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Australia’s
slow-motion energy train wreck
Australian
energy groups are telling me that Australian industrial demand for
electricity in major eastern state capital cities is falling because,
outside mining, Australian companies have stopped investing
Robert
Gottliebsen
6
September, 2012
The
investment decline is being obscured by the current mining investment
boom, but even in mining almost all projects that have not started,
or are about to start, will now be mothballed .
But
these momentous changes, along with the carbon tax debate, are
obscuring an alarming longer-term set of developments in the states
that should be among our industrial power houses – Queensland and
New South Wales.
We
are going to look back at the current energy developments Queensland
and NSW with horror. Long-term investors in both states need to be on
the alert.
In
Queensland the past government encouraged investment in power
generation and network facilities. Those making the investments
expected a return on capital invested.
The
current government decided to “reward” them by depressing power
prices to make recent power plants like Origin’s Darling Downs
giant gas fired power station uneconomic. The Queensland government
is also hitting retail margins by freezing prices and brutally
attacking Origin, which is alleged to have tried to get around the
freeze.
At
the moment this is great for Queensland consumers and everyone thinks
the premier is a genius. But one way out of the Queensland budgetary
mess created by the previous government is to sell Queensland’s
power stations. The Queensland government has just savaged their
value.
Those
who invested in Queensland power, like Origin, took a sovereign risk
and lost. It will not be forgotten by all those in the industry. In
the end Queensland consumers, including industry, will pay more to
attract power investment because of the high perceived sovereign
risk.
In
NSW gas is very important as a source of domestic and industrial
energy. But NSW consumers and industry look headed for a shortage of
gas and/or much higher prices before the decade is out. Unless
preventative action is taken quickly there will be no escape for the
state’s gas users.
The
NSW problems start with what is happening in Queensland with the
export of coal seam gas via Gladstone LNG plants.
The
simple fact is that it was crazy to allow three LNG complexes each
with two trains to be built at the same time. Not only did it boost
construction costs but the very necessary extraction rules for the
gas has meant that there is not enough gas to supply the early years
of the export contracts. Only the Origin group appears to have has
enough gas. Origin has even sold gas to the Santos consortium. Some
of that Origin gas sold to Santos will probably come out of the
Cooper basin – gas that might theoretically have gone to NSW. The
Santos group is paying around double the NSW domestic price but
believes it will still make a profit by exporting the gas via its LNG
Gladstone plant.
Santos
may also need to tap the Cooper to supply Gladstone.
All
this may have been fine had NSW coal seam gas been developed. But
thanks to an amazing campaign by Sydney radio talk back broadcaster
Alan Jones NSW cannot develop its coal seam gas.
There
are many in the gas industry who believe that the environmental
problems involved in developing gas so close to a capital city would
always make the development impossible.
Leaving
that aside, the simple problem is that by about 2017 there are likely
to be New South Wales gas shortages unless the coal gas is developed.
NSW will have to try and get gas from the Bass Strait or develop
Cooper Basin shale gas. These will be high cost options but even if
the required gas price is paid decisions need to be made very soon if
the gas is to be available.
In
other words, New South Wales domestic gas is be priced close to
export parity, which is currently around double the domestic price.
Even if the price rises to export parity, if no action is taken now
there will be shortages.
The
concentration on carbon and short-term politics is setting us up for
ugly long-term side effects.
Blackout
warning as power workers threaten strike action
ABC,
6
September, 2012
New
South Wales could be hit by blackouts as 600 workers at two Hunter
Valley power stations prepare to take industrial action over stalled
pay talks.
The
Bayswater and Liddell stations which produce up to 40 per cent of the
state's power, could be hit by overtime bans and stoppages of up to
48 hours.
Fairwork
Australia has directed unions to give the operator, Macquarie
Generation seven days notice of any action instead of the normal
three days.
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