Turning up the heat on the gas debate

BG Australia and the Clean Energy Council agree Australia’s energy debate needs to urgently rise above Armageddon scenarios and home in on pragmatic market restructures.

Policymakers and others wanting to find sense in the cacophony that passes for an energy debate in eastern Australia can help themselves this month by reading two perspectives from very different corners of the ring.

One is by BG Australia chairman Catherine Tanna; the other is by Clean Energy Council chief executive David Green.

Tanna’s speech to this month’s Bureau of Resources & Energy Economics conference in Canberra is a masterclass in plain speaking about the east coast’s gas supply issues.

Green’s talk at the end of September to the Australian Institute of Energy in Melbourne is notable for much commonsense, and for this finish: “Energy policy in Australia has been described as an issues-rich agenda. We need change but we also have to avoid the quick fix as all too often the law of unintended consequences then comes back to bite.”

Ain’t that the truth.

Tanna, who also sits on the Reserve Bank board, set out to debunk some of the “mantras”, as she put it, about the gas market and to give some advice to federal and state governments.

On the east coast supply situation, she makes three key points.

First, she is “confident” there will be sufficient gas to meet the needs of the residential and commercial users in Queensland (where they account for three per cent of demand) and New South Wales (20 per cent).

Second, the big end of the market can be divided in two: companies that use gas in special applications or to directly generate their own electricity and steam and companies that use it as a feedstock to make other products.

The former, she asserted, often have alternatives to gas – “not without cost, but they do have the opportunity to shift technologies and swap fuels.”

The latter, she added, want to “feed a steady diet of gloom about gas availability and price, but this is not true – gas is available,” just not at the low prices they have been accustomed to pay.

Her company, she says, is “struck by the tentativeness of some users” to adjust to a changing market and to grasp the opportunities that are available.

Tanna’s third point is that there is a helluva difference between inferred resources of gas and “bankable reserves” where there is a high degree of comfort they can be produced.

Moving from “inferred” to “bankable,” she points out, is expensive and risky business for gas suppliers.  The significant volumes that have been upgraded to “2P” – proven and probable – in Queensland have only done so because of LNG-driven investment.

“It is not clear,” said Tanna, “that the gas users who make considerable noise about gas availability would be in a much better position today if international customers had not entered the Queensland market six years ago.”

She argues that the most important task for governments is to grow exploration and production, starting with releasing more acreage.

Queensland, she said, has “no pattern or discernible strategy” on exploration. The acreage release in 2011 was 86,700 square kilometres, but in 2012 it was 150 square kilometres and so far this year it has been 9,078 square kilometres.

The second task for policymakers, she says, is to co-operate on improving regulation.

Her recipe is for Canberra to “retreat from the regulatory space” and for the states to simplify and streamline conditions, shifting their focus to outcomes.

Also on her wish list is the use of royalty holidays, the removal of cash bidding for acreage, the acceleration of reforms to establish a gas hub at Wallumbilla in Queensland and a review of the control of pipeline capacity.

Users, Tanna added, should “re-assess their historical view” of gas contracts in terms of structure, length and pricing, revisit the option of exploring for their own gas and consider underwriting exploration to share risk.

The east coast market is in transition, she says, “and we all face problems, particularly if New South Wales does not contribute”. She adds: “we should not manage for imagined problems and we should not manage for the gain of a few.”

David Green’s focus in his Melbourne talk was on electricity, but the key points he made applied across the aisle.

First, he said, Australia needs to stabilise its policy settings.

“This means recognising the long-term investment cycles and building practical policies that will endure over time.”

Policy stability, he went on, requires a degree of bipartisanship “and this takes real effort.”

It also means properly hearing and addressing community concerns.

“It does not take much for an issue to become a problem and for the political process to then magnify this into the need to ‘do something.’

“We need to be patient about the process. We need to see communities as co-investors.”

Second, Green said, a space needs to be created in the market for new entrants and new sources of competition.We need to grasp the opportunities smarter markets can give us.

Third, we need to overhaul the market, to rethink its purpose and open its structures to greater competition and innovation.

Above all, he said, we need informed and effective debate that leads to effective action.

Tanna and Green, each in their own way, are arguing that stakeholders in the energy debate need to rise above Armageddon scenarios.

What they are saying gels with a point being pressed by John Pierce, chairman of the Australian Energy Market Commission, which has launched a review in to the east coast gas market.

While he is talking about gas, the points holds good for power, too. Structural change in the eastern market requires a strategic plan focussing on the next 10 to 15 years.

Gillard, Swan, Wong and Combet played a hocus pocus game under the last federal government of trying to get the community to focus on 2040 and 2050 to avoid being held to account in the short term for policies designed to keep them in office.

They have left us an energy policy environment in disarray.

While today’s task is by no means for the Abbott government alone, it is in the hot leadership seat and it has to wrangle a set of state governments too much focused on the quick fixes towards a workable mid-range plan.

Keith Orchison, director of consultancy Coolibah Pty Ltd, publisher of the This is Power blog and editor of OnPower newsletter, was chief executive of two national energy associations from 1980 to 2003. he was made a member of the Order of Australia in 2004 for services to the energy industry.

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