When it comes to energy, it has been a while since Australia was the lucky country. There have been rolling blackouts in Victoria, warnings of natural gas shortages, extortionate gas and electricity prices; and this has all happened as we swelter through the hottest summer on record.
Australia has abundant coal and natural gas; the world’s largest resources of uranium; and huge potential for solar, wind and even geothermal energy. There shouldn’t be an energy shortage.
The problems at play
We produce enough primary energy — only consuming 15% of our coal and 36% of our gas production. We export the rest. Unfortunately the distribution of energy is not simple. The east coast interconnected electricity system is one of the world’s longest, stretching between five states. The sheer scale and long backbone layout of this electricity grid makes the system vulnerable to the isolation of sections. So, while there may be enough generation, a broken connection can quickly create problems.
Although, while there has been a lot of hype around blackouts, a study by Grattan Institute published in February 2019 found shortfalls in electricity generation are isolated events and power outage rates have not increased. What had changed was the number of articles talking about “blackouts”. It was 10 times higher in the last two years than in the preceding decade.
Perhaps the focus is a consequence of the structural change in where our electricity is coming from. Firstly, coal-fired power stations are ageing and becoming less reliable. Secondly, renewables now make up 17% of electricity generation on the east coast. While the shift to renewables hasn’t reduced the electricity generation capacity, there is a challenge around balancing. Renewable energies, like wind and solar, suffer from rapid changes in power output. We need infrastructure to balance this generation; it needs flexible dispatchable generators like gas, hydro or batteries.
Under the Paris Agreement, Australia has committed to reduce its greenhouse gas emissions by 2030. Electricity generation is the largest source of emissions. Efforts to meet the Paris Agreement target will require changes to the electricity generation sector. Gas has the lowest carbon dioxide emitted per unit of energy for fossil fuels and the best gas-fired generation has less than half the emissions of the most efficient coal-fired plant. This makes it the logical transition fuel.
The Australian Competition & Consumer Commission’s 2018 retail electricity pricing inquiry found rising electricity bills were related to market concentration, lack of competition and increased fuel costs — particularly the affordability and availability of natural gas. But why the increase in the price of gas now?
A lack of foresight
Unlike Western Australia, the east coast has no domestic gas reservation policy. As the first shipment of LNG left Queensland in 2015, the east coast market became coupled to the international natural gas market. Gas prices increased to align with the LNG netback price (the price of LNG minus the additional costs for liquification). In less than four years gas prices have risen from $5 per gigajoule to over $8 per gigajoule.
Although gas production on the east coast has increased, it hasn’t kept pace to fulfil LNG contracts. According to the 2018 AEMO Gas Statement of Opportunities we are heading toward a natural gas shortfall in 2030. This leaves the east coast with three options: increase the natural gas supply, restrict exports or decrease east coast gas demand.
Moratoriums and declining production from existing gas fields make increasing gas production difficult in the short term. There are five companies considering LNG import terminals to secure gas supply — AGL, AIE, EPIK, Venice Energy and Exxon Mobil. Yet this is absurd. Though there is already gas on the east coast being liquefied, it does not represent an efficient natural gas market.
The sheer scale of Australia means we don’t have one well-connected system. There are technological and social barriers to changing to renewable and sustainable energy across the world. But in Australia there has been a lack of foresight. LNG on the east coast was always going to make gas less affordable. At a time when natural gas is best placed to ease the energy transition, this was always going to create problems. We have not thought through the changing landscape, and we are suffering the consequences.
Amanda Murphy has a keen interest in the 21st Century energy challenge. She worked as a petroleum geologist in Queensland and has recently completed a PhD in the geotechnical and environmental research group at the University of Cambridge.
I can sum it up very nicely-The Coalition & their Propaganda Arm within News Corpse. Nearly 3 decades Liberal/National Governments privatising our once publicly owned energy assets (at bargain basement prices), whilst being cheered on by News Corpse, is it any surprise the whole thing has fallen into a massive heap?
Agreed. This debacle started way back in the 90’s when governments listended to the neo-liberal crap spouted by Fred Hilmer – replete with the usual neo-liberal delusions. Privatise utilities; create more competition, let competition keep prices low. The impact we now see was inevitable. It seemed sound at the time (and state governments in particular couldn’t wait to get their hands on a pile of cash). But what we now know is that the assets were sold at prices that were too low and did not reflect their true value; there was no sustained increase in competition (the industry more or less operates as a cartel anyway); governments wasted the cash and now still have massive debt and, as has been shown everywhere in the world, overwhelmingly privatisation of assets resulted in and still results in higher prices and reduced services. A select few profited and profit handsomely (consultants at the time milked the states of millions in fees and middle-managers and up in utility companies earn massive salaries – $300K a year and more is common), but as always, it is the battlers who suffer most in the end. The middle class can afford bigger fridges and TV’s, pumps and filters for their pools (they do this same energy wasteage with bigger and bigger vehicles as well, but that’s a separate issue) and more wasteful power use, whereas it is the pensioners et alia who can’t afford to run their heating or cooling systems because of high prices. And our incomepetent government sits on its hands and fires off periodic brain farts to make it look like they have the situation under control.
Good summary
Electricity generation is a mess, but there are even bigger problems in distribution and retail, dating back to the market-oriented reform program,that began in the 1990 including corporatisation, privatisations and retail contestability.
Not forgetting the tax funded gold plating of the distribution system prior to privatisation to make it even more profitable for the vampires to acquire.
It appears the answer is the same as that being applied to infrastructure in general – a failure to think beyond election cycles, to develop policy and then to do something. Once again the fragmented federation of competing States and Territories overlayed by a federal superstructure has proven itself incapable of dealing with the truely big issues, while fretting about the small stuff election by election and ideology by ideology. Well done Australia, you’ve reaping what you sowed.
When the WA Lab Govt. came up with the policy to reserve 15% of gas produced you should have heard the howls of doom from the Libs. Gas producers Media and the usual suspects.
Now, can someone please explain how the largest Middle East gas producer which was the worlds largest earns something like 15 BILLION dollars a year from it. Australia which is now the largest producer earns 150 MILLION dollars from it.
The figures may not be exact, but they are indicative.
The high power prices have had the positive effect of accelerating the adaptation of renewables.
The problem doesn’t seem to be a lack of energy supply but dumb, expensive and inadequate power distribution networks. For example, power produced by wind and solar farms in the interior is now being sold at a sharp discount because the poles and wires do not have enough capacity to bring all the power produced to market.