2010 election: repercussions for the gas industry

Ollie Clark, AM.

Ollie Clark, AM.

As the dust settles and the Gillard Government gets down to business, one might well ask whether there are implications for the gas industry. The top issues are the stances the new government will adopt with respect to the control of greenhouse emissions and regulation of the production sector of the gas industry.

It is, I think, significant that the energy portfolio will continue under the stewardship of Martin Ferguson, AM, and that the influence of the Greens has been strengthened – including a Greens member of the finely balanced House of Representatives, and a total of nine Greens Senators, as of 1 July 2011.

Carbon costings

Happily, there seems to be growing consensus within the Parliament and broad acceptance amongst the citizenry, of the wisdom and inevitability, respectively, of some form of carbon dioxide emissions penalty. A simple “$ per tonne” tax seems likely to eventuate. This path was pretty much Labor Party policy before the recent election and is likely to gather pace per favour of the Greens, and the reappointment of the Treasurer and the Minister for Energy.

The rate at which this tax will influence behaviour will depend on the initial carbon price ($20 per tonne?) and the rate at which it is increased. The purpose to which the potentially huge sums raised are put, assuming – perhaps naively – they will be invested to further the cause, will also influence the rate of uptake.

Given all Australian governments’ reluctance (or perhaps refusal) to even consider nuclear power generation, and given the Labor/Greens alliance’s strong commitment to greenhouse gas reduction, the focus for growth will clearly be on the renewable energies and natural gas.

It seems to me that sequestration of carbon from coal-fired power stations has a long, long way to go even to abate, somewhat, the emissions from existing coal-fired power stations.

Gas and generation

There appears to be a general lack of understanding in the community of the significant carbon dioxide emissions reductions available via the use of natural gas in combined-cycle (or better still, cogeneration and trigeneration) power generation, due to:

(a) the greatly improved thermal efficiency it affords; and,

(b) the intrinsic nature of natural gas, which has the lowest carbon-to-hydrogen ratio of all the fossil fuels.

The net result is a reduction of approximately 60 per cent on a per kilowatt hour basis, compared with coal-fired generation.

Despite what I read, I cannot for the life of me see why the capital cost of gas-fired generation (nor for that matter the maintenance costs) is quoted as excessive. In my view, it should be a fraction of the cost of coal-fired plants considering the huge infrastructure required to support the latter, which are often built in rather remote areas necessitating the installation of costly transmission networks.

This raises the point that in this day and age the opportunity is there to move away from the traditional model of a small number of very large generators to a large number of very small generators – embedded generation. This concept is gaining acceptance worldwide, even to the individual household level. Natural gas-fuelled embedded generation facilitates the use of waste heat for domestic, commercial and industrial use, with the potential to raise thermal efficiency to combined-cycle level and beyond.

Urban renewal and the quest for improved thermal efficiency in buildings offers wonderful opportunities for this application. We would hope that the development of communities such as the transport oriented developments proposed for the Adelaide metropolitan area would use this proven technology, which is freely available.

Reforming regulation

Apropos the matter of recent proposals with respect to regulation, I must admit to a limited understanding. The point I would make however is that regardless of the outcome of the Petroleum Resource Rent Tax review, it should, in my view, be aimed entirely at the LNG export component of production.

We are constantly assured that LNG exports are vital to our future prosperity and that the global market will become immense. Luckily, we have a vast (and growing) natural gas resource and should be able to support the local market – currently around 1,250 petajoules per annum (PJ/a) – and the growing export market, which some commentators seem to think may reach 5,000 PJ/a by 2020.

It is to be hoped that the Government will acknowledge that the multi-million dollar liquefaction plants are solely for the production of LNG for export, and that it is totally unwarranted to pass any portion of this cost on to the domestic market. In addition, the population is supposed to benefit from the export of Australia’s resources, not to pay for it!

Fuelling the future

Finally, (and here he goes again, I can hear some saying!) in a country starved of oil, and which imports, in net terms, of the order of 1,000 PJ/a of crude oil and refined products, costing $15–30 billion annually, should we not be moving actively towards the introduction of natural gas as a major component of the transport fuel mix?

To put the costs into perspective, with the exception of aviation, all transportation could be fuelled for around $7.5 billion using natural gas exclusively, and all concerns about security of supply would disappear!

Returning to the subject of the new Labor Government and what it might mean for the natural gas industry, let me quote the Minister for Resources, Energy and Tourism Martin Ferguson, in his “Foreword” to the 2009 and 2010 Energy in Australia reports:

“The energy sector has a critical role to play in meeting our nation’s basic social and economic needs, with energy security being vitally important. It underpins every form of our economic activity, powering our industries, our vehicles, our workplaces and our homes.

“Against a strengthening global economic backdrop and increasing demand for energy exports, Australia must continue to address the issue of domestic energy security.”

Paradoxically, in my view, we are repeatedly told that it is not the role of the Government to “play favourites” and we must allow “the market” to sort it out. I cannot accept this easy escape from a fundamental responsibility.

There are a number of influential groups within the energy industry, each with deep rooted vested interests which do not necessarily coincide with the best interests of the nation.

Their views must remain subservient. Governments are responsible for setting sound policy. Setting sound policy is leadership; it is not playing favourites.

Australia desperately needs, and deserves, a clear, all embracing energy policy (something it has never had) with clear environmental, social and governance imperatives. The nation’s vast natural gas reserves offer the environmental and social solutions. Let us hope the Gillard Government will provide the vital governance framework.

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