Historic gas deals and RET worries

The week in clean energy saw two, not one, major China-Russian gas deals and new analysis highlighting Australia's stark RET options.

Bloomberg New Energy Finance

The last week has seen not one – but two – gas deals between Russia and China: under the biggest, Gazprom will export 38 billion cubic metres per annum (1.4 trillion cubic feet per year) of natural gas to the Asian country, with the first deliveries expected in four years. After nearly a decade of price negotiations, China will become Russia’s second-largest export market after Europe.

There should be no fundamental impact on Europe’s gas supply, said Bloomberg New Energy Finance in its report responding to the deal. This is because the new fields and pipeline infrastructure in the east of Russia will be physically separate from those serving the European market. The agreement is good news for both sides: China needs more and cleaner sources of energy to meet its surging demand, and Russia needs new markets for its gas.

The parties did not disclose the agreed price but the deal in total was worth “about $US400 billion”, said Alexey Miller, Gazprom chief executive. This would equate to some $US10 per million British thermal units, based on our calculations, meaning China would pay a similar price to Europe, as the German border price is some $US10.9/MMBtu.

In addition to this agreement, China National Petroleum Corporation reached another gas-import deal last week, this time with Russian company Novotek for 3 million metric tonnes per annum of liquefied natural gas for 20 years. While being a tenth the size of the other deal, this contract alone is for more than Ukraine imports from Russia.

Another country with LNG ambition is Australia where its Renewable Energy Target has come up for review, with far-reaching changes on the cards. Abolishing or reducing the target would shelve $12-21 billion of investment in clean energy, scrap 7000-11,000 jobs in wind and solar industries each year, increase power prices for consumers and deliver power companies $6-12 billion of additional revenue over 2015-20. These are the findings of Bloomberg New Energy Finance’s recent White Paper on the target review.

The analysis shows that scrapping or reducing the renewable target would strongly benefit power generators rather than consumers.

Although costs to the average household would fall by $10 a year for the first four years if the target is abolished, prices would surge thereafter due to less supply and competition in the power markets. Existing electricity generators would then receive an extra $70.2 billion in revenue between 2015 and 2030 if the target were scrapped, and $40.3 billion if it were reduced in line with some power company proposals. The majority of this extra revenue will flow to coal-fired power stations, which dominate Australia’s current power mix.

Australia’s RET currently comprises a goal to add 41TWh of new power generation from large-scale renewable sources by 2020; there is also a a small-scale scheme aimed at incentivising 4TWh of electricity generated from renewable sources by 2020. The deadline for submissions to the review was May 16 and the assessment panel is due to report mid-year.

Originally published by Bloomberg New Energy Finance. Reproduced with permission. 

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