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Coordinated planning approach ‘imperative’ to Australia’s energy future - AEMO

8th December 2016

By: Esmarie Iannucci

Creamer Media Senior Deputy Editor: Australasia

  

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PERTH (miningweekly.com) – The Australian Energy Market Operator (AEMO) has again highlighted the need for urgent policy reform to secure the nation’s energy future.

In its latest National Gas Forecasting Report (NGFR), the AEMO warned of uncertainties and challenges, which will complicate gas demand forecasts for eastern and south-eastern Australia’s interconnected gas market over the next 20 years.

Gas forecasts continue to be dominated by gas demand to supply liquefied natural gas (LNG) exports, with Australia projected to become the world’s second largest LNG exporter by 2018, and the major LNG supplier for East Asian markets.

AEMO COO Mike Cleary cautioned on Thursday that these projections identified a range of uncertainties facing the industry.

“With this outlook comes great challenges for policymakers, infrastructure planners, and asset operators. As we continue to highlight in each of our forecasting and planning reports, the energy industry, the economy, and the consumer is transforming rapidly, requiring a rethinking of the energy system and new solutions to manage the transition to new energy sources and technology.

“The domestic gas sector in eastern and south-eastern Australia is now linked to a more volatile world market for gas through our LNG export industry, and small supply chain disruptions can have large domestic impacts,” said Cleary.

Cleary said that gas-powered generation (GPG) is expected to play an important role in the transition to a low-carbon future.

“It is anticipated that gas will play a key role in the transition to a low-emission future; however the size of this role will depend on the pathway that the Australian energy industry takes.

“GPG’s role will be important in balancing the gap between retirement of coal-powered generation and the implementation of new intermittent renewable energy sources in the absence of alternatives, such as large-scale storage and demand management.

“In the short term, projected GPG growth is forecast to stretch available domestic conventional gas supply, with the greatest gas supply challenge forecast to occur between 2018 and 2024.”

Cleary said that in this scenario, gas prices were expected to rise, as new gas was being sourced from higher-cost fields, combined with the effect of less domestic supply relative to demand.

“While the projected impact on the retail price paid by households and businesses will not reflect this high increase, modelling indicates the price impact to consumers could contribute to a reduction in domestic gas use.”

He emphasised the importance of a coordinated approach to forecasting the complex dynamics shaping Australia’s energy future.

“With the projections for gas consumption showing a number of potential investments having an increased risk of being stranded if weaker economic assumptions were to occur, now more than ever planning solutions will need to prioritise flexibility, innovation and options to defer investment until some uncertainty is resolved.

“A coordinated forecasting approach is imperative given the range of possible pathways to Australia’s energy future,” said Cleary.

Australian Petroleum Production and Exploration Association (Appea) CEO Dr Malcolm Roberts said the NGFR was a timely warning for governments.

“AEMO has correctly described the east coast gas market as at a ‘crossroads’,” Roberts said.

“To ensure we take the correct path, governments in eastern Australia must pull out all stops to encourage the investment needed to urgently address the gas supply challenges that are forecast to occur between 2018 and 2024.”
 
Roberts pointed out that Appea had long argued that if Australia wished to achieve a more competitive market, put downward pressure on prices and ensure stable, adequate supply, more gas had to be brought to market.

“Unfortunately, a mix of policy indecision, restrictive regulations and politically motivated bans and moratoriums, particularly in Victoria, have stymied exploration and development.”

Roberts said the NGFR, in discussing the range of uncertainties and challenges facing the market, had also highlighted the large difference in gas supply arising from a ‘weak’ scenario and a ‘strong’ scenario.

“This brings into sharp focus the key role of policymakers in establishing sensible policy frameworks to allow the industry to reach its potential and play its part as we move towards a lower emissions future,” he said.

“In Victoria, almost 80% of households and thousands of local businesses rely on natural gas, yet the state refuses to develop its onshore resources.”

“Sound policies are also needed to provide greater certainty and investor confidence to support exploration and reduce the high cost of development and production.”

Edited by Mariaan Webb
Creamer Media Senior Deputy Editor Online

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