Apart from the complete absence in the interim Finkel task force report of any reference to technology neutrality (or the possibility that, if the whole NEM shebang needs rethinking, as the commentary suggests, perhaps so does our ban on nuclear power), it is notable that there is more than a small wake-up call in the document on the non-renewable issue of natural gas.
Prominent in the executive summary (the bit politicians tend to read, leaving the rest to their advisers) is this statement: “Open cycle gas-fired generators are well-placed to complement variable renewable electricity generators. However, Australia’s east coast gas market has undergone profound change with the expansion of our liquefied natural gas export industry. Domestic gas prices have risen considerably as Australian gas markets have become linked to international markets and supply has been tight. The need for greater gas supplies for electricity generation is increasingly urgent.” (The italics are mine.)
And further on, under the sub-heading “Gas has a critical role to play,” there is this: “Over the next three years, increases in residential electricity prices are likely to be driven by an increase in the wholesale price after a long period in which prices were suppressed by a large excess of supply over demand.
“This change is caused by the retirement of two large coal-fired generators – Northern in South Australia in May 2016, and Hazelwood in Victoria in March 2017.
“Rising wholesale gas prices will also affect wholesale electricity prices. This is particularly the case where gas generation sets the wholesale price, as it often now does in South Australia.
“As traditional generators leave the market, liquidity in electricity financial markets may become a problem, also putting upward pressure on the overall cost of generation.
“Gas has the potential to smooth the transition to a lower emissions electricity sector. Gas generation provides the synchronous operation that is key to maintaining technical operability with increased renewable generation until new technologies are available and cost-effective.
“Furthermore, gas is dispatchable when required.
“The role of gas in the NEM’s future generation mix is complicated by events in both domestic and international gas markets. Australia’s east coast gas market was previously quarantined from international markets, but in recent years has transformed into a major LNG export industry with prices dependent upon international oil prices.
“Domestic gas prices have risen considerably and become more volatile due to being dependent on the international price, in conjunction with a tight supply-demand balance and rising costs for the development of new reserves.
“System security and retail prices are both negatively impacted by the recent increases in gas prices and constraints in gas supply.
“Additional gas supplies for electricity generation are needed urgently. Reviews by the Australian Competition and Consumer Commission and the AEMC have identified a range of issues affecting gas market competitiveness. The COAG Energy Council is currently implementing a package of reforms.
“However, even after they are implemented, there will still be uncertainty as to whether sufficient gas will be available to meet future domestic demand. This is due to supplies being diverted to meet international LNG supply contracts, low levels of exploration and forecast production, restrictions on onshore exploration and development in some States and Territories and infrastructure constraints.
“Tighter gas supply translates to higher gas prices. Most consumers are not directly exposed to the wholesale electricity markets and these cost pressures. Nevertheless, increased wholesale prices due to the generator retirements and higher gas prices will inevitably flow through to higher retail prices for consumers.” (My italics again.)
Amid all the coverage of the past week, and it has been extensive, I don’t see much attention (and no prominence at all) to what can hardly be described as a minor part of the Finkel report even with the Australian Petroleum Production & Exploration Association hurrying out a media statement on Friday afternoon to draw attention to the comments.
APPEA’s Malcolm Roberts says the report “shows just how urgent our national energy security situation has become,” adding “a mix of policy indecision, restrictive regulations and politically motivated bans and moratoriums, particularly in Victoria, has stymied gas exploration and development and is placing this transition at risk.”
In the explosion of media coverage of the Coalition’s pratfall on an emissions intensity measure for power generation, the color and movement of the CoAG leaders’ debate and the Finkel report itself, the meeting of energy executives called by Industry Minister Greg Hunt at the week’s beginning to discuss “the major issue of gas” turned in to a one-day wonder (or still less).
Hunt told journalists he sees reliable gas supply as crucial to the federal government’s bid to integrate climate change and energy policy while maintaining energy security. “Gas is the single energy source which manages to achieve energy security, affordable energy and emissions reduction — it represents the holy trinity of energy,” he said.
Resources Minister Matt Canavan chimed in to say “We are facing shortages of gas right now and certainly pressures on the market and we expect that will exacerbate over the next five years,” adding that it is “incredibly important” for particularly for certain parts of the manufacturing industry, “petrochemicals and the like,” that they have access to affordable gas. (The plastics and chemicals industries alone employ 50,000 people.)
Given the Finkel report comments and the Prime Minister’s emoting about his focus on consumer energy prices, one might have expected more media attention to the gas part of the equation, but this is so far not the case. The issue’s not going to go away, however – and the “network roadmap” report brought out by CSIRO and Energy Networks Australia, also published this week, highlights why this is the case just for electricity generation.
Included in this study is modelling that suggests the contribution from variable renewable energy in the NEM can rise from 20 terawatt hours a year now to 60 TWh annually by 2030 with coal-fired output falling by half – but gas generation’s contribution increasing four to five-fold (to as much as 97 TWh annually).
How do we get anywhere near there with the present monkeying around with State and Northern Territory bans and moratoriums on gas activity?