog in all these cities that is shoving the nation’s rulers towards new approaches such as the one just announced.

The main thrust of this announcement is that concentrations of fine particulate matter in the urban atmosphere must be cut by 25 per cent in the Beijing-Tianjian-Hebei area in the north, by 20 per cent in the Yangtse River delta in the east and 15 per cent in the Pearl River delta in the south.

When you consider that the Chinese expect all their urban areas to add 350 million people – more than 60 Sydneys – over the next 12 years, there is only one direction in which power needs are travelling and the suggestion that these will be met by rooftop solar arrays or wind farms is laughable, as is the suggestion that fuelling of manufacture of the necessary infrastructure for such an enormous urban expansion will be trending towards zero emissions.

Given all this, we are not exactly well-served by western media, including those in Australia, doing their goldfish bowl imitation – “look, there’s a rock” – on each and every occasion there is energy news out of China.

An example is the breathless reporting that “China has built wind farms capable of generating 60,000 megawatts.”

That’s capacity not output, dear green-fingered keyboard jockeys.

Wind production contributes just two per cent of Chinese electricity output as do the nuclear reactors, with one-fifth of the nameplate capacity of the wind farms and no intermittency.
.
The real Chinese conundrum is why people supposedly informing us about events in this extra-ordinary country can’t bring themselves to do a better job of explaining the context.

PS: There has been a lot said about how we have benefitted from the development of Chinese production of cheaper solar photovoltaic technology – do you suppose, given those nuclear construction numbers, that we might find ourselves being offered Chinese nuclear technology that will turn local preconceptions of nuclear costs on their head sometime in the next 10-15 years? Only asking.

Gas & NSW

One of the more interesting things I am going to be doing this spring is to chair a one-day forum in Sydney on New South Wales gas supply.

The event (on 25 October) forms the third day of the “Eastern Australia’s energy markets outlook” conference and it is designed to provide an opportunity to shine some new light on the NSW gas debate, which, like all controversial issues, is the ongoing province of claims and counter-claims.

The forum’s speakers will be:

James Baulderstone, the Santos vice-president eastern Australia, focussing on the role Narrabri coal seam gas could play.

Paul Howes, national secretary of the Australian Workers Union, in the media at present because he is thought to be en route to the Senate, who will talk about why our unconventional gas resources need to be developed.

Paul Balfe, executive director of ACIL Allen Consulting, focussing on the scenarios for supply and price.

Jonathan Coppel, a commissioner of the Productivity Commission, addressing major issues in the project approval regime.

Sue Morphett, chair of Manufacturing Australia, on the ramifications for the State’s industry of supply insecurity and/or much higher gas prices.

Tim Reardon, executive director of the National Generators’ Forum, on the implications for the east coast’s gas-fired generation of the current and impending situation.

Steve Davies, policy advisor of the Australian Pipeline Industry Association, on how his sector can help resolve the present problems and contribute to a more transparent gas market.

(You will find the details of the forum and the three-day energy markets conference at www.questevents.com.au.)

I’ll be getting a tune-up on all these and more gas-related issues by attending the onshore gas conference of the Australian Petroleum Production & Exploration Association in Adelaide at the start of October.

Interestingly, the Liberals, who are seen as odds-on to knock off the Labor government in SA at the next poll (set for 15 March next year), have just announced that they will not oppose the use of “fracking” in the State to pursue unconventional gas resources.

However, it is New South Wales that is the centre of the gas debate and, with the federal election now out of the way, the O’Farrell Coalition government can be expected to be more openly focussed on coming up with a solution to what I agree is shaping as a potential crisis despite what some commentators may say to the contrary.

The Quest conference and its NSW gas forum are especially timely in this environment.

The dimensions of the NSW problem have been set out by APPEA in its submission to the State Legislative Assembly committee currently examining downstream gas supply.

The APPEA argument is that:

Without a secure, reliable indigenous gas supply for NSW, there are negative implications for the State energy market, particularly in terms of gas prices.

To limit these implications, NSW needs to see investment in “material” local supply.

Investors need recognition that the State faces a looming supply challenge and they require policy and regulatory certainty.

The madder side of the green corner argues that there is no issue because renewable energy will resolve all problems; the more cunning argue that there is no issue because there is plenty of gas elsewhere on the east coast and no need to exploit CSG resources in the State.

As I am wont to point out, the core issue with electricity and gas is that, unlike brands of coffee, cars or computers, their supply is demand driven; no electrons or molecules are produced without a consumer requiring them.

Those of a green persuasion are obsessed with curbing the use of fossil fuels every which way, while the energy users are obsessed with security of supply, which includes affordability – and industrial users in particular are less than happy with gas prices that have risen 57 per cent in six years and are now heading up, destination unknown.

Origin Energy’s take on the issue, as expressed to the Legislative Assembly committee, is interesting: “The east coast gas market is undergoing an important transitional period,” it says. “With annual demand expected to more than triple by 2017, the changing landscape has precipitated an increased level of scrutiny of existing market arrangements.

“There are also those in the market expressing concern about possible impacts on the overall domestic supply and demand balance – these concerns seem more heightened in NSW, given it is reliant on imports.”

Origin declares that it has confidence in the competitive market. “While the supply and demand balance is likely to be tight,” it says, “we believe there is sufficient flexibility and opportunity in the demand, supply and transport markets to allow the market to clear in NSW.”

The company argues that the east coast market is “a strongly interconnected system underpinned by robust mechanisms.”

Then the bit that will jar with users: “We consider there is sufficient opportunity and flexibility for the gas market to clear at a price that reflects the value of gas during this transitional period.”

It’s the heights the clearing price may reach that has major gas users in particularly in a state of anxiety.

Here is EnergyAustralia’s view (to the committee): “After decades of stability, it is currently unclear where the NSW economy and households will source gas in the second half of this decade and at what price. Unless new supply is negotiated, NSW could become short on gas as early as 2014-15.”

Are these business rivals really saying something completely different?

And here is the third of the trio of major suppliers:

AGL Energy’s chief economist Paul Simshauser tells the committee that, without development of an indigenous gas supply, “there will be upward pressure on gas prices over the coming years and genuine risks to the security of gas supply (for NSW) in winter peak periods in the latter half of this decade, adversely impacting NSW industry and the wider economy.”

Plus, as I have written here before, Santos has told the Legislative Assembly committee, that NSW consumers face “two unpalatable realities.”

The first, the company says, is the reduction of wholesale gas supply and choices for the State, limiting it to Victorian sources and “exposing customers to higher prices.”

The second, is “the simple inability of the transmission pipeline system from Victoria to supply the NSW market with enough gas for peak days, resulting in rolling ‘gas outs’ or demand load shedding” in periods of consecutive days of high demand.

All this is why I am rather looking forward to facilitating the Quest Events forum on NSW late next month – the event will be coming the day after the NSW Energy & Resources Minister, Chris Hartcher delivers a keynote speech to the main market outlook conference on “opportunities and challenges in delivering energy for NSW.”