Record renewables roll-out eases gas crisis, says AEMO

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AEMO says record rollout of wind and solar has eased the dependence on gas, freeing up more supplies and reducing prices.

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2016 saw a rise in natural gas, and not much progress for renewables
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Hang on, this wasn’t suppose to happen! Australia’s switch to wind and solar was supposed to cause a huge jump in the need for gas as “back-up” and cause an energy price hike from which the country’s economy could never recover.

At least that’s what conservatives would tell you. But it turns out the opposite is occurring, and the record-breaking roll out of wind and energy actually means less need for gas generation for the moment, so less pressure on supplies, and falling prices.

According the Australian Energy Market Operator’s annual gas market outlook, known as GSOO (Gas Statement of Opportunities),  the thousands of megawatts of solar and wind generation in the development pipeline is forecast to reduce the east coast’s reliance on gas-powered generation for electricity.

This will take the pressure of prices and production.

“Alongside international market changes, newly committed electricity generation resources have resulted in a favourable increase of gas availability for the east-coast market,” said AEMO’s executive general manager of planing and forecasting, David Swif.

“With over 4,000 megawatts (MW) of wind and solar coming online in the next two years, our forecasts show that gas-powered generation (GPG) demand could be even lower than the projections in our 2017 GSOO, as the role of GPG transitions to focus more on meeting demand when renewable generation is low,” he said.

The table below shows the various demand for gas, which is dominated by LNG exports (red), with gas generation (orange) tipped to fall significantly over the next decade before regaining some ground as more coal generators retire.

The outlook offers a welcome change from last year, when the GSOO forecast a shortfall in gas supplies, starting within the next two years.

As we reported at the time, that “very small” shortfall was quickly whipped into a “gas supply crisis” by a federal government looking to justify its support of expensive new gas fields and pipelines in Australia’s north.

This sparked fierce debate in the energy industry, with many arguing that simply turning up the tap for gas supply would do nothing to lower prices, and that other kinds of government intervention would be needed.

But it’s unlikely anyone within federal government ranks – where every effort was being made to slow the progress of renewable energy development, particularly in states like South Australia – that the run-away renewables market might be a part of the solution.

As AEMO notes, this year’s GSOO reflects the ongoing interdependency between Australia’s gas and electricity industries, and more specifically, the ability of renewable generation to take the pressure off gas-powered generation for electricity.

The report also reflects the connection between Australia’s domestic and international gas markets, as minor changes in LNG exports provide additional supply to the east-coast.

“The international oversupply of LNG capacity and the emerging spot Asia-Pacific LNG market means that international buyers are forecast to source less gas from Australian LNG producers in the short-term,” said Swift.

“Coupled with the current supply conditions on the east coast, this will mean that LNG producers will be able to provide up to eight petajoules more than previously expected to the domestic market, which is a minor, but favourable addition to the east coast’s dynamic supply demand balance.”

The forecast reduction in LNG exports has also coincided with a seven petajoule net increase of east-coast domestic production and a new Northern Gas Pipeline, which will be able to supply up to 90 terajoules of gas a day to Mount Isa from December 2018, the report said.

The release of AEMO’s GSOO comes one day after Bloomberg New Energy Finance released its latest long-term energy outlook, which predicted that renewable energy would supply 92 per cent of Australia’s electricity by 2050.

“The future grid will be underpinned by cheap wind and solar, with batteries and pumped hydro helping to smooth out the variability, and with more expensive gas acting as a fail-safe,” said Kobad Bhavnagri, head of BNEF in Australia.

“New technology has set a path for Australia to achieve near-zero emissions power by 2050.

On gas, BNEF said capacity would need to increase from 18GW today to 23GW in 2050, “to provide reliable supply in the rare periods when the wind is not blowing and the sun is not shining.”

For coal, however, the news is all bad. Bloomberg NEF sees its share of the generation mix falling from 25GW in 2017 to 18GW in 2030, and just 6GW in 2040. In effect, more flexible gas stays while inflexible coal goes.

By 2050, BNEF expects coal to be gone almost completely from Australia’s generation mix – although the report does stress that this is “assuming there are no government attempts to save it with subsidies.”

Note: Energy minister Josh Frydenberg and Resources Minister Matt Canavan issued a statement on Friday morning saying that government intervention had eased pressures in the gas market. The joint statement made no mention of renewables.

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28 Comments
  1. Jon 3 months ago

    Gas demand in the NEM will be more driven by changes in coal fired generation capacity than shifts in renewable generation capacity.
    Increases in renewable generation (especially solar) reduces peak demand which will reduce the requirement fo gas peaking plants until too much of a duck curve is created, hopefully by then the existing pumped hydro is utilised more and some more capacity is built.
    More RE plants are being announced with some battery capacity which will again reduce the gas peaking requirement.

  2. GlennM 3 months ago

    The graph is stunning, clearly LNG exports is the biggest factor. Therefore if/when the Asian market installs more RE the Australian LNG export market will decrease and gas prices for power generation in Aus will also decrease.

    Australia’s major LNG markets are Japan, China and South Korea. We all know that China and South Korea are focused on more RE, not sure what Japan is up to..

    • Michael Murray 3 months ago

      According to this graph

      https://en.wikipedia.org/wiki/Energy_in_Japan

      it looks like our LNG is helping make up for Japan’s disenchantment with nuclear. I’ve read stories about using Australian solar and wind to make
      hydrogen to ship to Japan. Not sure how far that is away from happening.

      • Mike Westerman 3 months ago

        A pilot plant is being designed presently for Vic. While it will run on lignite, elements of it are related to export of H2 from whatever is the cheapest source. The lignite plant relies on successful sequestration – the Chevron experience in that regard is not encouraging.

      • Tony Wilson 3 months ago

        Commercial shipments of hydrogen will be in the frame at around about the same time as commercial fusion power generation – i.e., 20 years from whatever year you happen to ask the question.

        Don’t plan on it anytime soon.

        • Michael Murray 3 months ago

          Saw an article somewhere that said that fusion is now 15 years from whenever you ask 🙂

    • Peter F 3 months ago

      China and South Korea are still installing quite a bit of gas generation and heating capacity to reduce pollution from coal so I think it will be quite some years before gas demand falls. It depends whether Qatar and Russia get a larger share where our gas market goes

      • Andy Saunders 3 months ago

        Yes, China in particular is still out in the market looking for new gas/LNG supplies. Switching away from coal, mostly due to PM2.5 issues

        I’d suggest the US is the most plausible next gas supplier (via the Gulf Coast liquefaction plants and the expanded Panama Canal) rather than Qatar. Russia will depend on pipeline construction mostly.

    • Mike Dill 3 months ago

      Taiwan and Japan are seriously looking to get into offshore wind, as flat land is very expensive there. Same issue applies to Indonesia and parts of Malaysia. The Java Sea is just deep enough that fixed platforms are not viable, and floating offshore wind platforms should work very well there and off of Japan and Taiwan.
      Perhaps the same could be said for the Bass Strait.

  3. George Michaelson 3 months ago

    COAG and the feds could bolt a state-strategic-override regulated domestic price on the export in a flash. The “risk” that they will fly is “sovereign risk” which frankly, they also control, just like they did for the PRRT.

    There is enough gas. They just have to want to lock a price in, which is (for them) a bad look. But the closer we get to a power-bill election, the more this stands out: the price of gas in australia is a matter for Australians. Nobody says it has to peg to world price.

  4. Patrick Comerford 3 months ago

    Things could change very quickly in the domestic gas market coutesy of one D Trump. The US is now shipping an ever increasing amount of LNG into the pacific market including China which is obviously competing with Aussie export LNG. With Tumps escalating trade war focusing now on China, the Chinese have indicated that they are prepared to target US energy imports in the tit for tat escalation. So If US LNG becomes a “victim” of trumps easy to win trade war Aussie LNG could fill that gap, export pricing could increase and this new found supply of gas to the domestic market would evaporate quicker than it takes to prick a balloon.

    • Andy Saunders 3 months ago

      No. China conspicuously (well, if you know where to look for it…) exempted US LNG from the trade tariff war.

      Actually Oz domestic production has mostly caught back up with demand, east-coast gas prices should ease from now on. The Gladstone plants are running flat out, there’s no more export capacity to be had on the east coast.

      • Patrick Comerford 3 months ago

        You may want to rethink your assumptions on that. This article below suggests Chinese tariffs on US oil and Naturat gas shipments are on the table.
        http://gcaptain.com/u-s-shale-producers-warn-chinese-tariffs-would-hit-energy-exports/

        • Andy Saunders 3 months ago

          LNG isn’t oil. If you read almost to the end, there’s “will not hurt exports of U.S. crude oil or liquefied natural gas, the latter a fuel that China has not included on its list of products facing a tariff.”

          If they did end up adding a tariff, it would be “interesting”, as the take or pay contracts with the Gulf Coast will still force them to take the cargoes, hurting the Chinese utilities doing the importing. My guess is that the Chinese would approach the suppliers asking to divert the cargoes (I don’t know, but the contracts may well have destination clauses not allowing shipping elsewhere). Maybe the American suppliers will agree (in exchange for some consideration), and the Chinese will transship via say Singapore to avoid the tariff, perhaps inadvertently kicking off a large arbitrage/spot market.

          • Patrick Comerford 3 months ago

            Yes that’s the point I was making that no one can predict how the international gas market will re act to the uncertainty that trumps tariff wars may have on the pricing and demand flows of gas and any impact that may have for domestic supply and availability. The AEMO statement strongly suggested that it was all very predictable nothing to worry about here. Well as the world has clearly found out anything involving Trump is the exact opposit.

  5. Peter F 3 months ago

    As far as I can work out that 4 GW is just grid based renewables, in fact depending on final commissioning of Stockyard Hill and a couple of other plants it could be almost 4 GW of wind alone from 1 Feb 18 to 1 Feb 20. Throwing in all the solar plants it could easily be 6-7 GW in 30 months + 4 GW of behind the meter generation. That will generate about 27 TWh. We only generate about 20 TWh from gas already so it is anybody’s guess whether the lost production will be at the expense of gas or coal

    • Ertimus J Waffle 3 months ago

      You seem to forget that the sun only shines for 50% of the day and two hours when anything like full generation is reached. Solar over a 24 hour period is less than 30% efficient on the sunniest of days. As for wind well who knows if the wind will blow or not blow or blow too hard. If it’s a cloudy windless day then you might just have to crank up those expensive gas turbines to cover the shortfall. Either way it will be a very inefficient exercise with huge amounts of wasted valuable infrastructure sitting idle most of the time.

      • Mike Westerman 3 months ago

        More Waffle – my street sits “idle” most of the time, as do most people’s cars. In fact most cars are only driven about 4% of the time, most beds are only slept in 1/3 of the time. Your brain is only used about .1% of the time given the waffle you write here, because you write about things you know little about, with even less ability to analyse. Your life would be so much better if you put less effort into making noise and more into listening and learning. You may not find that as much fun as picking up rubbish from ideological websites and dumping it here, but you would be considered less of a fool.

      • Peter F 3 months ago

        I looked you up on Linked-in and unfortunately you are clearly a troll, It would be much more helpful if you could articulate your argument with actual numbers.

        The “efficient old grid” you romanticise had 53 GW of capacity to supply 25 GW average demand.i.e. it was overbuilt by 210%. A well designed mixed renewable and storage grid will have similar overcapacity but about 40% less to build and 1/4 as much to operate
        Tracking solar generates more than 80% of its peak power from 1.5 hours after sunrise until about an hour before sunset so tracking solar farms achieve 24-31% Capacity factors over the whole year. The NEM gas plants have averaged about 25% CF in the year since Hazelwood closed, three years ago they were averaging about 17%. Given that tracking solar now costs about the same as OC gas to install and has no fuel costs and in practice a higher Capacity Factor, thus gas fired generation is far more expensive than solar
        Similarly wind power has about the same installation costs per MW as CC gas but has 1/5th the operating costs so again is much cheaper per MWh, at current gas prices about half the cost of CC gas and about 20% less than any existing coal plant without a captive coal mine.
        Because demand fluctuates and things break down the best CF you can get from a coal fleet is about 65%. The latest windfarms in Australia are hitting 48%.
        Including construction finance a wind farm is slightly less than half the cost of a new coal plant and has 1/4 of the running cost so again even if you need 1,500 MW of wind to generate the same annual energy as the coal plant wind is cheaper than new coal.
        As it turns out wind is never zero and is stronger at night and in winter so there is a strong degree of complimentarity between wind and solar. Thus with sufficient wind, solar and slightly enhanced hydro maximum additional backup required is for about 25 GW/400 GWh, it can be from existing gas plants, behind the meter storage, power to heat/ice, waste to energy etc etc.

        • Mike Westerman 3 months ago

          Excellent summation Peter of both the troll and the actual situation in the NEM. 20GW/400GWH of PHES could be constructed along the eastern sea board on greenfield sites – about half that has been identified and studied to some degree. To progress we need Fed support to make it happen. The NEG detracts from what is needed, as it is pointless to put emissions or availability obligations on retailers. Hopefully either this government will realise that, or their replacement who is committed to the necessary changes will make them. Either way I anticipate that by mid next year the project to build out the required PHES schemes will be underway.

          • Peter F 3 months ago

            Mike in fact almost all the storage will be in behind the meter batteries, small systems 15-40% for two hours at wind and solar farms and smart charging of EVs. I will be very surprised if more than 1.5-3 GW of pumped hydro is economical. Any PHS system that is built should be as close to the load as possible and next to existing transmission links, eg Cullerton, Shoalhaven and Highbury

          • Mike Westerman 3 months ago

            Peter I could see that it is most likely if power prices to households remain at current high levels we may see some penetration by batteries but as network wholesale prices fall and more rooftop solar is installed, while the focus for battery manufacturers remains on EVs, I can’t see a significant impetus for wide scale home battery installation. If any thing, I can see the payback period becoming longer not shorter. If households purchase EVs and that goes some ways towards reducing low value net exports, what incentive to also install batteries? I can see work and shopping centre charging increasing, reducing the incentive to need fast charging at home, so again undermining the case for batteries. On the other hand, low cost thermal storage and improved home insulation are already attractive and will become more so, and a better alternative to batteries.

            At grid scale, PHES remains less than a third of the cost of batteries. Most of the current crop of PHES sited on existing assets are less attractive than greenfield sites: dealing with either contaminated water, unknown geology or legacy issues with asset owners (often government owned and with different obligations to those of the PHES developer) make them challenging and therefore more expensive. We are starting to see the existing 1.5GW of PHES in Australia increasing its CF as the evening “duck curve” becomes more pronounced. That would suggest your estimate of 1.5-3GW is way short.

          • Peter F 3 months ago

            My thesis is Mike that consumers put in batteries for multiple reasons not just cost saving although that is a big part. Some do it so they don’t allow the utilities to “steal” their power for 6c and sell it to the neighbour for 30C, some do it for backup, commercial customers to reduce peak demand charges etc. In SA today batteries +PV is a reasonable investment, certainly better than 2% on bank deposits so behind the meter batteries will grow. I suspect it will not expand explosively just yet as demand is exceeding supply so the battery manufacturers are keeping the cost reduction gains for themselves. However if battery prices fall 15-25% and grid power does not fall by at least 10% then there will be mass installations following on the current solar curve. 2 m batteries at utilisation of 40% and rated power of 5 kW is more than 4 GW
            Then we have demand response. Pilot programs in the US have exceeded 1 kW per premises in peak demand reduction as we have more than 10m small customers on the grid, we could aim for 30% participation that is 3 GW plus another 2-3 GW from C&I demand response so of the 25 GW 10 is supplied without grid storage.
            Then there are the generators. In SA now, wind is being curtailed a bit. By the end of this year there will be another 600-800 MW of wind and solar added to their grid plus more rooftop systems. On a breezy sunny afternoon they will be generating 1.8-2 GW from grid based renewables with grid demand down to 600 MW and exports limited to 750 MW so there will be almost one GW of curtailments. Any generator contemplating more renewables in SA must budget to add storage probably about 15-35% of capacity for 2-3 hours. As renewable penetration increases the same will happen in other states so by the time we have 70 GW of wind and solar we could easily have 10-15 GW of storage at generators. Finally we have gas. For a very long time there will be gas plants that might only run 100-200 hours per year and they might be fueled by hydrogen or biogas but there will be 8-10 GW of gas generators on the grid. Therefore the total peak backup by my calculations could be 25-35 GW plus any new pumped hydro i.e. we don’t need much pumped hydro

          • Mike Westerman 3 months ago

            We largely agree I think except that a) I expect for a host of reasons batteries won’t follow quite the same trajectory as PV – more competing uses, more complicated fabrication, more resource constraints, more substitutes (especially for the domestic setting, chilled water/ice/HW storage for HVAC) and b) wind farms will mostly contract to storage hydro like the Snowy (ie to effectively stretch their range) and not generally stay in the spot market and c) solar will firm using PHES rather than batteries (because it’s so much cheaper, it supplements low inertia/SCR of inverters and gives a better storage match).

          • Mike Dill 3 months ago

            Something new (but not yet on the market) to consider:
            https://www.kickstarter.com/projects/ericclifton/orison-rethink-the-power-of-energy/
            Batteries MIGHT be easy to install and use sometime in the near future.

  6. Tom 3 months ago

    Haha nice. Great article.

  7. Tim Forcey 3 months ago

    The idea of a gas-supply shortfall was shortlived!

    https://www.facebook.com/groups/AustralianGasMarketInsights/

  8. itdoesntaddup 3 months ago

    https://www.businessinsider.com.au/australia-gas-demand-supply-2018-6

    However, the Federal Government has brought in the Australian Domestic
    Gas Security Mechanism, under which the Federal Minister for Resources
    can order export restrictions to avoid a shortfall in meeting domestic
    demand for gas.
    Domestic supply in eastern and south-eastern Australia
    will also be enhanced by connection to the Northern Territory gas fields
    through the Northern Gas Pipeline to be completed by the end of the
    year.

    Kind of missing from this report.

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