Brace yourself: regulations are coming warns EnergyQuest

12 September 2018

Reprinted from Energy News Bulletin article, 12 September 2018, by Haydn Black

AUSTRALIA’s energy sector is facing a crisis of faith because politics have overtaken policy at the Commonwealth, and the sudden U-turn between the Turnbull and Morrison governments has sowed additional confusion after a decade of the energy debacle, according to EnergyQuest CEO Dr Graeme Bethune.

Bethune said uncertainty now reigns over the Australian energy sector with the scrapping of yet another plan, the National Energy Guarantee, at the weekend, but he said it may be possible to find consensus in Canberra to solve the energy trilemma.

 
Bethune said the G20 energy ministers conference in Argentina in June had produced a consensus communique recognising the "major role" played by fossil fuels, despite the "need to successfully transform energy systems, by increasing investments in cleaner technologies, cooperation in energy efficiency and deployment of renewables and innovation", and Australian politicians could follow that lead.
 
"At the international level it is possible, with hard work, to achieve a consensus between the United States, Europe, China and Russia, but not among a small group of MPs in Canberra who all belong to the same political party?", Bethune said after Liberal Party tensions saw former PM Malcolm Turnbull rolled by his one-time treasurer, ostensibly over the NEG, although too date no real explanation for the knifing of a prime minister has been offered.
 
That has created a situation where investors are paralysed by a lack of emissions policy certainty ahead of the next federal election, despite the fact the east coast needs substantial investment in electricity and gas supply.
 
"The situation isn't helped by widely varying forecasts of energy supply and demand, when AEMO says Victoria won't be able to meet its own gas needs from 2022 and then three months later says everything will be fine until 2030," Dr Bethune said.
 
He noted the federal government hasn't produced any Australian energy projections since 2014, "probably for political reasons", soon after noted climate change science denier Tony Abbott rose to the lodge.
 
But there is no real reason for a short-sighted and bull-headed approach to Australia's future.
 
In June, Dr Bethune returned from the World Gas Conference in Washington DC, and he said there was little apparent pushback about the need to reduce emissions from many of the world's leading fossil fuel producers.
 
Rather the difference was in how and how much emissions should be tackled. US emissions reductions are focussed on replacing coal with gas while deregulating everything, while the European Union has moved on from just CO2 reductions to decarbonisation of gas supply such as green gas and power to gas via hydrogen via regulation.
 
According to the BP statistics, US CO2 emissions in 2017 were the lowest since 1992 but EU emissions were the lowest since 1967.
 
Whatever happens, Dr Bethune expects Australia will go down the regulatory pathway to find quick solutions to the east coast energy crisis, and he said gas producers should prepare for heavy-handed political intervention over the next year, regardless of who wins the next federal election. 
 
Resources Minister Matt Canavan has summoned Santos, Origin Energy and Shell to Canberra for talks about domestic supply, and has warned that he had reserved his right to trigger the Australian Domestic Gas Security Mechanism in 2019, although Bethune says that would be hard to justify given Queensland is now a net exporter of gas to the southern states.
 
"However, the politics is what matters, and the minister has plenty of flexibility in deciding to restrict exports from Gladstone," he said.
 
Labor, which could win next year's election if the polls are to be believed, has raised the prospect of modifying the ADGSM so it could be triggered whenever prices are above a benchmark set by the ACCC, not just when there is deemed to be insufficient volume, leading to the possibility of export controls being triggered sooner, and lasting longer, than the annual cycle set out by legislation. 
 
EnergyQuest warns that if Queensland producers need to break contracts and sell gas on an uncommercial basis it is likely to lead to them calling force majeure and leaving gas in the ground.
 
He said gas reservation may be now more palatable in the face of heavy handed market interventions, as it will not trash Australia's reputation with investors provided it is not retrospective, and he said the WA domestic gas reservation policy, which leaves 15% of finds for domestic use, has been careful to avoid attempting to regulate prices.
 
Bethune said Queensland could push back against an ALP government attempting to divert gas south, while international companies, concerned about rising sovereign risk in Australia, could terminate investment plans, and global buyers could launch litigation.
 
The ALP, which has taken gas security measures to the past two elections, is also talking up a tough game on retention licences over undeveloped gas fields and a national interest test for both new LNG projects and significant expansions of supply at existing projects, although neither of these events is likely on the east coast.
 
The Coalition is still to settle its new policy direction, although it has set new energy minister Angus Taylor a short-term goal of getting power prices down with no regard to emissions, although the Coalition is sticking to its target of a 26-28% reduction in 2005 emissions by 2030 somehow.
 
There are reports that business had given up on engaging with the Coalition on climate and energy policy and was instead engaging with Labor and the states, EnergyQuest said

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