The release of the Australian Competition and Consumer Commission’s (ACCC) latest Gas Inquiry Interim Report has rather predictably led to the Australian Government renewing calls for more investment to avoid gas supply shortfalls.
In its report, the ACCC said that while domestic contract prices rose slightly between March and August 2021, Australia managed to avoid the gas crisis that rocked Asia and Europe.
However, it warned that timely investment and advancement of gas basins – such as the Beetaloo, North Bowen, Galilee and Gunnedah – and infrastructure would be required to prevent the predicted supply shortfall in southern Australia.
The government was quick to catch on with Minister for Industry, Energy and Emissions Reduction Angus Taylor saying that Australia was fortunate to escape the devastating price impacts seen in Europe due to their energy crisis.
“Accelerating the gas-fired recovery is essential to ensure this does not happen here,” he said, adding that the ACCC report was a warning that underinvestment in the gas sector cannot continue and that activism could not be allowed to slow gas projects.
His colleague, Minister for Resources and Water Keith Pitt, was also quick to jump in, calling for state governments to not blanket moratoria or bans on gas development.
It is worth noting at this stage that not one minister has said that this gas development would result in cheap gas, rather Treasurer Josh Frydenberg rather carefully said that “affordable gas” is crucial to help Australia’s economy as it rebounds from the COVID-19 pandemic.
Affordable gas is not cheap. And maybe not that affordable.
Just what is affordable though?
In its Quarterly Energy Dynamics report for the fourth quarter of 2021, the Australian Energy Market Operator noted that East Coast gas prices averaged about $10.60 per gigajoule across its spot markets.
This is comparable to the $10.74/GJ price in the third quarter and higher than $8.20/GJ average in the second quarter.
It’s purely speculation but the fact that ACCC highlighted the up to 230% price increases in Asia during this period could point to a price range of between $8/GJ and $11/GJ being considered to be “affordable” for gas.
We have touched previously on why cheap gas is a fallacy at best, but to summarise, the new basins source gas from coal seams or shales, both of which require fracture stimulation in order to produce commercial quantities of gas.
That’s not to say that more gas investment isn’t welcome. The energy crisis in Asia and Europe clearly highlight the need for gas supplies to be maintained at this stage in order to prevent absurd increases in prices.
But there’s a caveat – the long-term outlook for fossil fuels continues to look negative.
Renewables are picking up the pace
In its quarterly report, the AEMO noted that daytime electricity prices had continued to fall while evening and overnight prices were substantially higher – a clear sign of the impact of solar power.
This is also highlighted by the change in energy mix which saw grid-scale solar rise by 34% to an average of 14 megawatts while distributed PV output surged 24% to 82MW.
Coal-fired generation actually increased by 12% to 82MW during this period, though that was due to Muja Unit 7 and the Collie Power Station returning from outages. Gas and distillate generation actually saw a 16% reduction to 112MW as it was displaced by lower cost generation.
Recent developments about the accelerated closures of coal-fired plants also reflect this shift and while coal is clearly being phased out first, it won’t be long before we run out of coal plants to phase out and start turning our attention to gas.
This could well accelerate once enough storage, be it from hydrogen or batteries, is in place and available to maintain baseload power demand.