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There are so many hares running on gas in Australia now that even the professionals are finding it hard to keep up.

While coal seam gas and its host of detractors hold a lot of media attention, the potential gas shortage plight of New South Wales mid-decade is starting to emerge as a major issue and the argument about whether or not gas should be reserved for domestic use remains a very live topic.

The LNG developments, both in Australia’s north and north-west and in Queensland, are a dominant discussion point and their fate, especially those still waiting a final investment decision, now that the US is poised to enter the export market, is a matter of some controversy.

For me, one of the most interesting issues is whether we are on the cusp of adding shale gas to our resources wealth in a substantial way, when this might happen, what the gas will cost and how it will impact on the east coast energy market.

Federal Coalition energy spokesman Ian Macfarlane summed things up succinctly at the APPEA conference in Adelaide this week when he said: “The big sleeper (in resources development) is if the shale gas industry gets off the ground in the next two or three years. Then we’re never going to have a domestic gas supply issue.”

A paper released by Geoscience Australia at the conference says the shale resources could double this country’s gas reserves.

Standing on the floor of the APPEA trade exhibition this week, looking at a map on the Beach Energy stand (one of 150 firms pursuing the attention of more than 3,000 delegates), I was struck by the proximity of its tenements and others nearby in the Cooper Basin (crossing the South Australia/Queensland borders) to major east coast markets, not least NSW, and to the existing Moomba-based infrastructure.

Talking to Beach Energy CEO Reg Nelson later in the day, I am also struck by his quiet confidence that shale gas will be in the market somewhat sooner than others believe.

This is also the day that KPMG releases its global shale gas commentary at the conference – you can find the paper (“Shale gas – a global perspective”) on the consultants’ website – listing a litany of reasons to be cautious about Australian prospects.

The biggest issues for shale gas here, KPMG says, are the cost of extraction, the lack of infrastructure, ongoing community and environmental concerns over fraccing and the competition it will face from coal seam methane.

One of its key points holds equally good for coal seam gas. Development, it says, will “hinge on the industry’s ability to control reputational risk and manage public opinion.”

This was perhaps the biggest theme running through the APPEA conference, with the upstream petroleum industry now hard up against the realisation that the heady early “let it rip” years of the coal seam boom have backfired in a big way, creating problems that can’t be quickly or easily fixed.

In one respect, KPMG states the bleeding obvious when it points out that the local shale gas industry needs to import global skills and technology to optimise the opportunities.

This has been the story of upstream petroleum development in Australia for a half century. Upstream petroleum exploration and production is a global business and the skills, equipment and techniques migrate across international borders, carried by the major companies and picked up by the smaller local players.

One of the interesting aspects to emerge from the APPEA conference is that the major companies are now interested in Australia’s domestic gas markets as well as the first prize of using our gas in international trade.

Santos executive James Baulderstone told journalists that the big overseas firms are taking an interest in the Melbourne, Sydney and Brisbane markets.

This is not so hard to understand.

Although our east coast is a much smaller consumption area than, say, western Europe, a sales potential of 21,000 PJ cumulatively over the next two decades – it’s an EnergyQuest estimate used by the Energy Supply Association in its energy white paper submission – is not to be sneezed at.

For companies like Beach Energy, overseas interest opens the way for joint venturers with deep-ish pockets.

“You always listen to what people might be inclined to offer,” says Nelson.

He hopes that Beach may be selling shale gas via Moomba late this year or early next year.

Much now rests on the gas flow rates when horizontal drilling is undertaken in its tenements in the months ahead.

Interestingly, the amount of oil available from the shale plays may be a deciding factor in how far and how fast things progress.

This is the perspective of consultants Wood Mackenzie, who expressed the view this week that shale explorers here may be a decade away from large-scale production – citing a lack of drilling rigs, labor costs and infrastructure barriers – unless the initial drillings prove to be liquids-rich, pushing up the value proposition for development.

(There are about 30 onshore drilling rigs available in Australia today versus about 1,600 operating in the United States.)

The Wood Mackenzie thinking is supported by ConocoPhillips, whose Australian president, Todd Creeger, told Bloomberg news agency: “If you have liquids, the economics are much, much better right now than a pure gas play.”

While current attention is most strongly on the Cooper Basin, there are also shale opportunities in the Georgina Basin, straddling the border of the Northern Territory and Queensland, and in Western Australia’s Canning Basin, which covers a big area of the State’s north and extends offshore.

Santos, which is committed to large-scale export of coal seam gas through Gladstone and seeks to be the major player in developing the industry in NSW, where there are already 1.1 million residential and business gas customers and opportunities for gas to supplant coal in baseload generation,
is another expressing caution about shale’s immediate prospects.

Baulderstone quotes production costs for shale gas at $6 per gigajoule, up to 30 per cent more expensive than CSG, and has the view that, taking in to account technology and capital constraints, it is unlikely to be economic this decade.

(Conventional Cooper Basin gas sells at between $3 and $4 per GJ at present.)

For Santos, NSW is a significant domestic opportunity, with its coal seam methane tenements close to the largest market in the country and a 2015-25 window of opportunity to cash in.

Its managing director, David Knox, finds himself in the interesting position this year of wearing two hats – he is also chairman of APPEA.

Wearing both, he told “Business Spectator” at the end of a busy week that the key to realising the full potential of our gas resources is “to get the drill bit out – to unlock these resources.”

Ominously for those – politicians, manufacturers, householders, small business – who worry about energy costs, Knox noted that the upstream industry needs rising prices to drive major investment.

“Then,” he said, “as we are successful, as we unlock the continent, the gas prices will start to come down (as they have in America).”

He adds the interesting point that, when this country finds it has very large proven resources, an opportunity also opens to turn the gas in to transport fuel – it can provide superior quality diesel – and this will contribute to lowering the national carbon footprint along with a substantial use of gas for electricity generation.

The key, Knox argues, is to allow the market to work, as he says the Americans have done.

How willing politicians, especially State policymakers, are to let the market work, with an eye to long-term national economic benefits, is the $64 billion question.

The problem is that, politically, in the long run they know they are all dead – the nearer horizons are where their focus lies.

It is interesting to return home from four days in Adelaide at the upstream oil and gas industry annual conference to discover that the chairman of BHP Billiton has nailed the gist of the meeting in one sentence in a speech to company directors back east.

“Constant discussion about change creates substantial uncertainty, which in turn changes sentiment and the dynamics of long-term investment,” says Jac Nasser.

Also interesting to find that John Pierce, chairman of the Australian Energy Market Commission, has been in far-away Quebec City, Canada, telling the world forum on energy regulation that this country is challenged to develop a clear, concise policy that will allow the east coast electricity market (the “NEM”) to function effectively.

Pierce’s 43-page paper is available on the AEMC’s website and is required reading for those of us engaged in the domestic energy debate.

His conclusion, with one word changed (energy for electricity), is also a succinct summary of what the petroleum people were saying and hearing half a world away: “Australia’s electricity market is currently faced with a number of challenges that require careful management in order to ensure that consumers continue to be provided with a reliable, secure supply at an efficient price.”

As he says, “the current transformation of the stationary energy sector requires careful, synchronised development of both high level, economy-wide policy and focussed, market-specific frameworks.”

This APPEA conference – the 52nd, attracting more than 3,000 people from 35 countries – was notable for its focus on domestic gas supply as well as the to-be-expected hoopla about our LNG projects current and proposed.

It was also notable for the minister responsible for the largest energy sub-market in the country, Chris Hartcher of New South Wales, telling delegates that his State faces a serious energy shortage because the existing gas supply contracts are running out and it is not at all clear where the needs of 1.1 million household and business customers will be sourced by mid-decade.

In most respects, including manufacturing, NSW represents roughly a third of Australia. As the gas pipeline explosion in Western Australia late in the past decade demonstrated, substantial energy supply disturbances have national economic implications – and NSW has a bigger role in the current scheme of things than even the booming West.

The NSW situation is exacerbated by the fracas over access to rural properties to pursue coal seam gas development, the State government’s preferred solution to the looming problem, and a substantial chunk of APPEA plenary session time was taken up addressing how to resolve the current mess – with the association acknowledging that a lot of work is needed to earn community acceptance that CSG operations are safe.

Santos managing director David Knox, who is also the current APPEA chairman, conceded to journalists as the conference neared its end that the rate of the gas industry’s expansion on the east coast will be dictated by community acceptance – and he believes negative sentiment about coal seam gas operations, as illustrated by a 7,000-strong demonstration in Lismore last weekend, has peaked.

The over-riding issue for both domestic and export gas ambitions is the Jac Nasser warning: policy and regulatory uncertainty is a cancer for investors considering projects in this high-cost working environment,

Peter Coleman, the new managing director of Woodside Energy, said that the LNG industry has benefitted enormously from Australia’s low sovereign risk profile and open investment regime.

“Australia is a place where major oil and gas companies want to do business,” he said, but he urges politicians not to take this for granted in today’s global market environment.

“Policymakers,” said Coleman,” must ensure that new regulation does not risk the cost-effectiveness and competitiveness of the gas industry. What business needs most of all from government is consistent and predictable policy.”

The same message was handed out by Christophe de Margerie, the bushy-moustached global head of Total, one of the world’s super-major petroleum companies and now a strong investor here.

“Australia,” declared de Margerie, “is not a low-cost environment. Governments need to ensure that stable regulatory and fiscal rules exist to encourage companies to deliver projects in a way acceptable to local communities and with an appropriate return to investors.”

De Margerie also made a key point with respect to the efforts to get coal seam gas fully off the ground in Queensland and NSW.

“A critical dimension of this industry relates to its acceptability,” he said. “We are a big business, our operations have an environmental impact and use of fossil fuels is part of the greenhouse effect. We have to demonstrate we behave as good citizens.”

It is hard to understate the importance of government and business getting their ducks lined in proper order.

Deloitte, in a paper handed out at the APPEA conference, nailed this aspect, I think: “Eastern Australia’s gas market is currently facing an unprecedented convergence of issues that have the potential to transform it in to one of the world’s largest LNG exporters while also threatening the future security of domestic gas supply.”

As the consultants observe, most of the issues confronting policymakers and business are not new, but they have reached a stage in Australia, and especially on the east coast, where both the petroleum industry’s ability to achieve its economic potential and the federal government’s ambitions for a cleaner energy future are challenged.

APPEA itself got the Adelaide conference going by releasing a Deloitte Access Economics study on the scale and significance of the oil and gas industry’s national contribution.

The report, said the association, flags a raft of policy areas “in which complacency and political expedience can threaten Australia’s attractiveness as a place to do business.”

In a media statement, APPEA focussed on one of the key areas of debate between the industry and government at present – the reservation of gas supplies for domestic use, an issue being driven hard by energy-intensive industry and strongly resisted by the suppliers.

The association theme is that, in a free economy, no business should be forced to sell its product at lower than market prices. A protectionist policy such as the reservationists are pursuing, it warns, “is an economic dead end.”

The gas industry fears that the NSW government is flirting with the reservation idea, possibly as a stick to use to herd it towards offering the rural community a sufficiently attractive deal to get farmers off political backs.

Chris Hartcher, I gather, feels he was verballed by reports of what he said at a media conference in Adelaide, but he said enough to attract attention on this issue.

The State government says its decisions relating to CSG are some months away yet.

In response, it seems almost everyone in the industry is quoting Michael Fraser, the AGL Energy managing director, who said last month that “the clock is ticking” on Australian energy policy.

The energy industry’s problem is that no amount of ticking or talking will change the fact that national policy formation is in limbo until after the next federal election.

Which why “when do you think we will have an election?” was one of the most frequent questions I heard on the conference sidelines this week.

The upstream petroleum industry is confronted on Australia’s east coast by a policy move to which it is steadfastly opposed but which is attractive to some politicians.

No, not the carbon price and other bits of the Gillard government’s “clean energy future” program, at least not this time, but what the Coalition’s energy spokesman, Ian Macfarlane, describes as “popular sentiment” for a domestic gas reservation policy as energy prices go up.

Macfarlane, who held the energy portfolio in the closing years of the Howard government, reminded delegates to the Australian Petroleum Production & Exploration Association conference in Adelaide that there have been calls for years for a policy mandating that a percentage of gas extracted from local reservoirs be reserved for domestic use. Major business consumers at present are pressing for 15 per cent of gas from local projects to be set aside on the east coast as well as in Western Australia.

Journalists attending the APPEA forum took away the view from a media conference with New South Wales Energy Minister Chris Hartcher on Tuesday that his government is at least considering the option as it wrestles with twin problems: the expiry of key gas contracts and the upward spiral of electricity and gas prices in the State.

The most pressing issue for Hartcher is that, because the previous Labor government was dilatory about a strategy for gas supply for a State that imports 95 per cent what it uses, the 1.1 million business and household users of the fuel are faced with the main contracts ending between 2014 and 2016.

“NSW faces a serious energy shortage,” Hartcher told APPEA’s 3,008 delegate.

As gas provides a third of the energy consumed in NSW, this is not a minor economic or political problem.

Consultants ACIL Tasman say the State is “materially uncontracted” by 2017.

Hartcher’s solution of choice is to fast-track develop of NSW’s large coal seam methane reserves, but this is not straightforward.

For a start, a large part of the State farming community, aided and abetted by radical environmentalists, who know an opportunity to do a mischief to the fossil fuels industry when they see one,is fiercely opposed to CSM.

The allies brought together 4,000 people to demonstrate in Macquarie Street, Sydney, earlier this month and 7,000 in Lismore last weekend.

In addition, the gas developers are not going to plunge in to multi-billion dollar projects without long-term and favorable policy arrangements — and the O’Farrell government still has a lot of work to do in this respect in a not-very-long time frame.

Santos, the biggest holder of petroleum acreage in NSW, says the State government can reserve all it likes, but that won’t bring gas out of the ground. The other idea floated by Hartcher, however, is a differential royalty system, weighted to encourage domestic supply, and this, the company says, “may have some legs.”

Macfarlane, too, is strongly opposed to a reservation policy, describing it as a Bandaid solution that may drive away gas exploration and development. “For years,” he adds, coal has been used locally and exported — why should gas be treated differently?”

A no less difficult issue for Hartcher and the NSW government, and one that is running in Queensland, too, is the issue of access to rural properties.

Duncan Fraser, vice-president of the National Farmers’ Federation, told the APPEA delegates that “cowboy” companies, contractors and individuals have created this problem with farmers and driven them in to an “unholy alliance” with their “natural enemies,” the radical environmentalists. The issue’s resolution, he says, requires the industry to understand and respect farmers’ connections to the land and provide them with real assurance that coal seam gas exploration and extraction would not affect water quality and quantity.

There is a further issue that the NSW government needs to think through before it resolves its policy and this why, necessarily, it should be focussing on gas to be found within the State’s borders.

The shale resources that are currently being delineated over the border in the Cooper Basin are also apparently large, are located near well-established petroleum infrastructure, are claimed to have a 2014 production horizon and have channels to the south and east coast markets.

“Gas is gas, for goodness sake,” a senior industry figure said to me at the APPEA conference. “Why should the NSW government care where it comes from so long a it is a secure supply at a sensible price?”

Saudi Arabian Petroleum & Mineral Resources Minister Ali al-Naimi made a telling point to the Australian Petroleum Production & Exploration Association conference in Adelaide, citing tennis great Rod Laver.

The legendary Laver said: “Your game is most vulnerable when you are ahead.”

It was a salutary reminder to an audience of 2,850 delegates that, despite all the current exuberance about Australia’s potential as an LNG exporter, the road ahead is not downhill and is littered with potential impediments.

Woodside Energy’s new-ish CEO, Peter Coleman, reinforced the point when, in his talk, he noted that, in terms of new gas supply for the Asia-Pacific, the two key questions out to mid-decade and beyond are whether current leading trader Qatar will divert more LNG from its North Atlantic market and how quickly the American shale gas boom will translate into LNG exports.

The vital ingredient will be the price of LNG because Australia is a high-cost production environment and the situation is exacerbated by the strong Aussie dollar and local oil and gas wages that are more than double the world average.

To this, Coleman said, may be added the cost impacts for local developers of rigorous environmental and safety requirements.

All up, Coleman pointed out, the Australian businesses had small margin for errors in project delivery.

Super-major Total’s global boss, Christophe de Margerie, whose company has Australian LNG interests that will see it holding 20 per cent of local capacity when they are in full operation, summed up the challenge: governments here need to ensure the existence of stable regulatory and fiscal rules while companies have to ensure that they deliver projects in a way acceptable to communities and with appropriate returns for shareholders.

“We certainly have to better communicate about the environmental impact of projects upon air, water and biodiversity,” he said.

Professional service providers Deloitte, in a monograph being circulated at the APPEA conference, summed up the challenge in these terms: “While the economic benefits of a booming LNG export market should not be under-estimated, these could be lost if the domestic market fails to supply gas in a quantity and at price that maintains economic competitiveness.”

Deloitte makes an interesting point about the risks involved: Malaysia, which is currently the world’s third-largest LNG exporter, will start importing the fuel this year after declining local gas output and rising demand from power generators began to erode export supply.

The consequences of such an outcome here would extend well beyond the petroleum industry, Deloitte warns. “An uncertain regulatory environment and rising extraction and production costs could deter the investment required.”

The east coast supply situation, it adds, requires the coal seam gas industry to resolve concerns in New South Wales over its environmental impact.

In an environment of rising excitement over the potential of Australian gas shale gas, Deloitte reminds government and industry stakeholders that, even if substantial reserves are proven tomorrow, it will still take 5-10 years to develop and commercialise them.

APPEA chairman David Knox (CEO of Santos) added his warning: Success in gas project delivery is fragile. Delay and uncertainty risks seeing overseas projects leapfrog those in Australia. “With the LNG characterised by contracts typically decades long, the cost of delay could be massive.”

For his part Federal Energy Minister Martin Ferguson noted that the right balance has to be found between developing gas resources for local households and businesses at the same time as pursuing the lucrative LNG trade.

How much time is available to get this balancing act just right is a multi-billion question.

The upstream oil and gas industry has been quick to get its core message across at the annual Australian Petroleum Production & Exploration Association conference in Adelaide.

Using the Deloitte Access Economics report, about which I wrote in my previous post on Sunday, APPEA has moved early to urge policymakers generally and the federal government in particular not to take for granted the success of the 11 LNG developments, four approved and another seven on the starting blocks, an investment of $260 billion.

(That’s seven times the investment value of the much-debated national broadband project.)

APPEA’s new chief executive, David Byers, only the seventh to hold the job in 52 years, used the Deloitte findings on Sunday afternoon to warn that “the growing revenues from the resources boom cannot be allowed to breed policy complacency on the very large, long-term investments under consideration.” They will only proceed if Australia continues to present as a stable and predictable destination for investment.

Byers was acerbic about last week’s Federal Budget — “precious little evidence of a commitment to the economic reforms needed to expand the prosperity pie” — and keen to press the point that Australia’s reputation with investors as a safe haven for long-term developments is being eroded.

It will be interesting to hear the response on Monday morning from Federal Energy Minister Martin Ferguson, who spent Sunday talking to the APPEA council and mingling with more than 2,850 delegates at the conference.

The industry’s shafts are not aimed at Ferguson, whose standing with the oil and gas men and women is high, but at the Labor leadership.

Byers told the media pack: “The challenge for the government is to create confidence, not uncertainty. Don’t take our industry for granted.”

The APPEA theme for the conference is built around the Deloitte commentary on the economic adjustments needed to maximise the benefits of the petroleum boom rather than focussing on redistribution of the wealth. One of the key points that Deloitte has to make is that policies slowing structural change emanating from the boom will be costly, ineffective and ultimately lower its dividends.

Byers is also keen to get across the industry’s concern about moves to reserve some of the gas lode, especially on the east coast, for domestic use, a big pressure point for State politicians and also the federal government as major users, worried about future domestic gas prices, press for a national reservations policy.

“In a free economy, no business should be forced to sell its product at lower than market prices,” says Byers, urging Canberra and the State policymakers to accept that “industry development” protectionist policies now under consideration “lead to an economic dead end.”

The 2012 Australian Petroleum Production & Exploration Association conference has begun in Adelaide with a cascade of numbers that highlight just how important the upstream oil and gas business is for the country as a whole.

In a study APPEA has commissioned by Deloitte Access Economics, the enormity of the sector’s role is driven home by data such as this:

The direct and flow-on value added contribution of the industry in 2010-11, based on total sales of $29.7 billion, came to $28.3 billion.

Collectively, the major LNG export projects under way in Western Australia, the Northern Territory and Queensland account for 35.4 per cent of all current business investment.

If all the LNG investments are realised, the value of LNG sales in 2017-18 is projected at $35 billion.

Deloitte stresses that the sector’s economic linkages are broader and deeper than commonly appreciated, pointing to the fact that about $4.3 billion of value added is generated by businesses across the economy supplying it with goods and services.

Robust export performance by the oil and gas industry, along with the rest of resource production, Deloitte points out, has provided important income and employment support for Australia during the course of the global downturn. “This has played a key role,” says the consulting firm,”in Australia withstanding the more dramatic economic declines which have confronted other developed economies.”

This puts some of the political spin to which we were subjected in Budget week in to a different perspective.

Of course, as Deloitte acknowledges, the rapid growth of the upstream petroleum industry is generating some important challenges, including the appreciation of the Aussie dollar and consequent weakness in areas such as manufacturing and tourism.

However, it is a pity that the “two-speed economy” rhetoric which is the order of the day is not more often put in context like this:

“In the case where an economy is operating with limited excess capacity (such as Australia at present), the rapid expansion of the oil and gas sector must be accommodated by some reduced growth in other sectors.

“This is undeniably the case where the higher exchange rate has reduced international demand for sectors such as tourism and education. In addition industries such as manufacturing and agriculture have been somewhat crowded out by their import equivalents.

“On the other hand, rising revenues in the oil and gas sector have translated to rising incomes across Australia, in turn increasing the expenditure on high-value finance and professional services in non- (or less-) tradable industries.”

The consultants throw up four critical issues:

First, any constraints such as explicit industry protection measures and mandated local content requirements will eventually lower overall economic welfare and place extra adjustment pressure on other sectors.

Second, rising development costs and the risks of regulatory interference can undermine the benefits of the boom and lead to long-term supply contracts being lost to rival exporters.

Third, greater policy attention is needed to ensure the availability of skilled labour.

Fourth, backsliding by policymakers — for example, says Deloitte, establishment of a new sovereign wealth fund to capture more benefits from currently high resource prices — poses dangers.

One such, it notes, is that a sovereign wealth fund can prevent governments from undertaking investments in infrastructure and human capital or superannuation — which can also be used to improve the welfare of future generations.

This is not the stuff of a 30-second grab on radio or television — or of the info-tainment that poses too often as news across the media — but goes to the heart of what frequently is taken for granted in the inner suburbs and by quite a few commentators.

As Deloitte points out, the pressures and the disruptions created by the boom need to be well-managed, not resisted (and, I’d add, frequently bad-mouthed), if we are to make the most of the opportunities it presents.

The prevailing sentiment in the public debate is that the resources boom is mad, bad and dangerous for most of us, a warped picture that won’t be overcome by reviews such as this — but at least the counter-argument is now being presented for a hearing.

If you have been following Australia’s domestic energy debate in the media over the past 2-3 years, you may conclude that the biggest issue is renewable energy, but, of course, it is not.

This hasn’t stopped the federal government from claiming, in the 2012 Budget papers, that its introduction of a carbon price will “spur around $100 billion in new clean energy sources such as solar, geothermal and wind.”

The Treasury papers don’t put a time frame on this massive outlay, but one assumes they are talking 2050.

There is a bar chart in the papers pointing to renewables supplying 40 per cent of generation at mid-century, with another 30 per cent being provided by coal and gas using carbon capture and sequestration.

No nuclear, of course.

Taking a more hard-nosed view, in any realistic perspective for the next 20 years, the twin big issues on the east coast, which represents 90 per cent of the energy market, are coal and gas.

How much coal will we continue to burn to make electricity over the next two decades?

How many coal-fired power stations will be closed under carbon policy?

How much gas will be needed on the east coast to meet direct customer requirements and power generation?

How much will the gas cost?

Together, these issues are the dominant factors in pursuing the key objectives of energy security and affordable prices.

They resonate loudest in an environment where the retail price of electricity is expected to double between 2011 and 2017 – and it will not be far removed from these levels even if the carbon price is removed.

On all realistic models of the next 10 and 20 years, it is what happens to coal-fired and gas-fired power that is of major importance.

What happens to wind farming is interesting, but other renewables, leaving aside the reliable hydro-power, are niche players.

One only has to note that, even on their own numbers, the 100 per cent renewables power advocates talk of a $370 billion outlay to wholly overturn the fossil-fuelled electricity system – and there are more than a few who think this capex estimate is much too low.

The waters have been considerably muddied by the present federal political environment.

Today we have (or nearly have) a carbon price, the Clean Energy Finance Corporation, a beefed-up renewables subsidy system (ARENA) and the renewables energy target.

Tomorrow, on all present indicators (and the post-Budget opinion polls must be scaring the pants off the Labor strategists), a Coalition government will sweep away the carbon tax, the CEFC, ARENA and whatever else they find in the “clean energy future” cupboard, leaving only the RET.

If you assume that 2015 will not deliver an international agreement to replace the Kyoto treaty, will an Abbott government feel obliged to maintain its (current) commitment to support the aim of cutting national emissions to five per cent below 2000 levels in 2020?

While we will have a lower growth trend for electricity – how could we not with such high retail prices? – it seems likely that we will still be wrestling with eye-watering peak power spikes and, assuming no new investment in coal power, we will have a number of east coast plants at their use-by date (eg Liddell power station in the Hunter Valley, 50 years old in 2022).

The most logical direction for generation investment will be in gas, more open cycle turbines in the short and medium term and some CCGT late in the decade and early in the ‘Twenties.

A really big renewables investment to serve Australian needs might be Origin Energy’s PNG development, but we are still some distance from a decision about this project and it does not get included in national forecasting, although one has to wonder why?

On present indications, we are less likely to see a large-scale geothermal power station than was being predicted even 2-3 years ago.

Looking long is what the electricity supply industry does and large companies are strategising out to 2025-30 right now – only politicians on spin cycle claim to know what 2050 will deliver.

In looking out even this far, the companies must surely be factoring in another turn of the political wheel after the one we are currently anticipating – in other words, a return of a Labor government in the early part of the ‘Twenties after the electoral slaughter that seems on the cards for 2013.

It occurs to me that one of the wild cards in looking at the nearer horizon is whether the Abbott pledge to kill the carbon tax is also a commitment to eschew emissions trading?

Most assume it is.

I am not so sure about this.

It may be time to dust off and re-read the Shergold review undertaken for the Howard government in its last months.

None of this argues against further gas development.

Rather, it underpins a view that OCGT and CCGT will be the dominant generation investment features of the decade – along with the wind farms required to fulfil the RET.

A plausible 2030 perspective of the national generation mix might be close to half supply still being coal – mostly black coal in New South Wales and Queensland plus the continuing production of the Loy Yangs in Victoria – and as much as 30 per cent being gas-fuelled.

What we are talking about in such a scenario is burning in aggregate over two decades more than a billion tonnes of black coal, at least half a billion tonnes of brown coal and about 10,000 petajoules of gas to make electricity.

In this scenario, we end up with about four per cent of supply coming from hydro-power, about 12 per cent from wind farms and perhaps four per cent from geothermal, solar and biomass.

Views differ sharply about demand levels in 2030, but let’s assume we are talking system energy requirements (ie power sent out) of about 300,000 gigawatt hours – which is 100,000 GWh a year less than ABARE was using in its modelling as late as the end of 2009.

A requirement of about 340,000 GWh has been suggested to me as a more realistic 2030 system energy number, but it is all guesswork anyway.

We may well be talking about wholesale gas prices that are double what they are today and black coal contracts a fair bit above the long-run deals existing at present but due to expire (in NSW) this decade.

Where the gas will be sourced on the east coast is a big ticket question.

Will LNG developments leave enough Queensland gas to serve NSW needs, too?

Will NSW coal seam methane developments fall prey to NIMBY factors and environmental activism?

What will occur with shale gas developments in central Australia and Queensland?

Will we see new Bass Strait gas production beyond the multi-billion projects currently under construction?

The 52nd conference of the Australian Petroleum Production & Exploration Association, which gets under way in Adelaide today – and with papers being presented from Monday to Wednesday – offers rather more hard-nosed debating opportunities than a solar séance or renewables rodeo.

About 2,700 delegates appear to agree.

For many of them, the LNG issues are the big attraction, but from a domestic energy security perspective what gas will flow to Australian customers and under what circumstances is no sideshow.

Adelaide becomes Australia’s energy industry capital for a week on Sunday.

More than 2,700 delegates and 160 exhibitors will crowd in to the city for the 52nd annual conference of the Australian Petroleum Production & Exploration Association to be opened on Monday by the semi-new South Australian Premier, Jay Weatherill, and he will be followed by Federal Resources & Energy Minister Martin Ferguson, who is on the cusp of completing the long-awaited energy white paper.

The conference, the ninth APPEA has held in Adelaide, is going to be dominated by gas issues — relating to both the international LNG market (and Australia’s bid to overtake Qatar as the leading trader) and the expanding role of gas in east coast power generation.

Controversy abounds over gas developments, enmeshing both LNG projects and the efforts being made to drive production in Queensland and New South Wales.

APPEA is setting out to tackle the domestic issues head-on with a Tuesday plenary program that will include the NSW Resources & Energy Minister, Chris Hartcher, Paul Zealand, CEO Upstream of Origin Energy, and Duncan Fraser of the National Farmers’ Federation.

The desired focus for the industry and APPEA is the aim to create “shared value” with communities in which coal seam methane projects will be pursued despite rural NIMBY attitudes and a ferocious campaign against the fuel by the environmental movement.

AGL Energy managing director Michael Fraser spoke for many in the industry when he complained in a speech last month that some of the public commentary “is,at best, ill-informed and, in some instances, deliberately misleading.”

As Fraser has pointed out, the gas issue is most acute for NSW, which today imports 95 per cent of its needs for both industry and a million households.

NSW contracts for gas delivery from the Cooper Basin and Bass Strait expire at the end of 2016 and 2017 respectively.

With the States needing more investment in gas-fired generation for both peaking power and new baseload supply, the situation is a crisis in waiting.

Fraser points out that, unless the issues around CSM development in the State are resolved, “we’re going to have supply problems.”

Fraser and AGL, interestingly, are struggling on another front with another energy source: wind power. He points out that up to $30 billion will need to be spent nationally, and a large chunk of it in NSW, to meet the federal 2020 renewable energy target — and the community pushback against wind turbines, supported by stricter State government planning requirements, are making this more difficult to achieve as well.

Wind farms will be far from the minds of speakers and delegates at the APPEA conference. They can, however, expect to run in to questions about how much the domestic gas will cost this decade, expected to be a key aspect of the next tranche of the east coast power price problem

Santos chairman Peter Coates, whose managing director, David Knox, is this year’s APPEA chairman, said last week that there is plenty of gas in NSW “but it will only come out of the ground with increased pricing.”

Santos, APPEA and the industry are strenuously opposing political moves to reserve some CSM production for domestic use, supposedly quarantining it from exposure to global LNG prices. This, too, is an issue that will get a big airing in Adelaide in the week ahead.

With 50 journalists covering the conference, there will be plenty of media exposure too.

This is Power will report from Adelaide during the week and the June issue of the Coolibah monthly newsletter will review the highlights of the conference.

Another 2010 federal election promise has been broken in this week’s Budget.

Back then, as part of her “moving forward together on climate change” propaganda, the Prime Minister promised a substantial tax break for “green buildings.”

It was warmly welcomed by the Energy Efficiency Council and others in that space.

The first step to kick-start a transformation of the building sector.

A major win-win for business and the environment.

And so on.

The promised $1 billion subsidy, the council said, would be a big help in driving retrofitting of Australia’s commercial buildings – with the prospect over this decade of saving the economy $1.4 billion a year, cutting building emissions by 30 per cent and creating 27,000 jobs.

Others welcomed it as a fine example of how we can grow the economy and promote greenhouse gas abatement.

ClimateWorks Australia said improving the energy efficiency of the economy could save homes and businesses $5 billion a year.

“Energy efficiency not only reduces the amount people use, it can also lower the price of electricity by offsetting spending on expensive infrastructure.”

Julia Gillard in her “moving forward” speech highlighted the need for step-by-step action – “deliberate and considered steps” in a “transition over time to a cleaner economy.”

This speech was the basis for her eventual pledge to the electorate not to introduce a carbon tax, a broken promise she is carrying as a political millstone to the next poll.

The “green buildings” breach is not her second failed promise in this area – it is her third.

One of her promises in the “moving forward” speech was to introduce “best practice” emissions standards for power stations.

That has been abandoned, too.

Coming back to the energy efficiency initiative, the Energy Efficiency Council was pointing out at the time (2010) that the top 200 companies in Australia – most of them then being labeled the “big polluters” by Gillard and her team, another phrase that you don’t hear very much today – use almost twice as much energy as all households put together.

Requiring these companies to improve their efficiency just one per cent a year and giving them financial support to meet such a target would save billions over the decade, the council said.

The elimination of the tax break for green buildings actually did not come as a great Budget night surprise to property developers and investors.

They were initially concerned by the fact that, once returned to office, courtesy of the Greens and the independents, the Gillard government delayed the scheme’s implementation date to 1 July this year.

No legislation, in fact, has been drafted.

A month ago the property developers started saying aloud that they thought the scheme was about to be dropped.

“While we have good regulations for new buildings, existing building stock is a sleeping giant and needs a total makeover,” mourned the Australian Institute of Architects before the Budget.

To delay or drop the scheme will be counter-productive to reducing emissions and a blow to the green jobs sector, it added.

The Green Building Council said that scrapping the scheme would prevent Australia from “picking the lowest of the low-hanging fruit.”

Buildings, it said, represent the fastest and most cost-effective opportunity for abatement.

Budget night saw their fears realised.

The government’s spin is that the scheme is redundant because it is introducing a carbon price, because there will be support from Low Carbon Australia and because building efficiency proponents in theory can also go to the (yet to be legislated) Clean Energy Finance Corporation.

Writing in Climate Spectator, editor Tristan Edis observes that neither Low Carbon Australia or the CEFC are equivalent replacements.

The former’s funding is way below $1 billion, he points out.

The Energy Efficiency Council has been blunter about the claim that the carbon price is the better way to go.

“Absolute rubbish,” it says.

One of the contributors to comments on the Climate Spectator website snapped: “The Gillard government can’t keep a policy (on green energy) for more than three weeks – their stop-start policymaking has caused more damage to the PV, solar hot water and insulation industries than anything Abbott could throw at them, and now it is the turn of green buildings.”

His other point is that “in the real world, commercial buildings will be the last part of the economy that responds to a carbon price (because) property managers, developers and private landlords don’t pay the energy bills.”

Writer and green energy entrepreuner Gavin Gilchrist chimes in by complaining that, having first deferred the scheme for a year, the government consumed the time of stakeholders by consulting with them on redesigning it before finally canning it.

The fact is that the government could not provide Tony Abbott and the Coalition with a better example of lack of trust and management incompetence – a surprise is that Abbott did not spring on them over it in his Budget address in reply.

The fact of the matter for the Coalition is that, absent a carbon price, it is going to have to put in a large effort on end-use energy efficiency to deliver its own promises on carbon abatement between now and 2020.

Consultants’ analysis suggests that energy efficiency measures added on to the renewable energy target and the carbon price could drive down building sector greenhouse gases by more than 33 million tonnes a year by 2030 – but without the carbon price, they could be designed to capture still more abatement, around 47 Mt annually.

The efficiency proponents argue that driving hard down this path would see more cost-effective results than, say, from investing in carbon capture and storage and ultimately delay the need for building more power generation in the ‘Twenties.

The president of the Australian Sustainable Built Environment Council, Tom Roper, a former Victorian Labor government investment, asks this week “how can we let such an outstanding opportunity for sector-wide carbon reductions and efficiency simply slip through our fingers?”

Roper is reported by The Age newspaper as writing to Industry & Climate Change Minister Greg Combet to tell him that co-operation between the building industry and the government has been “trashed” by the Budget decision.

It’s pretty mediocre stuff, really.

Wind bastardry.

That was the heading on a letter in The Weekend Australian this past weekend.

It follows the paper publishing a lengthy diatribe by English writer James Delingpole earlier last week about the Waterloo development in South Australia. The headline on that – “Wind farm scam’s a huge cover up” – is a fair indicator of the content.

This coverage is all of a piece with commentary here and overseas where wind is increasingly under attack – and it yet it contrasts sharply with the approach of some governments, like Angela Merkel’s in Germany and David Cameron’s in Britain, who are all for the technology.

Claims and counter-claims are the order of the day for the wind debate and it appears that the nearer (and newer) a government is to its community, the more likely it is seek to hedge in development with more onerous planning restrictions.

Here in Australia, we have seen relatively newly-elected governments imposing a tighter regime on wind farms in Victoria and New South Wales while the South Australian government continues to run with the “let it rip” approach of previous Premier Mike Rann.

Here are some examples of the debate overseas:

In Scotland the American businessman Donald Trump is leading attacks on onshore wind farms, claiming “very expensive, highly efficient and extremely ugly” turbines will “destroy tourism” and condemn the Scots to remaining economically tied to England’s apron strings.

The environmental movement has sought to counter Trump with an opinion poll that claims 72 per cent of Scots adults support wind power, but the “Scotland on Sunday” newspaper received an 83 per cent “yes” vote when its website asked “Do you agree with Trump?”

The Scots rumpus is being repeated across rural England where best-selling author Bill Bryson is leading a campaign against wind farms, pointing out that 10,000 turbines will need to be erected in Britain to meet the national government’s commitment to generate 15 per cent of electricity from renewables by 2020. To date 3,162 have been installed.

Meanwhile Canada’s free market-supporting Fraser Instititute think tank has published a study claiming that a move by the Ontario government – in a province with Toronto as its chief city which most resembles NSW and Sydney – to drive use of renewable generation will cost household consumers an extra $C285 million a year on their bills over two decades. When the cost to business is included, the institute says, Ontarians will foot a $C18 billion extra cost over 20 years.

(The dominant Ontario power supply sources today are nuclear, coal, big hydro and gas.)

The Ontario government (Liberals by name, but Labor in our terms) has been trying to promote renewables to help replace its coal generation since 2009 through a generous feed-in tariff.

The FiTs pay up to 80.2 Canadian cents per kilowatt hour for solar PVs and 13.5c for wind power – compared with a 5.6c wholesale value for nuclear energy and 3.5c for hydro-generated power.

The institute study called “A sensible strategy for renewable electrical energy” is on its website (www.fraserinstitute.org).

Among other things, it deals with the Ontario government’s claims that the policy will propel the province to a world-leading position in green power technology, creating thousands of jobs.

Instead, say the critics,picking up on the institute’s report, Ontario, Canada’s manufacturing heartland, is having its cost advantage turned in to a millstone.

Meantime, in the United States the leading bird conservation organisation is campaigning to have 2,000 locations in America declared off limits to wind farms because birds will be particularly vulnerable to wind energy impacts in these areas of concentrated migratory flight paths and key habitats. The American Bird Conservancy says million of birds will be killed if the wind industry is given access to the locations.

The US Fish & Wildlife Service estimated in 2009 that 440,000 birds were being killed annually through collisions with wind turbines and this was before a sharp spurt in developments as companies seek to get work done before US Congress-imposed cuts in subsidies begin to take effect.

On the basis of present Congressional decisions, subsidies for clean energy in the US will fall from a peak of $US44.3 billion in 2009 to $US16 billion this year and $US11 billion in 2014.

The other side of the coin internationally is a surge in investment in offshore wind farms.

The Global Wind Energy Council claims offshore sector will account for eight per cent of the world’s wind market by 2016, up from 2.5 per cent at present.

The charge offshore is being led by Germany’s Merkel, under pressure to find low-emission alternatives to the nuclear power industry she is closing down. She is looking at providing higher subsidies for these projects.

The biggest leap forward may come in Britain’s part of the North Sea. The Cameron government is encouraging a view that 13,000 megawatts of offshore wind capacity can be built there this decade. There is 2,000 MW wind capacity in British waters at present.

Analysts reckon that it will cost up to 152 billion euros to realise the ambitions of Merkel and Cameron and of other countries bordering the North Sea over the next 10 years – and this is before the large-scale investment that will also be needed in high voltage transmission.

Across the Atlantic, offshore wind developers do not find their task so easy. The first US offshore project, in Nantucket Sound near Cape Cod, is still struggling for regulatory approval for its 130 turbines after a decade of consideration involving 17 government agencies.

It’s hard to see when we might have an offshore wind farm in Australia, although I am aware of one proposal to develop a 1,000 MW project close to the coast of Gippsland, adjacent to the Loy Yang power complex and the Basslink interconnector.

For the moment the dichotomy continues here and overseas – on the one hand people viscerally opposed to wind developments and on the other entrepeneurs and environmentalists chasing the technology’s growth hell for leather.

It will take a lot to persuade people like the writer of the “Wind bastardry” letter to The Weekend Australian to change his mind, however.

Lashing out at the Clean Energy Council, he says the “very favourable and protective regulatory environment, large injection of public subsidies and punishing tariffs” add up to “one of the worst acts of political and commercial bastardy ever perpetrated on the public in modern times.”

He’d certainly get a pat from Donald Trump.

For the record, the Port Jackson Partners’ forecast that east coast electricity prices will double between 2011 and 2017 allows a renewable energy target cost (mostly for wind energy) of 0.9 cents out of a 36c residential tariff.