Competitive advantage of energy under-threat

August 4th, 2017

Australia has long enjoyed an international competitive advantage in availability, reliability and cost of energy.

But that is now under threat, as a packed CEDA business lunch heard in Sydney yesterday, addressed by Santos CEO Kevin Gallagher and APA Group CEO Mick McCormack.

As the two energy industry leaders said, we are doing the region proud with our world-leading exports of liquified natural gas (LNG) from Queensland coal-seam gas and continuing to satisfy domestic demand with an efficiently functioning pipeline network linking our producing natural gas reserves in Bass Strait, New South Wales (Camden), Queensland and South Australia to a distributed array of East Coast customers.

In fact, as Mr McCormack pointed out, the efficiency of this network, built and operated by a number of infrastructure companies, has increased substantially in recent years, notably with the capacity for two-way flow and other supply-management innovations.

Two-way flow has been increasingly evident in recent months.

Increased production from SA and Queensland to service the LNG export machines as well as long-standing domestic demand (particularly in manufacturing in Victoria and NSW) has been made more practical and attractive because of the ability to “shift gas up and down the network’, rather than risk a ‘one-way’ oversupply.

The economic case for investment in natural gas extraction and transportation is built on long-term commitments essential to justify the significant up-front construction costs.

However, a successful gas distribution network must also be flexible enough to deal with the shifting demands brought about by weather (particularly cold weather) and other fast-changing variables.

What Mr Gallagher and Mr McCormack were saying is that Australia has done a good job of this over the decades and that is why it has been able to make use of its natural resources to deliver the competitive edge the nation has enjoyed.

NSW Chief Scientist and Engineer professor Mary O’Kane endorsed this statement, speaking at the same Sydney luncheon.

Professor O’Kane went a step further to say that the electricity networks which delivered power to homes and business had also done a good job over the years — despite the challenges thrown up in recent times.

NSW was a good example, she said. It had coped well with increasing demand having had serious challenges in earlier decades and a forecast of possible power shortages last summer.

On gas, Professor O’Kane said, there was no need to go into detail. Her position had been clearly outlined in her comprehensive 18-month study into coal-seam gas, concluding in 2014.

For the record, Professor O’Kane’s conclusion was that coal-seam gas was no more risky than any other extractive process and that the industry had the expertise and track record to manage the risks.

She also noted there was a “lot of misinformation” about the industry.

All of this was very positive, but it was not the key take-out from the messages delivered at the luncheon. As Professor O’Kane said, an “evil fairy” had shaken the nation from the successive decades of energy comfort.

Mr Gallagher and Mr McCormack were a touch more direct. Jobs, investment and the nation’s place in the region (where our LNG is exported) were all at risk, they said.

Until there was a change of tack on resource development, higher prices would remain — and continue to hurt working people; not the those who chose to spend their days on the internet and conducting protests about natural gas.

The only solution was to increase supply. Other measures could help, but to seriously change the situation, new gas supply had to be delivered if Australian businesses and consumers were to see a downward trend in prices.

If anybody had any doubt on this point, they need only look to the economic renaissance being enjoyed in the USA (plus simultaneous reduction in carbon emissions), on the back of development of natural gas.

And as if on cue to emphasise this very point, came a nonsensical question from a person in the audience trying to assert that increasing supply would have no effect on prices, and that gas companies were “beating their heads against a brick wall” by even bothering to try to produce more gas. He did not name himself, so we won’t either. But safe to say he is well known in the industry for his quasi-economic mumbo-jumbo masquerading as analysis.

Possibly one of a type with similarities to the squawking inner-city “parrots” referred to by Mr McCormack at the event.

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