The optimism about gas-fired power at the start of this decade – and the collapse of this view now – are very well illustrated in the yearbook of the Energy Supply Association of Australia (ESAA).
Go back to 2010-11 and the perception was that power stations would increase their gas requirement from 343 petajoules (PJ) a year to 795 PJ/a in 2030-31, at which point, it was calculated the sector would lead mining (514 PJ) and manufacturing (500 PJ) in effectively doubling domestic demand over two decades.
The recently published ESAA 2014 yearbook, however, paints a far darker picture: it foresees generators’ gas needs falling away to 217 PJ/a in 2020-21 and barely rising over the whole of the “˜Twenties’, reaching 224 PJ/a in 2030-31, well behind mining (but now only requiring 384 PJ/a) and ahead of manufacturing – but with factory requirements crashing to 180 PJ/a.
The current fall-off in electricity suppliers’ consumption of gas can be attributed to two key developments – the sharp decline in power demand as a result of end-user prices rising about 80 per cent in inflation-adjusted terms and the force-feeding of renewable energy (via policy interventions) into a very over-supplied east coast market.
The gloomy outlook for the next 15 years is based on a belief that, even if somewhat curtailed, renewables will still keep the east coast power market over-supplied. Electricity demand will not recover to any great extent, not least because of what ails the manufacturers, and wholesale gas prices will perhaps treble and stay high in the long term.
All of this may or may not occur but one does not need a crystal ball to see the folly of basing energy policies on guesses about the future.
To state the obvious, whatever hopes may be, no one can be confident today about two important factors: first, just how far Australia can drive its LNG business over the next 15 years in the teeth of tough competition from producers elsewhere in world who have much lower costs than we do and, second, just what level of east coast gas production may result from high prices egging on development of unconventional resources, of which we have very large amounts.
Consultants can make a motza out of analysis and forecasting on these and other factors, but no one knows what will happen any more than anyone in America foresaw the “shale gale”? back in the past decade.
The critical policy challenge today is not to repeat the mistakes of the past 10-12 years in devising strategies, measures and rules that depend on the guessing game and on giving ideologies the upper hand.
To quote from the submission by EnergyAustralia to the national competition policy review currently being undertaken by Professor Ian Harper, “policy setting should be focused on sustainable outcomes to ensure the transformation of the energy sector is smooth”?. Read about more submissions on page 24.
And to quote from the Australian Energy Market Commission submission to the same review, “while it is legitimate for governments to pursue a range of different policy objectives, it is important that this is done in a way that allows objectives to be effectively reconciled; otherwise, pursuit of one objective may undermine achievement of other, equally important goals”?.
One of the big lessons from the past decade for policymakers should be that energy and carbon abatement policies are inextricably linked and they require clear, long-term direction.
The other big lesson is that it is essential for these policies to be bipartisan. As the Grattan Institute’s Tony Wood says, partisan politics and associated continuous change are poisonous to investment, which desperately needs a credible and predictable framework – and one, I’d add, that needs to be sufficiently flexible to cope with the fact that today’s predictions about the energy scene in 2030 are inevitably going to turn out wrong.