Big week in gas

The upstream petroleum industry was quick to seize on the International Energy Agency’s report on Australia last week.

The message to policymakers from the IEA executive director, Fatih Birol, “could not be clearer,” declared Malcolm Roberts, chief executive of the Australian Petroleum Production & Exploration Association. “The number one step Australia can take to deliver secure and affordable energy is to remove bans on unconventional gas projects.”

Later this week – from Wednesday to Friday – Roberts and a slew of other key stakeholders in the gas imbroglio will have an opportunity to review where things stand at the Australian Domestic Gas Outlook conference on Sydney. Speakers will include the federal Resources Minister, Matt Canavan, the New South Wales Minister for Resources, Energy & Utilities, Don Harwin, the Queensland Minister for Natural Resources, Mines & Energy, Anthony Lynham, the Victorian Treasurer and Minister for Resources, Tim Pallas, and the former federal energy minister Ian Macfarlane, now chief executive of the Queensland Resources Council.

Canavan has been pushing the point this month that the Turnbull government has delivered on its quest to reduce domestic gas prices, declaring that the threat of export controls has seen them fall from as much as $20 per gigajoule to $8 to $9 since April, “a fair level, a level that reflects the world price.”

He told media the government reserves the right to use the “gas security mechanism” to trigger action next year if these prices do not hold.

More exact numbers for gas charges were provided late last month by consultants Oakley Greenwood in a report to the CoAG Energy Council. They said the average delivered price for large industrial customers, a key part of the economy and large direct and indirect employers, is $10.08 per GJ, with the wholesale segment $9.19.

Both Canavan and APPEA keep pointing out that the size of bills being paid by consumers in southern States would be lower if their governments removed impediments to local production.

Roberts says the governments in Victoria and NSW “should squirm” when faced with the Oakley Greenwood data. “Victoria now has the most expensive wholesale gas in the market and NSW is almost entirely reliant on inter-state supplies.”

All of which makes the announcement overnight by a joint venture, Australian Industrial Energy (helmed by Andrew Forrest with former Santos executive James Baulderstone as the management leader), to bring LNG to a NSW regasification site rather interesting. I see it reported that the project aims to be provide 100 petajoules a year to the southern market, equal to about 75 per cent of the NSW demand.

A key question will be “at what price?”

There can be no return to the era of $3 to $4 per GJ prices because of the costs involved in bringing new resources, including those in Victoria and NSW, to market. The petroleum industry argument is that between $7 and $9 is the price manufacturers should expect to be the new normal if adequate resources can be made available.

Another key question is whether or not such fuel availability as presaged by the Australian Industrial Energy concept could spark investment in a new gas-fired power station and, if so, where? And by whom?

Such a development would wipe the smiles off faces of green activists who have seen baulking gas development as a strong ploy in promoting wind and solar (and now batteries) in Victoria and NSW.

In context, here, the apparent inevitability, based on current projects, that the 2020 federal renewable energy target of 33,000 gigawatt hours annually will be met is a factor no-one contemplating a new fossil-fuelled power station can ignore.

Whatever flows from the AIE announcement, I imagine it will be the talk of the coffee breaks at ADGO this week.

Meanwhile, with energy costs now recognized as a major impediment to manufacturing competitiveness (a theme that has run through the previous five ADGO forums since 2013), another key question is what level of “demand destruction” – that is consumer companies closing down activities – will be seen between now and 2020? The Australian Financial Review, which has broken the Australian Industrial Energy news this morning, reckons recent Australian Energy Market Operator modeling suggests a loss of demand equal to 22 small manufacturers.

Overshadowing all of the above is the issue of global oil prices – to which gas prices are linked. If they rise, our gas prices will rise – that’s the petroleum merry-go-round for you.

Canavan’s case if that his government’s actions over the past year have helped prevent domestic gas prices here being higher than they were overseas (a comparison that carries its own contention). The government, of course, has the added challenge of supporting Australia’s strong position in the international LNG trade – a significant economic factor now – while being seen to ensure domestic supply.

And through it all endures the issue of finding an acceptable political solution to the highly-charged issue of regulating access to new gas resources across the country.

It’s going to be a lively three days at ADGO, I imagine.

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