The Morrison Government’s “gas-led recovery” has been rubbish from the outset. It was a fix, not a policy process.
Nobody is going to accuse me of being anti-gas. I’ve been campaigning for more of it for two decades. But, instead of undertaking consider economic process to extract more of it, the Morrison Government has butchered the national interest in favour of few mates. Then it has tried to bully those that objected:
Energy Minister Angus Taylor tried to bully the Australian Energy Market Operator (AEMO) into changing its position on gas.
The Government also tried to force Energy Security Board (ESB) head, Kerry Schott, to resign.
Both agencies maintain that the forthcoming closure of coal power plants is manageable.
NSW Energy Minister Matt Kean said the Morrison Government is defending Blockbuster against Netflix.
The “gas-led recovery” was promoted by the “manufacturing task force” which is stacked with major gas-consumers and interests including the eminently disappointing Andrew Liveras.
This is all rubbish. The task force plan will not lower prices. Its centerpiece is the Narrabri development which might get gas to Sydney for $8Gj on marginal cost, but because it’s part of a patchwork of domestically reserved projects, instead of reservation for the overall market, all it will do is displace other cheap gas into higher exports.
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The result will be ongoing tight supply and $10Gj gas. The problem is not a lack of cheap gas. It is that all cheap reserves are controlled by the gas export cartel.
We are literally better off importing LNG, which can get here for $8Gj over the cycle, and does break the cartel.
Meanwhile, Grattan wants more gas for cheaper, cleaner power:
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Why gas is an ideal backstop in a high-renewables system
The economics of gas-fired generation makes it ideal for providing backstop capacity in a system powered mostly by solar and wind. Gas and liquid fuels (such as diesel) are much better suited than coal to ‘firming’ renewables. This is because they can be burned in turbines or reciprocating engines, which can ramp up and down quickly to balance fluctuations in electricity demand and renewable supply.
Gas and liquid fuels are more expensive than coal per unit of energy,a but their plants are cheaper to build: Graham et al (2020a) indicate that a gas peaking plant is 57 per cent cheaper to build than an equivalent capacity of black coal-fired generation, and 72 per cent cheaper than a brown coal plant. And because gas plays only a backstop role rather than supplying bulk energy, relatively little gas is needed – about 95-to-195PJ per year in the ‘90%RE’ scenario, compared to more than 1,000PJ of coal per year in the ‘keep coal’ scenario.
It’s much easier and cheaper to store gas and liquid fuels than hydrogen or electricity. Liquid fuels in particular can be stored at ambient pressure and temperature. This makes them ideal for energy storage in case of a particularly challenging winter. Even if in future renewable energy provides 100 per cent of the NEM’s electricity most years, it may be worth maintaining a reserve of liquid fuel and some fast-start generator capacity in case of a period of unprecedented bad weather. Liquid fuels are even more expensive to burn than gas, but used in this way only very small volumes would actually be consumed.
Australia already has substantial infrastructure for moving and storing gas and liquid fuels, such as pipelines, underground storage, and refineries. Existing gas infrastructure is useful but not essential for enabling gas to play a backstop role. If demand for gas in other sectors declines over the coming decades to meet Australia’s climate goals, parts of the existing gas networks may not be economic to maintain.b
In that case, LNG regasification terminals may offer an economic alternative for supplying gas to power plants. These terminals receive shipments of LNG, and warm it back from a liquid to a gaseous state as needed. LNG could be imported from elsewhere in Australia, or internationally.
Regasified LNG might be slightly more expensive than gas today, but this option is very flexible. The amount regasified can vary significantly from day to day, and extra LNG can be bought on the global spot market if required.c Fortunately for Australia, challenging winters would
occur during northern hemisphere summers, when Asian gas demand and prices typically fall. And the terminals can be built as floating units, allowing them to be transported elsewhere if not needed – an option not available with pipelines and underground caverns.
However, gas and liquid fuels are not zero-emissions solutions. To achieve net zero, their use must decline over time or be offset with negative-emissions technologies.
I have long campaigned for gas to fulfill this role. But it depends entirely upon what the gas input cost is. At the current $10Gj, it will not provide a cheap power transition:
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And it’s going to get worse:
Much, much worse for gas and coal:
In a few years, the marginal cost of gas power will be anywhere from 5x to 8x more expensive than renewables. That gives renewables a staggering competitive advantage to build out towards 100% of output, even allowing for periodic droughts in wind and sun. Renewables may build over-capacity to service those periods.
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If gas is still to play a role given renewables intermittency, it will need to deliver much cheaper power than this.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
