Daily Bulletin

The Conversation

  • Written by Andrew Hopkins, Emeritus Professor of Sociology, Australian National University

Rising gas costs are “the single biggest factor in the current rise in electricity prices”.

What is most noteworthy about this statement is not the fact that it is true, but that it was made by Prime Minister Malcolm Turnbull, many of whose party colleagues remain convinced that renewable energy is the real bogeyman.

Read more: Big gas shortage looming, but government stays hand on export controls

Turnbull’s comments were made in response to a report released this week by the Australian Energy Market Operator (AEMO), which yet again warns of impending gas shortages.

I argue below that renewables are a solution to the problem, rather than its cause. But first, is there actually a gas crisis?

A gas crisis?

Although AEMO has predicted a potential gas shortfall for the east coast, there is no shortage of gas. Unprecedented amounts are being produced and exported as liquified natural gas (LNG) from terminals in Queensland, while at the same time the domestic market is being starved, driving prices sky-high.

Read more: Memo to COAG: Australia is already awash with gas

Without government action there could indeed be a domestic shortfall next year, but the government has already set in place a system of export restrictions to ensure domestic supply. These restrictions have not yet been invoked, but the crisis for the government is that they may have to be, and the decision must be made before November 30.

Emergency export restrictions are an intervention of last resort for a governing party built on free-market principles. They are necessary because the government has failed to champion a longer-term and less interventionist strategy, such as the reservation of a certain percentage of gas produced from new gas fields for domestic use. Western Australia has had a policy of 15% reservation for many years and other states are following suit.

Read more: Our power grid is crying out for capacity, but should we open the gas valves?

Not only is there plenty of gas being produced, but it would be relatively painless to divert some of it to the domestic market. AEMO notes several times in its report that producers have some flexibility in where they send their gas. In particular, a significant proportion of the exported gas is not under long-term contract but is destined for the overseas spot market, where surplus energy is traded for immediate delivery. This gas could easily be diverted to the east coast market.

On current projections, 63.4 petajoules of gas is destined for the spot market in 2018. To put this in context, the projected shortfall is 54PJ in 2018 and 48PJ in 2019. In other words, the uncontracted gas destined for the spot market is more than enough to make up the expected shortfall.

Turnbull is also arguing that the potential shortage is due to state bans on gas exploration and production. However, the production costs associated with as-yet-untapped reserves and resources in those states are much higher than for Queensland. Thus, even in the absence of bans it would still make sense to target untapped Queensland resources first.

Moving the gas south

The extra gas released in Queensland for domestic use would need to be transported to the southern states by pipelines that are already close to capacity. This is a potential problem. However, it could be resolved by means of “gas swaps”.

Gas produced in the southern states that has been contracted for sale through the Queensland terminals could be swapped for gas released by Queensland producers for distribution to the southern states. This would avoid bottlenecks and gas transportation costs.

In the longer term, the problem could be solved by AGL’s proposal to establish a liquid natural gas (LNG) import terminal (a regasification plant) at Western Port in Victoria.

This facility could process LNG either from Queensland or from further afield. The terminal would have the potential to provide all of Victoria’s household and business customer gas needs. If all goes to plan, AGL will begin construction in 2019 and bring the terminal into operation by 2020–21.

Our free-market government is now firmly in interventionist mode, with gas export restrictions and plans to fund a Snowy pumped hydro scheme. There is even a proposal to subsidise the continued operation of the AGL’s Liddell coal-fired power station beyond its scheduled closure in 2022.

Read more: Baffled by baseload? Dumbfounded by dispatchables? Here’s a glossary of the energy debate

But rather than continuing to badger AGL about keeping Liddell open, the government would be wiser to press the firm to bring its regasification plant online as soon as possible. Not only does it make economic sense, but it is greatly preferable from an environmental point of view.

The renewables solution

Another way to deal with the predicted gas shortfall is to reduce demand. According to AEMO figures, gas-powered electricity generation in 2018 is expected to require 176PJ of gas, dropping to 135PJ in 2019. The lower demand in 2019 is due to increased renewable energy generation, as well as increased consumer energy efficiency.

Recalling that the shortfall in gas for 2018 is 48PJ, it is apparent that this shortfall would be wiped out by a 30% reduction in gas used for gas-fired power generation. Based on 2016 figures, that would require an increase of roughly 30% in power generation from renewables.

Given the relatively short time it now takes to build new renewable generators, this is a very promising path. Coupled with battery storage or pumped hydro, these new generators would provide dispatchable power exactly as gas does. All that is required is for the government to implement the right policy settings.

Finally, state government policies may already be taking us in this direction. The Queensland government recently announced a major program of incentives for solar power. This will significantly increase renewable power generation and dampen the demand for gas-fired power. AEMO notes this development but states explicitly that this has not been taken into account in its projections.

For whatever reason, AEMO’s final conclusion is not as gloomy as its analysis might suggest. It states that the gas situation in eastern and south eastern Australia “is expected to remain tight”. Rather than calling for action, it considers that the situation “warrants continued close attention and monitoring”. Amid all the talk of impending crisis, what we need is steady pressure on the steering wheel, rather than a sharp swerve.

Authors: Andrew Hopkins, Emeritus Professor of Sociology, Australian National University

Read more http://theconversation.com/to-avoid-crisis-the-gas-market-needs-a-steady-steer-not-an-emergency-swerve-84701

Writers Wanted

Humans threaten the Antarctic Peninsula's fragile ecosystem. A marine protected area is long overdue


United States' standing wanes on Lowy Asia Power Index


The Conversation


Prime Minister Interview with Kieran Gilbert, Sky News

KIERAN GILBERT: Kieran Gilbert here with you and the Prime Minister joins me. Prime Minister, thanks so much for your time.  PRIME MINISTER: G'day Kieran.  GILBERT: An assumption a vaccine is ...

Daily Bulletin - avatar Daily Bulletin

Did BLM Really Change the US Police Work?

The Black Lives Matter (BLM) movement has proven that the power of the state rests in the hands of the people it governs. Following the death of 46-year-old black American George Floyd in a case of ...

a Guest Writer - avatar a Guest Writer

Scott Morrison: the right man at the right time

Australia is not at war with another nation or ideology in August 2020 but the nation is in conflict. There are serious threats from China and there are many challenges flowing from the pandemic tha...

Greg Rogers - avatar Greg Rogers

Business News

Top 3 Accident Law Firms of Riverside County, CA

Do you live in Riverside County and faced an accident and now looking for a trusted Law firm to present your case? If yes, then you have come to the right place. The purpose of the article is to...

News Co - avatar News Co

3 Ways to Keep Your Business Safe with Roller Shutters

If you operate your business in a neighbourhood or city that is not known for being a safe environment, it is not surprising if you often worry about the safety of your business establishments o...

News Co - avatar News Co

Expert Tips on How to Create a Digital Product to Sell on Your Blog

As the managing director of a growing talent agency, I use the company blog to not only promote my business but as a way to establish ourselves as an authority in our industry. You see, blogs a...

Adam Jacobs - avatar Adam Jacobs

News Co Media Group

Content & Technology Connecting Global Audiences

More Information - Less Opinion