Archive for May, 2015

Getting the message

For me, as the 2015 APPEA conference draws to a close in Melbourne, the major challenge facing the upstream petroleum industry and its lobbyists is encapsulated in a final day talk delivered by Roy Krzywosinkski, managing director of Chevron Australia.

His presentation is a strong focus on the achievements of the LNG industry over the past decade and not least, of course, the contributions being being made by his company and its partners through the Gorgon and Wheatstone developments on the west coast plus yet another pointer to the still-larger opportunities of further future development.

Our newspapers are certainly not ignoring the talk. Fed copies in advance, Wednesday morning’s papers have all reported some of the key notes of Krzywosinkski’s themes — on the business pages.  This does not matter so much in the West, where the community is quite well tuned to the LNG doings, given its importance to their State, but it flies way over the large, and politically important, residents of the eastern capital cities.

Here is the industry’s dilemma: while more nonsense than enough is talked about “social licence” in the public debate (and not least by politicians dodging and weaving around decisions in States like Victoria and New South Wales), the connection between LNG (and other large resource developments) and the (pretty good) way most of us live is lost to view for millions of Australians — and not least those who live within four kilometres of capital city GPOs on the east coast.

Many of these are people for whom the “You can’t eat gas” car bumper sticker is meaningful when it is, in fact, a fine example of energy illiteracy. (One of my acquaintances suggested at the APPEA conference this morning that we should produce another one that reads “Are you enjoying your raw hamburger?”)

The communications challenge for the industry is very large and it vies with lobbying needs to deal with tax issues and elimination of red tape and so forth, important to the bottom line of Chevron and other APPEA members, for attention (time) and expenditure.

I’m biased, of course, because I have devoted a large part of my working life for the past 35 years to the thesis that, if you can’t convince the broad community of the value of your business activities, you’re in political trouble.

In economic terms, the LNG story is compelling.

As Krzywosinski told the APPEA conference audience, there has never before been growth of the magnitude of the Australian LNG effort in any energy industry anywhere. “The scale,” he said, “is simply enormous.”

The LNG developments, and other upstream petroleum industry activities here over a half century, he added, have unlocked economic benefits, jobs and energy security for two generations of Australians.

Part of his story is that, using recent independent analysis commissioned by Chevron, the economic benefits flowing from its current project activities may have been under-estimated. Across the life of Gorgon and Wheatstone, he said, the contribution to national GDP is now seen as being about a half trillion dollars, equivalent to the size of the New South Wales economy.

More than 80 per cent of the projects’ spending will go to Australian suppliers, delivering tens of millions of dollars to local businesses each month for many years, with a still larger multiplier effect cross the economy — the suppliers have suppliers, too.

A key part of Krzywosinski’s talk is that a second wave of LNG developments, carrying another wave of economic benefits, is “at serious risk of not happening — at least in the foreseeable future.”

The reasons, as he explained, are many and complex but a key factor is this country’s declining competitiveness in an international environment where there is rising competition from other possible LNG developments.”

Until quite recently the LNG story carried little domestic traction with Joe (and Jo) Public, but the impact of the Gladstone developments on the domestic scene has changed this — and not in a way that works to the advantage of the export gas producers. A considerable amount of APPEA effort in recent years, still continuing, has been devoted to seeing off the proponents of gas reservation.

The situation is made worse by the gas sector also being under attack from the anti-fossil fuel brigade, who to date have been quite successful in NSW and Victoria in worrying politicians in to positions that are economically nuts but salable to at least some voters (and not least those in marginal seats).

Krzywosinski’s argument is that it is in the national interest to pursue a series of steps to maximize the benefits from gas production.

He points to the need for an attractive investment climate, a regulatory system that encourages industry growth, a much-improved industrial relations system, a globally-competitive taxation system and government support for research and development that will help facilitate projects.

A critical trick for the petroleum industry is creating a community (ie voter) environment that says sees the advantage to them in legislators going down these paths.

Krzywosinski commented in his talk that the federal government understands the issues and is “doing what it can in a tough political environment.”

Some of the steps, such as a more collective mindset between industry players to deliver shared benefits that can drive down costs, are down the companies to pursue.

The broader policy/regulatory environment requires bipartisan government action and, in turn, the community getting the message that this works to its benefit in a big way.

Krzywosinski said “If we look decades down the track, I see the legacy of the gas boom as a sustainable, world-class industry with benefits shared across the nation.”

Selling this message to the community-at-large is, shall we say, a work in progress.

Quite a difference

The contrast could hardly be greater.

On Monday, in front of most of the 2,600 delegates attending the Australian Petroleum Production & Exploration Association conference in Melbourne, the Victorian Treasurer, Tim Pallas, had star billing as a keynote speaker and managed to say very little to an audience full of investors — apart from encouraging the industry to engage with a Victorian parliamentary inquiry in to gas exploration and to understand that the extended  State moratorium is needed because the public is “confused and uncertain.”

On Tuesday, at a sidelines breakfast at the conference, with 70 people present, Pallas’s opposite number in South Australia, Tom Koutsantonis, who is also Minister for State Development and for Resources & Energy, spoke vigorously on what his State is doing to support investment by the upstream oil and gas industry and to “defend the future of the industry” while also pursuing high grade scrutiny of the quality of its activities.

“We have multi-billion dollar petroleum exploration programs onshore and offshore,” declared Koutsantonis. “We have long-term ambitions.”

The Cooper Basin, he pointed out, produced 17 per cent of Australia’s oil output in 2013-14 and the State’s far north has “enormous potential to produce gas from unconventional reservoirs for many decades to come.”

South Australia, he said, is “the epicentre of the (national) charge to develop natural gas from deep unconventional reservoirs.”

The State, as he proudly declaimed, has been independently assessed as having one of the world’s three best regulatory frameworks for these reservoirs.

One of the big challenges for the industry, he added, is fighting off “the forces that would put a moratorium on fracture stimulation and impose investment-killing policies such as gas reservation.”

South Australia’s Labor government, Koutsantonis promised, “will remain steadfast in defence of evidence-based policymaking and against those who peddle myths and untruths” to undermine the industry’s future.

The challenge for government and industry, Koutsantonis said, is to presents the facts about fraccing and other gas exploration and production activity in a way that counters its opponents’ adeptness in harnessing social media and other tools to promote negative imagery.

The South Australian government, he announced, is doing its share by publishing facts about natural gas and fracture stimulation in a readily comprehensible form for laymen. It aim, he said, is to tell the community how the technology works, its long record of success and how the risks can be safely managed.

A 16-page booklet the government has released at the conference notes that fracture stimulation has been used in South Australia in conventional and unconventional petroleum wells since 1969 and that more than 700 well have been fracced in the Cooper Basin with zero negative impacts identified.

The basin has delivered five trillion cubic feet of gas and 340 million barrels of oil and condensate over 45 years with a value in today’s money of $42 billion.

The government, Koutsantonis added, is doing its share to have independent evidence produced to allay community concerns.

It has commissioned research by the National Centre for Ground Water Research & Training on the impacts of oil and gas activities on aquifers and is in the process of also commissioning independent work by the University of Adelaide on best practice for cementing wells.

“We are committed,” Koutsantonis said, “to delivering the most conducive investment environment possible to support the resources and energy sector and the jobs and the prosperity it creates for South Australians.”

Part of this effort, targeting an industry obsessed by cost reductions in a volatile global oil price environment, is to phase in reductions totalling 35 per cent in South Australian retention licence fees over four years.

He pointed to other efforts the State government is making, including sponsoring a roundtable to help drive innovation through co-operation in the oil and gas sector.

In a political environment where governments in other southern States — the Coalition in New South Wales and Labor in Victoria (and before them the Coalition) — are continuously wriggling to cope with the media-fuelled forces fighting to stymie fossil fuels and gas development in particular, the South Australian stance is giving the petroleum industry heart.

The sector’s task is to persuade Victoria and NSW to act similarly to inform their communities and to set the ground for well-regulated activity  — rather than to walk firmly in the direction of away while throwing exhortations about “social licence” over their shoulders.

It hasn’t gone unnoticed at the APPEA conference that, for the first time since the association began running exhibitions in tandem with its annual forum, a Melbourne event has not included a Victorian government stand. The 220 booths in the exhibition include stands for the South Australian and Northern Territory governments — plus a substantial one provided by the New Zealand government, eager to attract investors away to their offshore geological basins.

Pallas used his opportunity in the conference spotlight to pretty poor effect, sounding less than convincing when assuring the APPEA delegates that his government is “pro-business” and “pro-jobs.”

I reckon he would have benefitted more from sitting in the audience and listening to a Koutsantonis address on how a government can take community concerns seriously in a practical way while chasing the economic benefits of a thriving energy sector.

Searching questions

For the purposes of the acronym, “production” comes before “exploration” in the name of the Australian Petroleum Production & Exploration Association, which is kicking off its 55th annual conference in Melbourne today; however, in the real world, “exploration” very much comes before “production” in the oil and gas business.

The focus in eastern Australia at present is on the development of the LNG export projects centred on Gladstone and the need to drill lots of onshore wells, mostly for coal seam gas but also for conventional gas, to meet their voracious appetite, but this is only part of the story.

The long-term growth of the industry still depends on exploration — for most of its life, including the 11 years I was its executive director, APPEA was the Australian Petroleum Exploration Association and had a drilling rig in its logo; the change is recognition of the phenomenal LNG growth here that will see 13 new export trains come online between now and 2018, pushing up this country’s international gas sales some 260 per cent.

Nonetheless, the long-term future of the industry still depends on the oil and gas search — onshore in such areas as New South Wales and in the cross-border Cooper Basin as well as in remote parts of Western Australia and in some areas of the Northern Territory; offshore in areas such as the Great Australian Bight, real frontier country for explorers.

Not to be ignored, too, is the potential of shale oil and gas deposits, an endeavor still in its infancy here despite the sector’s huge progress in America.

As APPEA is pointing out at its Melbourne forum, (a) oil and gas can’t be produced without first locating new resources and (b) these cannot be discovered without drilling wells.

Exploration is an uncertain business; more wells fail than succeed around the world but even the failures are useful because of what they tell geoscientists about the ground on which they are working.

One of the older petroleum industry sayings is that “there is no such thing as a failed well.”

While much of the current political and media fuss is about onshore petroleum activity, and the opposition its is encountering from radicals opposed to fossil fuel development as well as worried rural communities, the bulk of Australia’s oil and gas wealth to date has flowed (and is flowing) from offshore activity — and here the exploration picture is not especially rosy.

APPEA is pointing out that the rising cost of petroleum exploration — true, too, of onshore costs — has not surprisingly coincided with a reduction in the number of Australian offshore wells being drilled and, of course, the current global oil price environment is a further impediment.

The association reports that the number of offshore wells being spudded fell by more than two-thirds between its peak in 1998 and the past year. The decline really began in 2003 and in this time frame the total cost of search exploration has risen five-fold. The average bill for an offshore well today is more than $130 million. Despite the decline in wells drilled, expenditure on offshore exploration in Australian waters, measured in dollars of the day, is at a record $2.5 billion (the 2013 bill).

The challenge for the industry in the rest of this decade, and beyond, as its low-cost fields become depleted, is to pursue more expensive resources via gas from coal seams, targets in still more remote parts of the Outback and offshore.

For geoscientists and their bosses — and corporate shareholders — one of the most interesting areas is the Great Australian Bight.

BP, Norway’s Statoil, Chevron and others see similarities between the region, which covers more than 24,000 square kilometres and is in relatively deep water, and another ancient river delta (the Niger) in West Africa.

APPEA conference proceedings have included papers speculating for a number of years about the chances that the Bight could deliver a major new oil province for Australia and the BP activity (it will drill four wells over a campaign of 18 to 30 months) follows five years of study.

Petroleum exploration is a complex business, not just in science and engineering terms; many factors, including policies, regulations and the animal spirits of the market, play on whether seismic activity is undertaken and wells are drilled — and some “successful” wells are followed by a string of less-encouraging ones in the same geological area.

For Australia, the past five decades have seen explorers experience great highs and some dramatic lows, but the successes have been sufficient to keep up interest in this country in a marketplace for search dollars that is both global and very competitive.

Politicians can’t do much about geology but they can ensure that they don’t build unnecessary hurdles for investors.

This year, and not for the first time, the industry will be using the APPEA conference to send a message to Canberra and the State and Territory capitals that one of the most important contributions governments can make to supporting the oil and gas search is to improve the efficiency of their approval processes.

The radicals, of course, want the exact opposite and how legislators balance economic needs with political issues (especially in marginal seats) is what will decide how all this plays out over the rest of the decade.

 

 

In for the long haul

Here’s some numbers to give pause for thought: when the 2,600 registrants at the 2015 Australian Petroleum Production & Exploration Association conference gather in Melbourne this weekend, the industry will also be marking a momentous 50th anniversary – the 1965 discovery of a field in Bass Strait, dubbed Barracouta, that initiated delivery in to the domestic market from offshore Gippsland of some 9,000 petajoules of gas in aggregate to date.

(To put this in context, Victoria consumes about 250 PJ of gas a year and New South Wales about 150 PJ.)

Add to this the four billion barrels of crude oil the ExxonMobil/BHP Billiton joint venture has recovered from the Strait over this half-century and you have not only a river of gold for the companies and their shareholders but also, in today’s dollar values, somewhere in excess of $300 billion in federal government revenue from direct taxation.

This is a phenomenal return on an exploration punt in the wild waters of the Strait undertaken when Robert Menzies was still Prime Minister and Bobby Simpson was captain of the Australian cricket team – with the discovery made in the year before we changed to decimal currency.

And Bass Strait petroleum’s days are far from over.

The area is expected to continue to deliver oil and gas through the ‘Twenties, with economics dictating the extent to which resources at greater depths can be exploited.

Geoscience Australia reckons that just over half the available gas resources of the Gippsland Basin have been extracted since production began 46 years ago.

The joint venturers are engaged at present in a $335 million search in Bass Strait for new gas resources to extend the reach of the $4.5 billion Kipper Tuna Turrum development that was commissioned in 2013.

Needless to say, the hard-nosed mob at the APPEA conference will be focused on today and tomorrow and not the distant yesterday of the anniversary.

Acting APPEA chief executive Paul Fennelly – the new CEO, Malcolm Roberts, will take up the post in mid-year – rightly makes the point (in the association’s magazine, now on its website) that Australians, and especially policymakers, will be mugs if they take for granted the prosperity delivered from the domestic and export oil and gas business (and from iron ore and coal operations) at a time when falling prices in global markets are the bane of all investors and planners.

Companies, Fennelly says, are focused on reducing costs, seeking more opportunities for collaboration and investing in technologies that can make them more efficient, but governments have a lot of lifting to do, too.

It’s a fair bet that, in the wake of the large-scale take-over of BG Gas by Royal Dutch Shell, still to be finalized, the cavernous Melbourne Convention Centre will buzz over this week with gossip about what other M&As, albeit on a considerably smaller scale, are in prospect in Australia.

But the business of the conference – in a score of plenary presentations and almost five score business and technical papers in concurrent sessions – will concentrate on the challenges of corporate efficiency and, equally, the task of persuading governments, federal, State and Territory, to play their part in ongoing petroleum development on a higher plane than hitherto.

Fennelly writes that “now is the time to redouble efforts to remove red tape and to make regulation a competitive advantage rather than a burden.”

He asserts that the present situation is increasing the running costs of existing operations, pushing up project building costs and deterring new investment.

High on the list of what APPEA and its members want is that the governments of Victoria and New South Wales should each get their act together on the issue of gas exploration and development.

Activism in the two States and “unfounded fear campaigns,” Fennelly comments, have over-ridden good policy.

Of course, the issues go well beyond the domestic implications of the gas business in NSW and Victoria.

A big ticket issue for the scores of journalists who come to the APPEA conference will be as much the prospects for further LNG developments as the challenges for joint venturers completing the current crop – which will enable Australia to claim the mantle of leading global energy trader.

The extra-ordinary scale and scope of the current efforts to deliver 13 new LNG trains around the country between now and 2018 tends to be lost to view to Mr and Ms Average in their lounge rooms around the country – because, when petroleum is getting any attention beyond the petrol price, the stuff of night-time TV news is banner-waving, chanting anti-fossil fuel campaigners or politicians on the make rather than the massive activity taking place far out of sight of the capital cities.

Sometimes, too, it is manufacturers on the make and their lobbyists, still kicking the gas reservation can no matter how often they are told it’s a dumb idea.

Fortunately, it seems a growing number of factory owners appreciate that bringing more and more gas to market is the better way to go – but this obvious point is in constant head-butting mode today with the anti-fossil fuel brigade (who have proved adept at working rural communities to suit their purposes).

A key issue for the investors, whether gas producers or major users, is policy made for the long term.

As the Bass Strait activities demonstrate, oil and gas developments have long lifespans.

The oldest Australian LNG venture, the North-West Shelf project, shipped its first cargo 26 years ago and Woodside and its partners are now looking at how they can extend it for another 20 years.

Some of the projects now being developed or just entering production are also expected to have lives of at least 30 years, contributing decades of tax revenue for governments, billions of dollars in income for suppliers of goods and services, thousands of jobs and, of course, profits for their investors unless the wheels fall off the policy and regulatory cart.

Every lobbyist knows that getting today’s policymakers to have a long-term focus rather than on the 24/7 news cycle or reacting to opinion polls and running, always running, to the next poll that really matters to MPs, the next election, is proving harder all the time.

What’s needed, argues Fennelly, is smart thinking by both companies and governments.

The APPEA conference offers the association and its members the opportunity to showcase both what they believe smart thinking should be and, through a 12,000 square metre exhibition, the wide-ranging benefits that can accrue from it.

The event also offers some political leaders – federal Industry Minister Ian Macfarlane, his Labor “shadow,” Gary Gray and Victorian Labor Treasurer Tim Pallas – the opportunity to set their current thinking before an audience that is not easily swayed by rhetoric.

Pallas, in particular, may feel he is in the lion’s den: his government’s decision to add to investor uncertainty by extending the moratorium on onshore gas activity, initially imposed by the pusillanimous Coalition administration it defeated last year, and to opt for a parliamentary inquiry that could drag out resolution until 2017 is highly unpopular with the petroleum industry and its stakeholders, including manufacturers.

It’s an odd look for a State that has 50 years’ experience of the community benefits gas can deliver.

Re-imagining NEM’s future

If you had to list 10 key questions about east coast electricity supply, what would they be?

Recently I chaired a panel charged with advising on such questions and the best available people to address them at the NEM Future Forum to be staged in Sydney on 24-25 June.

The other members of the panel were Kate Farrer, managing director of Qenergy, Charles Popple, executive advisor on industry development at AusNet Services and professor Chris Greig, head of the University of Queensland Energy Initiative.

The convenors of the forum are Quest Events and the event is the second of their series of “energy outlook” conferences for 2015 – the first was the recent Australian Domestic Gas Outlook forum that attracted 200 registrants.

The product of the interaction between the NEM Future Forum panel and Quest is an agenda of 18 keynote speakers and four panel discussions involving a further seven well-known stakeholders.

The conference will be co-chaired by Robert Pritchard, executive director of the Energy Policy Institute of Australia, and I.

One of the highlights of the event will be a presentation by video from the UK by professor Dieter Helm of Oxford University, one of the most highly-regarded academic analysts of energy issues in the world. His topic will be the changing generation and energy demand landscape – an issue for all the developed and major developing nations, not just Australia – and the technologies that could drive further change.

The inevitability of change is the central theme running through this conference.

As I said on Twitter overnight, “Shift happens, especially in the NEM” – and it is the extent of the transition now under way (in terms of technologies, time and impacts on consumers, legislators, regulators and investors) that is the forum’s focus.

And those 10 questions?

In my paraphrase, they are:

  1. Is the wholesale energy market “broken,” as is now so frequently asserted?
  2. What new approaches, in terms of policy, regulation and supplier management, are needed to cope with evolving consumer behavior?
  3. What is the retailers’ role in this “prosumer” era?
  4. How far can co-operative federalism be pursued to make the NEM a better place?
  5. Can privatization deliver more efficient and cost-effective supply?
  6. What are the implications for the NEM, viewing it as a chain from generation through networks to retail operations, of national efforts to reduce our carbon footprint?
  7. To what extent will renewable and distributed generation change the way the supply chain operates?
  8. Can coal continue to be the mainstay of east coast power supply and how?
  9. What are the limitations of wind power? Can it compete with fossil fuels?
  10. Is there a place for nuclear power?

Now, I don’t doubt that my fellow panelists would phrase these questions differently or that the audience will come up with a raft of varients and others not explicitly canvassed in the agenda.

The latter is one of the great merits of ensuring the program has plenty of room for audience participation.

For this occasion, the set-piece panel discussions are quite heavily oriented towards the green issues of public debate, viz: the challenges of integrating renewables further in to the NEM, the consequences along the supply chain of the growth of solar PVs, the outlook for battery storage and what I would describe as the real meaning of energy security – delivering reliable electricity at affordable prices.

I rather like an observation made by Kate Farrer, who is a speaker, too, in one of several scoping comments included in the program brochure (which you can find at www.questevents.com.au).

“Australian energy markets, and indeed those globally, are undergoing an extra-ordinary period of transformation driven by the need for greater sustainability and increased customer-centricity,” she says. “The future is less and less about the past.”

Overall, as one of the other speakers, AGL Energy’s Tim Nelson, observes, this is a discussion that needs to embrace economic efficiency, social equity, decarbonization and a digital and technological transformation.

As this perspective suggests, re-imagining the future of the NEM is a complex conversation.

It needs to take place against a very big canvas for which simplistic designs are not sufficient – no matter what some may say.

I am hopeful next month’s forum will tackle the issues with a bit more than a broad brush.

Generator of wealth

I can’t get anyone to tell me how many billions of dollars change hands in Australia each year because of the upstream petroleum industry.

I had the answer off pat for electricity supply when I ran the Electricity Supply Association (ESAA) through the 1990s; it averaged six billion dollars a year in purchases of goods and services, not taking in to account employment remuneration. And the utilities in the ‘Nineties by and large still didn’t pay much in corporate taxes.

The answer for the oil and gas sector, I think, must be rather more than a score of billion dollars annually in goods and services purchases plus the rivers of gold that flow to government coffers through corporate taxes and royalties — and which will rise by at least a third over the rest of this decade because of LNG development.

It’s a massive contribution towards Australia Inc — and it is going to be reflected in mid-month at the 55th annual conference of the Australian Petroleum Production & Exploration Association in Melbourne’s cavernous Conference & Exhibition Centre where, for three days, some 2,500 stakeholders in the business will be milling around 12,000 square metres of exhibition space when they are not crowded in to large and small meeting rooms listening to more than 100 presentations about the state and the fate of the oil and gas sector here and worldwide.

I have a very special interest in this conference because I ran it from 1981 to 1991 when I was executive director of what is now APPEA (and then had only one “P” in its name, “production” being the modern addition reflecting the explosion in activity of the business over the past 20 years) and I am an honorary life member of the organisation.

For me. the annual exhibition that goes with the conference also has special meaning because I launched it in 1991 (in the teeth of negativity of my own board) with 41 stands and this month it will have 200 exhibitors covering the panoply of services needed by explorers and producers.

In recent years, the exhibition has been a magnet for federal ministers like Ian Macfarlane, Martin Ferguson and Gary Gray when they come to speak at the conference because they understand what it represents in terms of the national benefit; I just wish I could march the other 860 MPs from around the country through the exhibition hall because so relatively few of them share this insight.

One of my hobby-horses is that industry generally and the resources sector specifically could do still more to bring home to the Australian community its role as a generator of national wealth.

Back in the 1970s, when I was for a time public relations manager of Associated Pulp & Paper Mills, I hit on this topic as important in talking to the Tasmanian community where the company was a major employer and was also engaged in hand-to-hand combat with Bob Brown, Christine Milne and the other forebears of what is now the Australian Greens.

In my view, the debate then and now requires a proper balance in considering the benefits of industry to the community, including Australian investors (among them millions of people with superannuation interests), and the need to minimise the inevitable environmental footprint of resource-related activity.

For the 10 per cent or so of Australians, mostly living within four kilometres of a capital city GPO, who call the Greens political home, this still seems to be too big an ask, as witness their endless campaign against fossil fuels even when it is perfectly obvious, as in the case of the plastics and chemicals industry, which in turn is a key supplier to another 109 national business sectors, that they are an essential part of our economic well-being.

Apart from its value to the oil and gas industry stakeholders, who have self-interested reasons for coming together at the annual APPEA event, the conference is the touchstone of the extra-ordinarily complex melange of science, engineering, commercial, legal issues and sociology combined with the animal spirits of investment that go to make up this remarkable business.

And it is always these days a giant seminar on geo-politics and modern global trade, as witness one of the key plenary sessions where an Oxford University professor (Jonathan Stern) will lecture on the state of play in the world’s LNG markets before moderating a panel discussion featuring a leading American industry analyst (Deloitte’s John England) and two senior figures in the domestic petroleum sector, heading businesses that are prominent players in Asia-Pacific gas trade (Woodside’s Peter Coleman and Shell’s Andrew Smith).

In the same vein, the conference will also feature a plenary session on the ongoing role of science and innovation in the energy business featuring an American astronaut and petroleum engineer (Jim Reilly), BP’s Asia Pacific head of exploration (Bryan Ritchie), the local head of China’s National Offshore Oil Corporation (Yongfeng Lu) and, providing a paper I think of special importance, one of the senior executives (Dylan Mair) of US-based consultants IHS (advisers to companies and governments around the world and whose leadership includes Daniel Yergin) speaking about how Australia rates as a destination for oil and gas exploration investment.

An indication of the business news value of the event is that some four to five dozen journalists from Australia and overseas cram the conference media room, but the sad truth is that little of what they communicate to readers and listeners will impact on the critical target — the millions of ordinary Australians whose voting volatility is now the battleground of combat politics and who really don’t spend their time reading the “Australian Financial Review” or the business pages of mass market newspapers but who increasingly (as voting patterns show) are susceptible to the propaganda of climate doom-and-gloom merchants, anti-capitalist activists and purveyors of myths about the impacts of some activities (e.g. hydraulic fracturing).

As a mirror of the Australian petroleum industry, the conference obviously hits the spot, its attendance particularly reflecting the quality of the event as a learning and networking opportunity for industry insiders — but the challenge for the sector to make its role as a major generator of wealth really appreciated across the community still remains in front of it and it is growing.

We live in a very self-centred society — “What’s in it for me” manifestly dominates the thinking of the large middle of our community — and the resources and energy sectors’ battle to be heard in a cacophonous public debate where the mass media, itself increasingly dominated by left-of-centre thinking, find scare-mongering more attractive than serious analysis and where mainstream political parties are in permanent populist duck-and-weave mode to cope with the media coverage.

The annual APPEA conference produces a tonne of information — ferrying back home what I collect at the exhibition is a demanding chore — but the industry’s critical challenge remains the need to deliver a tonne of influence in a society where what was once a joke (“I am the people’s leader, I must follow them,” said PM Jim Hacker in “Yes Prime Minister”) is now a truism of modern politics.

A parting thought: contrast the rolling maul that is the debate over onshore gas activity in New South Wales and Victoria with Texas — which has an agricultural activity worth $US80 billion a year to the state and a quarter of a million farms but also accommodates 218,000 onshore petroleum wells and employs 370,000 people (out of a workforce of 8.4 million) directly and indirectly in the oil and gas sector. Texas accounts for 30 per cent of US gas production.  Rural communities and a vibrant agricultural sector can co-exist with petroleum activity, it seems.

 

RET-go-round 20

Media speculation in March that the row over the federal renewable energy target would be resolved by Easter have proved to be well wide of the mark. Just when the political wrangling will stop is an open question.

In a nutshell, the government proposes 23 per cent of renewable energy in the national electricity production mix by 2020 made up of 15,000 GWh of mainly hydro-power, 32,000 GWh under the large-scale RET and about 14,000 GWh of output from rooftop solar PV installations.

This, say Industry Minister Ian Macfarlane and Environment Minister Greg Hunt, will “recalibrate” policy to reflect the market changes that have occurred since the present RET was legislated six years ago, including over-supply in the east coast generation market.

The changes would come with an exemption from the measure for emissions-intensive, trade-exposed manufacturers.

The Labor alternative calls publicly for the large-scale target to be “in the mid-to-high 30,000 GWh” range but is reported to be  33,500 GWh.

Various players among stakeholders are now calling for a settlement of 33,000 GWh.

(In passing, when the measure was in its heyday in 2011, official government modelling foresaw a 2020 situation where zero-emission electricity would deliver 63,000 GWh across the country by 2020, with 13,000 GWh coming from conventional hydro-power, 37,000 GWh from wind farms and 5,000 GWh from geothermal energy, an interesting indicator of the perils of projections.)

Neither mainstream political side today wants to impose restrictions on small-scale solar PVs because of the political downside of offending more than a million households with rooftop arrays plus those considering augmenting their supply with such a system.

Needless to say, the Greens remain obdurate: the RET should remain at 41,000 GWh and be lifted to higher levels as soon as possible; anything different is caving in to the fossil fuel sector. So there.  In New South Wales, the party, which picked up 10 per cent of the vote in the 28 March election, continues to demand a commitment to 100 per cent power generation from renewables and the closure of all the State’s coal-fired plants by 2030.

The other extreme of this debate, I guess, is represented by independent senator David Leyonhjelm, arguably the “driest” MP in federal parliament, who labels the RET “a dog of a policy,” complaining that green generators have received $9 billion in subsidies over its 15-year life and stand to obtain a further $22 billion by 2030 if it stays at its legislated level.

The Australian Industry Group is urging the mainstream parties to “get off the fence” and to do a deal, arguing that a new arrangement will provide energy investors “with at least some certainty” to pursue new developments.

Somewhat lost to view in the melee is the fact that an agreement around the 33,000 GWh mark will require about $10 billion to be spent on forcing more wind farms in to the severely over-supplied east coast market. If this investment is not forthcoming, Leyonhjelm warns, consumer prices will “skyrocket” when the RET’s penalty price comes in to play.

The senator’s solution is to leave the RET at 41,000 GWh but to allow all the hydro-electric generation output to qualify as part of the measure. He also supports no cap on small-scale solar generation, the status quo in other words. Under his changes, the hydro businesses would be required to commit to upgrading their present assets, leading, he says, to an extra 3,000 GWh of production.

The losers, Leyonhjelm says cheerfully, will be wind farm entrepreneurs, who will find little additional room on the “gravy train.”

In passing again, various green fellow travellers, including writers for Fairfax Media, persist in calling wind farming “Australia’s large-scale renewable energy industry” when, in fact, hydro output is more than double wind-based production and the other substantial grid-connected performer, bio-energy, mostly using sugar cane waste and landfill gas, has been around a long time, too. Hydro and bio-energy between them contribute 62 per cent of annual zero-emissions power production — which, in turn, makes up 15 per cent of national electricity supply.

Coming back to the chase, just when the Labor Party will come to a decision on its RET position has to be judged against the shenanigans behind the scenes with respect to the party’s national conference (in Melbourne on 24-26 July).

Apart from chief negotiator Mark Butler being pre-occupied in chasing the role of next ALP national president, the strongly left wing Labor Environment Action Network (yup, that’s LEAN) is demanding a platform commitment for 50 per cent renewable electricity by 2030.  The politics may be hard, say LEAN, but “we must take a conviction-based approach.”

The mining and energy trade unionists have described LEAN as “politically naive,” arguing that a 50 per cent target will “increase the cost of electricity for manufacturing and households while being a poor tool for reducing Australia’s carbon emissions.”

Meanwhile, you may be interested to learn that the newly-released NSW government review of the State’s energy efficiency promotion activities has found that they delivered almost 8,000 GWh in electricity savings between 2009 and 2013 in residential, commercial and industrial sector (with the biggest gains by far being commercial) — and that this was worth $1.2 billion in accumulated bill cuts for consumers.

Not surprisingly, the report finds that maintaing the so-called ESS (Energy Savings Scheme) beyond its present 2020 deadline will bring still more benefits.

You noticed the media springing on this story, didn’t you?  No, of course not, because they didn’t — while the coverage of the RET saga continues to get thousands of words. There also wasn’t coverage last year of the fact that the Baird government expects to reduce its own $500 million annual bill for energy, water and waste by $55 million  by 2025.

Just more reinforcement for that cynical, old newshound saying that “if it bleeds, it leads.”

 

 

 

 

 

 

 

 

 

 

 

 

Week of mixed blessings

This has turned in to a big week for the east coast power supply sector, no two ways about that.

And, as one senior energy industry figure said to me yesterday, it’s a week of mixed blessings.

On the downside, the decision by the new Palaszczuk government in Queensland to defer electricity retail deregulation in the south-east corner of the State for at least 12 month is, in a word, daft.

It up-ends almost three years of bipartisan work via the Council of Australian Governments, aided by the Australian Energy Market Commission, to help transform the marketplace by introducing creative rivalry for consumer dollars and genuine choice of supplier for customers, enabling real cost savings.

On this issue, it is right to accuse the three-month old Queensland government of making up policy on the run, setting up yet another inquiry as an excuse for not taking a necessary step in transforming the power market because the exercise contains some perceived element of risk.

One thing for sure, the move deprives householders in the Energex franchise area of millions of dollars of aggregate savings that could have been achieved in 2015-16 through shopping around, the AEMC having estimated the benefit as up to $475 a year each.

Not all householders would have pursued this, but the gain in the next financial year for those who did is now gone and not able to be recovered.

I wonder why it hasn’t occurred to local media that an appropriate headline could be “Palaszczuk ploy pinches $millions from families”?

There are 3.2 million people living in the Energex area and about 1.1 million residential accountholders.

Whether the even bigger decisions of the Australian Energy Regulator, in network determinations announced on Thursday, is a win or a loss depends on where one is standing.

For consumers, especially in New South Wales and the ACT, the final AER decisions – although they could be appealed by the networks to the Australian Competition Tribunal – are an unalloyed budget plus to the tune of about half a billion dollars annually cumulatively for the next four years.

For the architects of regulatory reform, the AEMC and the CoAG energy ministers from 2012 to 2014, the determinations are reinforcement of their belief that the changes would deliver significant consumer benefits.

For the trade union movement, the decision foreshadowing 2,500 member job losses (and perhaps more) in NSW – as the regulator requires the featherbedding of recent years to be slashed and burned – are big blow.

The degree of difficulty union bosses will have in fighting the cuts in the court of public opinion is best illustrated by the NSW Labor leader, Luke Foley, opting to support lower prices for consumers rather than the Electrical Trades Union’s fierce opposition.

The media seem convinced the AER determinations for Ausgrid and Endeavour Energy and also the transmission business, Transgrid, represent a body blow for Premier Mike Baird’s privatization plans for the trio because this, they assert, is likely to result in lower sales income for the government – but I reckon this is open to question: how will potential buyers view a situation where the regulator’s decisions are doing the heavy duty house cleaning work for them, with the grid users sharing benefits?

It wouldn’t be the first time, conventional “wisdom” has turned out to be facing the wrong way.

Even if the Baird government decides it won’t sanction the DBs taking the AER to the Competition Tribunal (in effect the Federal Court), a challenge may still be forthcoming with a ripple effect for all concerned: the part-privatised ActewAGL is giving the impression of being determined to pursue a court hearing, calling in to account the regulator’s mode of benchmarking and view of the cost of capital as well as whether the determination takes a suitable stance on grid safety and reliability requirements.

Apart from its NSW and ACT final determinations, the AER has also published draft decisions on network revenue-raising for South Australia and Queensland.

The Energy Networks Association sums up the overall situation by saying the AER proposes total funding reductions across affected network businesses of $6.5 billion or $100 million a month.

ENA’s John Bradley acknowledges that the decisions have to be seen against the “perfect (price) storm” created for consumers by the 2009-14 determinations of network charges, taking in to account the impacts of the GFC on global capital markets, major replacement of aged assets and a view of the direction of power demand that turned out to be wrong.

The need now, Bradley argues, is for the regulator to balance good news for consumers with the service impacts of its proposed opex and capex cuts.

He repeats the DBs’ charge that the AER has locked itself in to dramatic cuts in in NSW and ACT operating funding – 24 per cent over five years – without “clearly demonstrating that adverse impacts on safety, maintenance and outage response times can be avoided.”

Meanwhile, the new AER chair, Paula Conboy, is telling the media that the NSW and ACT network decisions are colored by “a consistent body of evidence” that these DBs “are not operating as efficiently” as private sector businesses.

Not all are biting their lips over the regulatory developments.

South Australian Treasurer Tom Koutsantonis, who also wears the State’s Energy Minister’s hat, is delighted by the AER’s draft decision affecting SA Power Networks – which the regulator claims will see average State household bills fall $200 annually and small businesses saving $380.

Koutsantonis is urging South Australian residential customers, once the cost cuts are finalized, to take further advantage by using the State’s retail price deregulation to shop around for the best deals.

That’s not something his Queensland counterparts can offer.