Writing in the Australian Financial Review’s “Chanticleer” column today, Tony Boyd, says of the proposed $4 billion acquisition of Alinta that “the Cheng family is coming to Australia at a time when all the factors are pointing to higher retail energy prices over the longer term – the higher prices will be a function of the lack of forward (policy) planning and the need to pay for the construction of expensive new generation and transmission infrastructure.”
There, in a nutshell, is why the manufacturers attending this week’s fifth Australian Domestic Gas Outlook conference in Sydney – among an audience of 300 stakeholders – went home no happier than they arrived despite all the goings on in Canberra and Adelaide (and the intransigence in Melbourne) on the part of politicians.
Reinforcement can be found in the Australian Energy Market Operator’s last word in its presentation to ADGO yesterday: “Maintaining system security is becoming more challenging, increasing the risk of supply shortfalls in both gas and electricity markets. Continued upward pressure on gas and electricity prices may threaten the financial viability of some commercial and industrial customers.
I limit myself to just on 1,000 words in each of these This is Power posts; I could produce five times as much today on the contributions to ADGO that said, in effect, “what’s killing us is the cost of energy and we see no enduring alleviation around the corner.”
“Manufacturing” like “farming” is a tag that covers many things (and very many members of the Australian community through direct and indirect employment).
In the context of this issue, let’s boil manufacturing down to the 35,000 New South Wales companies especially dependent on gas employing 200,000 people directly (the State government’s figures from presentations at ADGO).
Today 95 per cent of gas used in NSW comes from over its borders and that source if fast depleting. The controversial Narrabri development could lift local supply to 50 per cent – but it has many hurdles still to negotiate, no-one at ADGO was offering a date for development completion and, although the cost of the fuel plus delivery remains speculative, it cannot be “low.” And, at best, it would be half what the State needs.
The outcome of the Prime Minister’s much-hyped “crisis” meeting with energy companies and the Australian Petroleum Production & Exploration Association in Canberra is that the upstream industry, to quote APPEA, “will work with the federal government to ensure sufficient gas is available to meet peak demand in the NEM” despite State and Territory governments making this task “difficult” through restrictions on onshore projects.
From a factory (and more general consumer) perspective the key questions is “at what price”?
The Financial Review in the aftermath of the Canberra meeting quotes the managing director of Brickworks, a large energy user, as saying it is considering moving operations out of Australia after seeing its east coast gas costs surge 76 per cent in recent years. Another manufacturer declared his business would be “ecstatic” if it could source gas at $8 to $10 per gigajoule, paying at the moment $12/GJ.
It appears clear that what the Prime Minister’s meeting is signalling is an understanding gas trading reform and expansion of pipeline capacity will help in due time when producers are honoring their promise to make more of the fuel available for domestic use – but, as I told the ADGO audience in launching this week’s event, two four-letter words (“time” and “cost”) are dominant factors.
As part of considering the breadth of this issue, I recommend reading the comments of federal Labor MP Joel Fitzgibbon, as published in The Australian yesterday. In short “get the gas out of the ground” in order to avoid a crisis for factories and generation supply. The mood on the floor of the ADGO forum this week was very much tuned to this.
The other thought that occurs to me as I read media coverage this week is that those railing against “shipping our gas overseas” seem to be getting a fresh lease of life.
With another federal election perhaps two years away and Labor led by a populist whose key union supporters still want gas reservation, the local LNG industry leaders must be aware that they are nowhere near being out of the woods in this regard.
The next big gas conference is the giant APPEA annual event – this time in Perth in mid-May – and one does not need to be Old Moore to predict that this issue will loom over proceedings there.
Federal Resources Minister Matt Canavan, who arrived in Sydney on a “red eye” flight from Tokyo and detoured to speak at ADGO before jetting on to the Prime Minister’s meeting in Canberra, put the equation succinctly: “There is no pathway forward for long-term, sustainable and affordable gas in this country unless the States pull their finger out and start developing their gas.”
Development of the gas needed from onshore resources, he added, is a State responsibility, not a federal one.
Another presentation – from David Maxwell, CEO of Cooper Energy – urged on all governments the need for a willingness to take “a balanced, holistic approach” to resource development reflecting a balance of all stakeholder interests (“not just the loudest”) to meet the community’s benefit as a whole.
Without this, said Maxwell, “there will be more volatility and turmoil, a few winners and many losers.”
At the end of a turbulent fortnight, one can only question how far events, especially of the past few days, have moved to lessen this risk of “many losers”?
Tony Wood, the Grattan Institute energy policy director, who spoke at ADGO yesterday, in an op-ed in the Australian Financial Review this morning declares that “Australia’s energy system is surely too important for this petty politicking” – a reaction to the extra-ordinary public row between the South Australian Premier and Josh Frydenberg.
One of the underlying themes of this week’s ADGO conference, as it has been at the previous four, is that “politicking” continues to erode efforts to forge a durable approach to gas and electricity security.