Assessing ADGO

Last week was a pretty big one in the energy arena, starting with the surprise announcement by newly-formed Australian Industrial Energy of its LNG import plan, encompassing the many aspects of the Australian Domestic Gas Outlook conference and ending with the federal government cutting a deal to buy all of Snowy Hydro from Victoria and New South Wales for $6 billion.

It also was a week that saw a former State premier, Colin Barnett, single-handedly lift the issue of a west/east gas pipeline back in to the mainstream debate through his engagement at ADGO.

It was a week in which the Australian Competition & Consumer Commission signalled, both via ADGO and in an appearance at Senate Estimates hearings, that it sees the east coast market as still being “incredible tight” and posing a threat to the operations of manufacturers.

And it was a week in which the Victorian government, facing an election in November, signalled (via an address to ADGO by State Treasurer Tim Pallas) that it will defy pressure to pursue onshore gas developments as the east coast’s biggest offshore gas production area, the Gippsland basin, reaches the end of its existing operations.

(The other State government facing widespread pressure over its handling of gas developments is New South Wales and its Energy Minister, Don Harwin, given a prime speaking slot at ADGO, pulled out on 24 hours’ notice, claiming other commitments. He later tweeted about a visit to a wind farm near Goulburn that day.)

The core message from the ACCC’s chairman, Rod Sims, is “the fundamental problem of a lack of both sufficient and divergent sources of gas supply, particularly in the south, needs to be addressed and this needs to happen soon, given the lags in bringing supply to market.”

“Soon” looks different to a factory owner confronted with “now” decisions about business viability and gas suppliers confronted with all the requirements of development.

It is apparent from ADGO that “soon” in terms of supply is most likely to be the LNG import projects of AIE and AGL Energy, the former focused on Newcastle, the latter on Victoria, should they proceed.

As a mark of how times and circumstances can change, veteran manufacturing executive Peter Dobney of Orora Group, a frequent speaker at ADGO, wryly complained in a panel session this week that he was mocked at the event five years ago when he raised recourse to importing LNG to NSW………

This, it seems to me, should be borne in mind when dissing the pipeline from Western Australia to Moomba about which former WA leader Barnett is so passionate. The Australian Financial Review, which along with The Australian provided extensive ADGO coverage, sees the west/east pipeline as a threat to the LNG import plan, but a case can be made, looking out to 2030, for “all hands on deck” for eastern domestic gas supply, never forgetting the ongoing critical role for the fuel in power supply to the dominant demand areas of the country (NSW, Queensland and NSW).

A thread running through all this is the need for greater competition on the east coast energy scene, a strong pursuit of the ACCC’s Sims but also a topic that comes up continuously now in the general debate and which was well-canvassed at ADGO.

James Baulderstone, who is fronting the Australian Industrial Energy import project, argued  at the conference that the mooted AGL development will entrench a market incumbent while AIL is “a completely new entrant with a focus on the forgotten sector of commercial gas buyers suffering from sky-high prices.”

Users, whether representing manufacturing or power generation, were vocal at ADGO on the issue of prices and the fact that more supply without shifting costs down will not alleviate their problems.

Baulderstone told ADGO that his project (offering 40 petajoules of gas a year to the 140 PJ New South Wales market) will be the equivalent of discovering a large new field right off the coast of Greater Sydney, a point that could also be made about the AGL import plan focused on Victoria. This focus raises in my mind just how many other such deals could be pursued as others view the AIE/AGL game plans? In practical terms, it would seem perhaps another two.

Again, to come back to Dobney’s point, how fascinating that this stuff can now be discussed without suggestions about loss of mental marbles.

Their potential doesn’t change the fact, as Malcolm Roberts, CEO of the Australian Petroleum Production & Exploration Association declared at ADGO, that the policy approach to the gas supply issue in southern States represents “failure on a grand scale.”

Not surprisingly, the States deny this. Pallas was at pains to point to the Andrews Labor government’s support for new exploration offshore Victoria. Harwin emerged from his wind farm foray to tell Fairfax Media that “there is no moratorium in NSW; we have a Gas Plan with science-based regulation – we are taking a sensible approach.” Which, of course, is cold comfort to 500 large industrial users and 33,000 small businesses in NSW freaking out about their gas contract problems or the million household customers considering their much higher bills.

The approaches by the Andrews and Berejiklian governments, both described by Malcolm Turnbull last September as “comprehensive failures” in this respect, sees gas reaching their States from Queensland carrying a transport price tag of $2 to $4 per gigajoule. That’s not a “Gas Plan” for today’s consumers – it is a dog’s breakfast. As the Energy Users Association’s Andrew Richards said in an ADGO panel discussion: “There is a great level of frustration and desperation (among industrial consumers). We need a price correction, not a softening of high costs. Too many (factories) are concerned about whether they can survive long enough to enjoy (mooted) future benefits.”

And, in terms of end-supply costs, the continuing strong efforts by governments of both stripes in Queensland, is not really a solution for southern consumers. (Queensland Natural Resources Minister Anthony Lynham gave an ebullient talk, back to back with Pallas, announcing new acreage releases with any gas found earmarked for domestic use – “further demonstrating we are a reliable and affordable gas producer” – which both in terms of time and final price prospects does not cut today’s mustard in Melbourne and Sydney.)

Pallas declared his government, in imposing onshore gas project bans, was looking out environmentally for the State’s $13 billion food and fibre industry with its 190,000 employees – which drew a riposte later from a Victorian manufacturing executive in the audience that the food and fibre businesses badly needed an adequate supply of competitively-priced gas.

The C-word (as in “cost”) was again perhaps the most used one at ADGO.

The harsh reality was summed up by EnergyAustralia’s Mark Collette. “After 30 year of an ubiquitous resource with constant availability and stable prices, the golden age of gas is over, “ he told attendees. “Cheap gas has gone.”

Collette and his colleagues have since announced plans to evaluate new gas-fired generation, as well as energy storage, in Victoria.

Not surprisingly, a fair bit of discussion at ADGO revolved round the impact of gas availability and cost for generators in a market environment where increased investment in intermittent renewables and impending further closure of coal plants creates opportunities for the “bridge” technology – and the determination of the Turnbull government to forge ahead with “Snowy 2.0” raises issues about its role.

The conventional outlook is for NEM generation use of gas in 2020 to be half what it was (200 petajoules) in 2010 and then to rebound to this level by the mid-Twenties.

The advent of LNG imports could change this trajectory – AIE’s thinking encompasses feeding gas to generation in NSW, including possibly new plant – and how this plays out seems very likely to be a topic high on the agenda of future ADGOs.


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