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Boosting gas production a “false solution” to confected crisis: report

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The federal government push to unlock more of Australia’s unconventional gas resources, and build massive pipelines to transport it, has been called out as a “false solution” to a non-existent problem, in a new report by the University of Melbourne’s Climate and Energy College.

Titled Short-Lived Gas Shortfall, the report – by authors Tim Forcey and Dylan McConnell – seeks to shine a light on what it sees as a confected gas supply crisis, and the knee-jerk responses to this from federal government, that do nothing to solve Australia’s very real crisis of sky-high gas prices.

Commissioned by the Wilderness Society and published on Thursday, the report traces the findings of the Australian Energy Market Operator’s latest annual gas report, which led it to forecast shortfalls in gas supply, starting in 18 months time.

Despite AEMO’s forecast shortfall being “very small” – it’s the “black sliver” illustrated in the pie chart below – and the modelling behind the forecast being less than robust, the warning was quickly cooked up as a “gas supply crisis” and eaten up by a federal government looking to justify its support of expensive new gas fields and pipelines in Australia’s north.

Screen Shot 2017-05-18 at 12.02.28 PM copy

Indeed, by late April, an audibly excited Malcolm Turnbull told Brisbane radio that the government was considering using the Northern Australian Infrastructure Fund to subsidise gas pipelines in northern Australia, as well as underwriting the plans of Indian coal giant Adani to build a rail line from its proposed Carmichael mine.

But as the report’s authors – and a number of other analysts, including RenewEconomy’s David Leitch – have pointed out, there is not much to get excited about. Particularly considering AEMO itself has since revised its figures and more or less closed the gas supply gap it forecast.

“AEMO modelled a scenario that produced a tiny-tiny-nearly-imperceptible imbalance between forecast gas demand and supply,” explains Forcey.

“A lot of people right up to the Prime Minister got excited, more excited than they should have because AEMO’s gap has already disappeared. Just 11 days after AEMO called ‘shortfall’, AEMO then reduced their demand forecasts,” Forcey said.

Screen Shot 2017-05-18 at 12.02.03 PM copy

“That gap everyone got excited about is already gone! It was a short-lived shortfall.”

Taking that into account, says the report, “AEMO’s suggested new pipelines and new (expensive) gas fields appear to be false ‘solutions’. …These massive fossil-energy infrastructure investments are not needed to address a supply shortfall that is very unlikely to occur.”

Not only that, but building new LNG pipelines and unlocking expensive new gas fields would do nothing to reduce the wholesale price of domestic gas, say Forcey and McConnell.

“Gas sources are expensive to produce, and in any case, in the ‘seller’s market’ that now prevails, domestic-wholesale gas prices are linked to international benchmarks,” the report says.

It points out that before LNG exports started from Gladstone in January 2015, eastern Australia had nearly the cheapest gas in the developed world at below $3 per gigajoule.

“But wholesale gas prices have tripled … to above $9/GJ now. Gas buyers are now saying suppliers are quoting $20/GJ and higher for long-term contracts.”

Meanwhile, it adds, Australian gas production has more than doubled from about 700PJ a year from before 2014 to 1900PJ in 2017.

Add to this the argument that gas-fired generation in the electricity sector is “inconsistent with Australia’s long term climate change objectives”, and possibly redundant in light of falling costs of renewable energy and storage technologies, and there is little left to recommend spending on gas.

Even its role as a ‘transition fuel’ is now in doubt, with AGL Energy becoming the latest major energy market player to declare that big baseload gas would be “skipped over”, as the NEM moved from ‘big coal’ to ‘big renewables.’

The “more useful message” for consumers, concludes the report, “is that the wholesale price of gas has increased significantly and is unlikely to return to the low prices previously known.

“Therefore, AEMO and governments should focus on informing Australian energy consumers – ranging from home occupants, to commercial building managers, to large industries – of the cost-effective actions they can take to respond to rising energy costs.”

The report also recommends that efforts to “reduce gas industry opacity” be pursued by Australian governments, “particularly around gas reserves, facility production capacity, future development plans, and LNG export contracts and commitments.

“Greater industry transparency would help to improve the usefulness of AEMO’s planning,” the report says.  

  • Tim Forcey
    • This is quite good news. At the APPEA2017 conference in Perth this week Wood Mackenzie proposed that coal seam gas production should be curbed as it wasn’t profitable with falling export prices for LNG.

      https://twitter.com/WoodMackenzie/status/864404976675803137

      There is a sliver-lining for the renewable energy industry and Australian farmers. This comes from the combination of higher prices for natural gas prices and new technology to produce methane efficiently from crop waste and municipal waste.

      The result: growing opportunities for income from renewable energy being converted to bio-methane.

      A university in Finland has modeled the commercial viability of Australia re-tasking its LNG export infrastructure to ship renewable energy to Asia by converting it to renewable methane.

      https://uploads.disquscdn.com/images/69be1732f8faa54c1b900e97319b70a60087cd3b5309668d013ce91337f91cb5.png

  • Tim Forcey
  • john

    One area where gas demand is dropping is domestic.
    It is now cheaper to use reverse cycle AC for heating and electric power for cooking and consumers are replacing their previous gas energy with electricity.
    On the other side of the coin for this power it is being shown that RE supply is cheaper and will become a larger part of the equation with the supply of power.
    The sooner a large number of distributed RE generator systems are put in place the better for the cost of power.
    As to building that coal fired generator using the Northern Australian Infrastructure Fund, this would be a terrible waste of money, and consign the government who did this to the dunce bin of dull ideas.