Rather than work with SA on its new energy plan, the truly idiotic Do-nothing Malcolm Government is calling the lawyers, via The Australian:
The Turnbull government is seeking legal advice on whether the South Australian government’s decision today to “go it alone” on energy policy constitutes a breach of national electricity market rules.
Energy Minister Josh Frydenberg described South Australian Premier Jay Weatherill’s policy, announced earlier today, as a “$550 million admission of failure”.
“Going it alone created South Australia’s problems and going it alone won’t fix South Australia’s problems,” he said
“In fact, the measures announced today will only increase electricity prices for South Australians. It has the potential to increase prices for Victorians, for people in New South Wales and in Tasmania.
“We are seeking advice on whether the decision today by South Australia to go it alone is in breach of the national electricity market rules which has kept the system together for the last 20 years.”
Let’s go through the SA plan and see whether the enraged Frydencoal’s summation is correct:
- SUPPORTING construction of Australia’s biggest battery as part of a $150 million spend on a new renewable technology fund. Batteries work two ways in the grid. They decrease volatility by buying low and selling high (arbitraging) the National Electricity Market (NEM) lowering the average price overall. The second function of batteries is to inject frequency when it is needed so they help stabilise the grid as well.
- BUILDING a State Government-owned, fast start gas-fired power station. This will work to prevent peaking power spikes and will hold down prices. There is an issue of obtaining the gas but a gas peaking plant can still be profitable with with higher gas prices. And if it is government owned then it can operate without the incentive gouge. This, too, will lower prices.
- ENCOURAGE the construction of a new privately-owned power station using a Government bulk buy power contract. Obviously more supply equals a lower price.
- INCENTIVISE the extraction of more gas for use in SA power stations, through a taxpayer-backed exploration fund. Not sure how this will work.
- GIVING the SA energy minister powers to over-ride other regulators and force power stations to fire up in times of need. During the last blackout, Engie refused to start up Pelican Point plus the AEMO commonweal regulator buggered up the deployment of reserves. Yet the Do-nothing Government then blamed SA Australia for the blackouts. Therefore why wouldn’t they want to have veto power if they’re going to be blamed anyway?
- CREATING an “energy security target”, which requires retailers to buy 36 percent of their power from baseload sources in SA. Need to see the detail on this but seems reasonable enough.
I can’t see where power prices are going to rise. Batteries and increased supply will bring them down a little and prevent the super spikes to $14k even if the high gas price problem remains. Nor can I see where SA’s actions will cause other state power prices to rise. Battery arbitrages will work to smooth prices there too.
The Weatherill Government has acted decisively and it’s plan looks workable. Especially so since it has also had to work around the shockingly partisan response from a Do-nothing Government which is so bumbling that it can’t see that going legal would be political suicide.
It needs instead to focus on policy and this, via the AFR:
A near twelve-fold jump in gas being pumped into Queensland from other states in the December quarter has provided stark evidence of the drain on energy resources from South Australia and Victoria to compensate for the $80 billion LNG export industry in Gladstone.
Gas from the Bass Strait and South Australia’s Cooper Basin is being sucked towards the north to replace gas being exported to Asia, contributing to the shortage of supplies and spiralling prices for manufacturers in southern states.
“For every gigajoule that is exported, the gap in the domestic space needs to be filled elsewhere,” said John Bartlett at energy advisory Energetics.
It’s all going to GLNG. As Credit Suisse said:
■ Our preferred option is to reclaim the third-party gas currently being exported: Aside from the Horizon contract between GLNG and Santos, there was no evidence in the EIS or FID presentations that more non-indigenous gas was required. As such, one could argue reclaiming what has only been signed due to a scope failure, is equitable. Including the Horizon contract GLNG will be exporting >160PJa of third-party gas in the later part of this decade. Whilst we get less disclosure these days, BG previously said that after an initial 10–20% in the early days (now gone) QCLNG would use ~5%
■ Our preferred option is to reclaim the third-party gas currently being exported: Aside from the Horizon contract between GLNG and Santos, there was no evidence in the EIS or FID presentations that more non-indigenous gas was required. As such, one could argue reclaiming what has only been signed due to a scope failure, is equitable. Including the Horizon contract GLNG will be exporting >160PJa of third-party gas in the later part of this decade. Whilst we get less disclosure these days, BG previously said that after an initial 10–20% in the early days (now gone) QCLNG would use ~5% thirdparty gas – 20–25PJa. APLNG is self-sufficient, but as can be seen the other thirdparty gas would get extremely close to balancing the market. Clearly these things are far better done by mutual agreement from all parties, rather than a political mandate.
■ GLNG loses but can all be compensated? We estimate that, at a US$65/bbl oil price, GLNG as an entity would lose US$447m p.a. of FCF if they could no longer toll thirdparty volumes. Interestingly, if Kogas and Petronas could recontract their offtake on a slope of 12x (doable in the current LNG market) then their losses as an equity partner are all offset (not equally between the two albeit). Santos would see ~50% of its US$134mn net GLNG loss offset if the Horizon contract could move up to a slope of 8x from 6x. The clear loser would be Total. We wonder whether cheap government debt, a la NAIF, could be provided at the (new, lower volume) project level or even to take/fund an equity stake in it? In reality all parties (domestic buyers included) have some culpability in the situation, so a sharing of pain does not seem unreasonable 02 March 2017 Australia and NZ Market daily 31
■ If these contracts were then all diverted domestically, at US$65/bbl oil, they should deliver gas at Wallumbilla at $7.50 gj. This is highly competitive gas in the current environment we think and should certainly not be considered unreasonable by domestic buyers
Weatherill has shown Frydencoal and Do-nothing the way. Act decisively in the national interest. The signs at this point are mixed, via The Australian:
“If we’re going to have a thriving LNG export industry, we understand that we need a well-functioning domestic market,” Shell country chairman Andrew Smith told The Australian.
“The industry and government can significantly improve the situation we’re in.
“On the moratoriums, it’s time to move past the fake issues around the concerns of development and understand that we need this gas to come into the market.”
The meeting in Parliament House today will see the federal government and the industry agree on the need for Victoria, NSW and the Northern Territory to unlock mammoth reserves that could easily meet domestic needs.
“Unfortunately, state and territory government bans are putting at risk thousands of jobs by stopping the development of our gas reserves even by conventional means,” Mr Turnbull said in a statement last night.
“The only sustainable way to guarantee affordable gas reserves is through the responsible development of our gas.”
The federal agenda includes stronger powers for the competition regulator and more pressure on producers to leave more gas for the local market, with a formal “reservation” policy seen as a last resort to force companies to give up some of their exports.
South eastern communities are united in their opposition to being fracced. It’s not state governments it’s democracy, whether we like it or not. More from the AFR:
…Opposition Leader Bill Shorten said the meeting threatened to be a whitewash because other key stakeholders were absent.
“It defies sense to leave the groups who control many of the levers on gas policy, the states – and its biggest consumers, the manufacturing industry – outside the room,” he said.
Rubbish. None of the firms should be in the room at all.
The signs are not good that anything will get done. Nobody is even discussing retrospective domestic reservation that I can see. It’s a parlour game for the oligopolists to pretend to care as they gouge.
Meanwhile, to understand the full extent of the stuff up, check this out:
Japan is collecting more tax revenue from Australian liquefied natural gas than the federal government, heightening concern the public is missing out on the wealth benefits of the gas export boom.
Japan, which is the single-biggest buyer of Australian LNG at 30 million tonnes a year, levies an import tax that will deliver $2.9 billion to its national coffers over the next four years, according to research conducted by the International Transport Workers’ Federation, a member of the Tax Justice Network.
By comparison, Australia will not receive a cent in petroleum resource rent tax from gas projects operating in federal waters over the same period.
And we’re going to export three times the volume and still get nothing. Yet if you levy more tax now, without fixing the failed market first, it will simply be passed on to customers, probably with a mark-up.
Welcome to Nauru only worse.