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.