From The Australian:
Australians are being warned it is no longer “commercially viable” to restart one of the nation’s gas-fired power stations amid a political row over using taxpayer funds to build more coal and gas generators to prevent cuts to household electricity supplies.
As political leaders sparred over whether to use coal to fill the power gap in the national electricity grid, power company Engie declared it could not justify running the crucial Pelican Point plant in South Australia.
The warning to a parliamentary inquiry yesterday runs counter to the South Australian government’s claims that Pelican Point will be able to make up for some of the capacity lost when Victoria’s vast Hazelwood power station closes within months.
Engie head of corporate affairs Jim Kouts said the company gained from high spot prices but saw this evened out by lower prices on underlying contracts with customers. He said the company’s second 240MW Pelican Point unit was not commercially viable, losing $17 million in 2015 before it was mothballed that year. Winning a long power contract with the South Australian government would not be enough to get the company to restart the plant, he told the Senate inquiry into the resilience of the electricity network.
The two major parties continue to talk up gas-fired power as a crucial way to produce more electricity for a growing country without the emissions that come from existing coal-fired power stations, but those claims are being undercut by a surge in gas exports at high prices.
While we should take this with a grain of salt given Engie also runs the near worthless coal-fired power stations Hazelwood and Loy Yang in Victoria and has some pretty weird incentives right now, over the stretch it is true. Here’s the chart:
The gas cartel currently has us paying more for our own gas than Japan. The trend is clear. The cause is obvious. Too great a concentration in the Curtis Island LNG cartel of Origin, Santos and Shell at 83%:
They are making no money shipping the gas offshore and are recouping losses by gouging at home. Thankfully that has become clear to Matthew Stevens at the AFR:
That O’Malley’s clear thinking on power arrived with yet another pitch for gas reservation does not devalue his contribution. From the moment the looming 2017-18 gas crisis became a possibility five years ago, we have consistently argued that there is no place for a WA-style reservation policy.
I have consistently argued that gas molecules should be allowed the find their highest value in use and the clearest signal to that is the price a customer is prepared to pay. I still believe that. But golly, the gas industry and various governments have made it pretty hard to stick to those free market guns.
Price signals of the magnitude being seen across the domestic gas industry right now are supposed to trigger supply-side responses. But for a multitude of reasons, from government indolence to oil price shocks, the gas industry has been dreadfully slow to translate theory into reality. It has simply failed to respond to the supply side crisis created by the $70 billion binge on Gladstone gas chillers. And I really do feel increasing sympathy for the O’Malley position.
In saying that too many LNG plants had been built, O’Malley is stating the obvious. There are two and maybe three trains too many up there. In saying “reservation” was a “dirty word” in Australian gas is, again, repeating the obvious. Forcing a domestic quota on gas suppliers would most likely result in lower domestic pricing and extended payback periods.
But we have reached a point, according to O’Malley, where the “increasing cost to all businesses in Australia is actually not in the national interest”. He is right to observe that most of the big gas suppliers that are capable of signing big, long-term contracts are the same companies that now own expensive export machinery that requires feeding.
“We are finding very little competition for supply when we go looking. We are not alone. All the major users are restricted in who they can deal with. Prices are very high. And there are some bigger users than us who cannot get secure gas beyond 2018,” he told me.
“Price increases are running out of control because there is not a policy to ensure competitiveness of supply and competitiveness among suppliers,” O’Malley said earlier. As a man who speaks for a whole lot of sunk capital, O’Malley understands the dilemma faced by those who, given the present oil price, have over-invested in Gladstone plant.
New coal-fired power is not the answer given it will have to capture and store carbon and as such is more expensive than any other option. It will only embed high costs. Gas is clearly the cheapest option to stabilise base load power while storage capacity is built-out to support renewables, which is one reason why the US has gone into it so deeply.
Only gas reservation can lower local power costs in the short term. Even if more gas is released in the southern states it will will be vacuumed up and sent offshore.
It requires no new investment, nor job losses, nor poisoning of the aquifer. All it requires is the will.
