Issue 170, June 2019
Cut through the post-election noise (all the louder for the – broadly – unexpected outcome and the ensuing fallout for a badly bruised Labor) and, from an energy stakeholder perspective what do you have? For the moment, writes Keith Orchison, mostly ongoing uncertainty for the key players, suppliers and large users as well as disappointment for the promoters of weather-reliant renewables who had persuaded themselves that sunnier uplands awaited them after 18 May. Beyond the core outcome of the Coalition retaining office for another three years, one of the biggest facets of the postmortem is the considerable fall from grace of opinion polls, with a leading expert confessing that it is now difficult to survey a representative cross-section of society and that “the quality of samples isn’t as rigorous as it should be,” raising interesting questions for green activists’ reliance on a multitude of polls purporting to support greater and greater use of wind and solar and oppose development of gas and nuclear power. Meanwhile, for gentailers, there is alarm at the re-elected Morrison government waving its “big stick” even more strongly and concern about the strength of energy and climate policy if the government remains adamant that the NEG is dead.
The Sydney Morning Herald and The Age have declared that they are “pressing pause” on use of public opinion polling in the wake of the federal election. “If we do decide to continuing polls in future, perhaps we should reconsider the way we report them,” wrote Tory Maguire, national editor of the two newspapers now owned by the Nine group.
John Utting, one of Australia’s leading pollsters, asks in another election post-mortem: “Has polling created a parallel universe where all the activity of the past few years, including leadership coups, was based on illusions, phantoms of public opinion that did not exist?”
Peta Credlin, former chief of staff to Tony Abbott, has called for the cycle of fortnightly opinion polls, which have played such a large role in national politics this decade, to be abandoned because they are “damaging our democracy.”
“Pundits, bookmakers and even a supposedly clairvoyant crocodile predicted victory for Labor” – London’s The Economist expresses surprise from afar at the “upset down under.”
“If you don’t like our policies, don’t vote for us” – Labor’s Chris Bowen during the election campaign.
“We didn’t get enough votes” – Labor’s Bill Shorten, responding on 19 May to a reporter asking “Why did you lose?”
“The climate change issue has burst forth. This is the defining issue of this campaign” – Labor senator Kristina Keneally on the eve of the election.
“There was a mood for change, but what voters wanted in seats that would determine the election result was better government, not necessarily a change of government” – Katharine Murphy in The Guardian.
“People want solutions, not arguments. They have conflict fatigue” – new federal Labor leader Anthony Albanese after the election.
“Labor needs to better tune in to middle suburbia, which proved less committed on issues such as climate change and more worried about economic management” – veteran political commentator Michelle Grattan, writing on the ABC website.
“We need to use this opportunity to start to have more comprehensive and intelligent discussions around what the (energy) system needs in the next 10-15 years and what regulatory frameworks we need to facilitate it” – EY’s Matt Rennie.
“The Morrison government should rebuild relationships with industry and the States while using the election to create some stability in energy and climate policy” – Grattan Institute’s Tony Wood.
“Prices for electricity and gas are high, reliability is challenged and emissions are rising in the economy as a whole. The integration of energy and climate policy is important unfinished business” – Australian Industry Group’s Innes Willox.
Observing the Australian Petroleum Production & Exploration Association’s 59th annual conference in Brisbane, Deloitte has fastened on business leaders’ repeated focus on community standing to declare the gas industry, like the energy industry more widely in Australia and overseas, is suffering an identity crisis, The petroleum sector’s place in society can no longer be taken for granted, the firm says, urging the industry to work harder and better to build trust.
As Reuters’ correspondent Clyde Russell puts it, virtually every speech on the opening day of the conference “was that the industry has to fight its corner and not allow environmentalists all the space in the fight for hearts and minds.”
The angst comes at a time when Bloomberg describes the industry as “being in a relatively sweet spot” because Australian LNG is more attractive to China than tariff-laden US supplies and because the election outcome has relieved it of facing tougher emissions abatement requirements.
ConocoPhillips CEO Ryan Lance told the conference’s 2,100 attendees that the gas industry has to be more responsive to community needs and to build understanding of the fuel’s ability to reduce global carbon emissions.
Zoe Yujnovich, APPEA chair and head of Shell Australia, said the petroleum industry needs to tell its story “with more relevance and more vigor.”
Activists are “waging a virtual war” on the industry, she added. It is a “trap,” she warned, for suppliers to get drawn in to “either/or debates about domestic or export gas, hydrocarbons or renewables, solar or gas.”
Yujnovich said APPEA will focus on advocacy in three areas. “We need a joined-up national energy policy that is consistent with our national climate change goals, helps to reduce barriers to supply and reduces sovereign risk.” In addition, APPEA will concentrate on regulatory and tax reform.
Santos CEO Kevin Gallagher declared: “It is criminal how badly we’ve sold the message of gas in Australia.” Replacing all this country’s coal-fired power generation with gas would “get Australia 90 per cent of the way to reaching our Paris commitment.”
Woodside Petroleum CEO Peter Coleman added that “it is has never been more important for the industry to demonstrate to the public the contribution it makes through taxes, jobs, supplying energy and in the community.”
Origin Energy CEO Frank Calabria told the conference “communicating the importance of gas in our energy future has been our weakness – it is still not clear to the person on the street that gas remains on the right side of history.”
Calabria pointed to the lesson of 18 May election. “Australians are pragmatic,” he said. “ They listen to reason and they cast their votes based on their own views and needs. They want energy prices to be lower. They want to keep manufacturing in Australia.”
It hasn’t taken the federal government long since its unexpected triumph in the general election to lurch in to rough waters over energy policy.
Senior energy business people have been quick to challenge the re-elected Morrison government’s apparent determination to oppose resurrection of the “national energy guarantee.”
At the APPEA conference, the CEOs of Shell, Woodside, Origin and Santos all, in effect, told the government to explain how it could achieve what investors most want, a clear and stable policy, without reviving the NEG? They spoke after media reports that Energy & Emissions Reduction Minister Angus Taylor had affirmed to journalists that the government would not change its stance. (The NEG was killed off in the last parliament by the Coalition as Malcolm Turnbull stumbled to the end of his time as Prime Minister amid party room chaos over the policy.)
However, Origin Energy’s Frank Calabria acknowledged that the business community may need to “move on.”
He said: “We can continue to discuss what we prefer, but if the reality is the NEG is off the table, then we must work with the government on how we bring reliability obligations and emissions reduction together.”
Queensland’s Labor Energy Minister, Anthony Lynham, told media covering the APPEA conference that a bipartisan approach to national policy required revisiting the NEG.
Senator Arthur Sinodinos has urged the re-elected Morrison government to do more to manage the electricity transition.
In a television interview after the election, the influential Liberal parliamentarian said the government can recast itself as the best manager of the power grid as record investment in renewables progresses the market transition.
Acknowledging that the Coalition was in “very intense competition” in inner-city electorates, with climate change policy as a key factor, Sinodinos (who is to leave parliament later this year to become Australia’s ambassador to the US) said “there is an opportunity for us to reclaim more ground in the environmental space and not to make it seem a binary choice between looking after the environment and the economy.”
The challenge, he added, is to “make sure the electricity generation system can accommodate (greater renewable energy) while maintaining reliability.”
Sinodinos said: “There is no turning back. This is about how you take advantage of it as an opportunity, not just see it as a cost.”
In a media interview nearing the end of May, Treasurer Josh Frydenberg declared that “climate and energy is not a zero-sum game,” talking up the need to install infrastructure to support the renewable energy zones mooted by the Australian Energy Market Operator. “The key is ensuring stability in the system.”
Labor’s new federal leader, Anthony Albanese, in his first interviews since being elected unopposed to the position, has called for bipartisanship on energy policy to give businesses certainty. “The time for ongoing conflict is surely over,” he told reporters in Sydney. “And the business community is crying out for certainty.”
And the new party deputy leader, Richard Marles, blamed for contributing to the Labor rout in Queensland on 18 May, says he was “tone deaf” in his earlier attack on coal and now acknowledges that “coal is clearly going to play a significant part of the future energy mix in Australia and is clearly going to be a significant part of our economy.”
Prime Minister Scott Morrison says it “makes a lot of sense” to re-unite the roles of energy and emissions reductions in his new ministry under Angus Taylor, who tweeted: “Look forward to getting on with the job of lowering power prices for families and businesses and ensuring we stay on track to meet our emissions reduction target.”
Senator Matt Canavan retains the Resources portfolio in the reshaped ministry.
Environment and energy were combined (with Josh Frydenberg as minister) under Malcolm Turnbull but split last year when Morrison took over the leadership of the Liberals and the government.
Morrison told media in announcing the ministry that a key focus of the new arrangement will be on meeting the government’s 2030 carbon abatement target – which is to reduce emissions by 26 per cent from 2005 levels.
He said it did not mean a change would be pursued to policy, but he aimed to ensure plans to underwrite Tasmanian hydro expansion, to build Snowy 2.0 and to use “direct action” to buy abatement were well integrated.
Labor campaigned in the election on increasing the target to 45 per cent but could not or would not address the economic cost of its proposal.
Economist John Quiggin of the University of Queensland, in a newspaper op-ed in late May, asserted that “to match the commitments of comparable countries, Australia would need to cut emissions in 2030 by at least 40 per cent relative to 2005.”
A coterie of business and activist lobbyists, in a newspaper letter after the federal election, has called for a focus on paying energy users to reduce demand as a key part of addressing the “trilemma” of affordability, supply reliability and durable emissions abatement.
The letter writers – BlueScope Steel, the Total Environment Centre, the Public Interest Advocacy Centre, The Australia Institute, CSR, the Australian Industry Group and the National Irrigators Council – say this approach is a better way to address the challenges rather than turning on more expensive generators when electricity demand and wholesale prices are high.
“Effective uptake of demand response will reduce prices, increase competition and improve reliability as coal power ages and retires and renewables grow.”
As well, Rick Francis, CEO of Spark Infrastructure, which has interests in $17 billion worth of Australian network assets, has used the company’s AGM to call on the re-elected federal government to include climate change considerations in a “reset” of energy policy.
He is urging the government to work to re-align the CoAG approach to climate and energy to provide clarity for the Australian Energy Regulator, the market operator and the Energy Market Commission. “Get them all on the same page.”
Francis adds: “The Australian energy landscape is at an inflexion point. There is a political drive to tighten expenditure across the networks but there needs to be a substantial investment to prepare for more renewables.”
Possibly the most significant NEM development post the federal election comes from work done before it: the “retailer reliability obligation” is intended to take effect in July. The rule requires retailers to ensure they have enough dispatchable power to meet customer needs and carries what the government describes as “stiff financial penalties” for failure to do so.
The Grattan Institute’s Tony Wood describes the obligation as “a perfectly sensible thing to do” and says that “if it works the way it is supposed to work, it will ensure (market) reliability post the close of Liddell.”
Wood, in a post-election commentary, warned that there is a risk the NEM may not adjust smoothly to new, subsidized power supply. “For example,” he said, “low and volatile wholesale prices could accelerate coal plant, causing price increases and threatening summer blackouts.”
Confirmation that Snowy 2.0 will proceed, he added, will deter unsubsidized smaller storage projects.
TransGrid anticipates that between 15,000 and 20,000 megawatts of wind and solar power capacity will be needed in New South Wales by 2040 in addition to “significant storage.”
The company’s future grid manager, Fiona Orton, says “we are currently experiencing a once-in-a-generation transformation in the mix of power supplying homes and businesses.”
Today, she says, almost 90 per cent of the State’s electricity comes from coal plants – but the company expects that most of these power stations will come to the end of their technical lives and be retired over the next 20 years.
The shift of power supply from being near coal fields to regional clusters with high quality renewable resources, Orton adds, “will require a reconfiguration of the system – an integrated approach for the complete system will be needed.”
One thing definitely not resolved by the Coalition’s national election victory or the earlier win in New South Wales is the state of play for manufacturers in eastern Australia who are large-scale users of gas.
This was highlighted after 18 May by retired global head of Dow Chemicals (now DowDuPont), Andrew Liveris, warning that the ongoing high price of gas is “killing manufacturing” on the east coast and urging Scott Morrison to make energy policy a top priority for the Coalition’s new term of government.
The gas price problem, he told The Australian, needs to be “fixed as soon as possible,” urging the construction of pipelines “across Australia” to act as common carriers for producers. “If you had a couple of pipelines east to west and north to south, you would start tapping all (of the gas resource).”
Liveris argued that building competitive gas infrastructure, “breaking the oligopolies,” will also have an impact on decarbonizing the Australian economy via a large construction of gas generation and retirement of ageing coal plants. “You would get lower electricity prices, lower gas prices, gas for manufacturing, more jobs and reduced emissions.”
Meanwhile the Australian Workers Union declares it is “dealing daily with east coast companies looking to cut employee numbers, pay or conditions” because they cannot secure gas “at decent long-term prices and contracts.”
As well, Incitec Pivot says it is struggling to find a competitive three-year gas contract starting in 2020 to enable to keep open its ammonia plant at Brisbane’s Gibson Island, warning it could cease operations there by December.
On the supply side, there is progress on the development of the Port Kembla LNG import terminal being pursued by Japan’s JERA and Marubeni Corporation and “Twiggy” Forrest’s Squadron Energy.
The New South Wales government’s tick for the project has been followed by news that the operator, Australian Industrial Energy, is concluding a 15 petajoules a year deal with major gentailer Energy Australia. This represents about 11 per cent of NSW gas needs – which are currently being 95 per cent met from outside the State’s borders.
AIE needs to find purchasers for 100 PJ a year of gas to make the Port Kembla terminal viable. The AIE chairman, Stuart Johnston, says “a range of other companies” are looking to shore up their needs by pursuing contracts with him.
As well, South Korean companies are pursuing a project to develop another LNG import terminal at Newcastle, declaring customers could only benefit if both projects go ahead.
While these projects look like proceeding, Santos is publicly appealing to the Berejiklian government in NSW to at least outline a timetable for regulatory approval of the Narrabri onshore project, which the company claims could meet half the State’s gas needs. Santos submitted its environmental impact statement to the government in early 2017.
West Australian Premier Mark McGowan has told industrialists that, if they want cheaper gas supplies, they should move to his State.
Speaking at the APPEA conference in Brisbane, and repeating a message to factories he first gave in January, McGowan said: “My pitch to east coast industry is simple – if you want a cheaper and more reliable gas supply, go West.”
He says WA’s domestic gas reservation policy has ensured the State has ample supply for consumers and kept the wholesale price well below eastern Australian levels.
Analysts say contract prices in WA are $5 to $6 per gigajoule, having been $10 five years ago, versus $8 to $12 on average in eastern Australia.
Meanwhile a report by ratings agency S&P Global describes Australia’s gas market as “curious” and declares it an area “ripe for intervention” over coming years.
The Australian Petroleum Production & Exploration Association is promoting a report that shows average gas prices here are “among the lowest in Asia.”
Citing the International Gas Union’s latest annual wholesale gas price survey, APPEA says Australia’s 2018 gas price, at $US4.54 mmbtu was “about 40 per cent less than the average for the Asia-Pacific.”
It adds that trading partners Japan, South Korea and China all paid average prices over $US8 last year.
Globally, the report shows, Australian gas ranked 27th in a list of 54 countries – “the middle of the pack,” the association notes. The most expensive prices were paid in Chinese Taipei, South Korea, Japan, Singapore, Germany and China.
Federal Resources Minister Matt Canavan says the industry most responsible for an increase in national carbon emissions is gas supply – and this needs a “balanced viewpoint.”
Canavan, interviewed on Sky News, pointed to “Australia’s gas helping the world lower its carbon emissions, helping to replace coal and dirtier forms of power supply.”
In his first speech after the election at the APPEA conference, Canavan criticized resource businesses and financial institutions for “taking unfortunate positions” on carbon policy, especially for espousing carbon pricing. Australians have rejected such a policy at four elections in a row, he said.
In an international environment where carbon capture and storage remains controversial – deemed essential to climate change action by the International Energy Agency, bitterly opposed by green activists and frequently talked down as too expensive – Australian efforts to pursue the technology continue.
The latest local effort on this front is a $45 million project to develop monitoring technologies spearheaded by the C02CRC, which will involve the drilling of five wells in the Otway basin.
C02CRC chairman Martin Ferguson says Australia has the potential to develop world-class sequestration hubs.
The centre’s CEO, David Byers, says the new work – supported by the federal and Victorian governments and the mining industry – will “transform the Otway national research facility in to the best CO2 storage testing facility in the world.”
Byers adds that the project means “Australia is well-placed to lead efforts to dramatically cut the cost of sequestration and thereby accelerate its global deployment.”
Echoing IEA promotion of CCS, Byers says it is “the only feasible technology that can deliver deep emissions reductions in many industrial processes that are vital to the global economy.”
Australian Energy Networks CEO Andrew Dillon has jumped on the Australian Energy Market Commission for asserting that the rollout of smart meters in the NEM is taking costs out of the system and “happening seamlessly” for the majority of householders.
The reality, claims Dillon, is that there are “significant costs and delays” in the process and “a worrying number of not-very-smart meters” are being installed.
The ENA concern is that, outside Victoria, the rollout has been “less than smooth” with most customers only getting a smart meter when their current one is at the end of its working life.
In a commentary on the issue, the AEMC acknowledges that “there have been delays in some places and the impact of those delays has been significant” – but it asserts “this is a teething problem linked to the rapid take-up.”
The commission says “it is clear that consumers want these meters in unprecedented numbers,” linking this to the record uptake of rooftop solar power.
A report National Energy Resources Australia commissioned from the University of Queensland on national energy knowledge says there has been little improvement in a decade.
NERA says confusion continues around key energy issues with public concern about prices, reliability and renewables versus non-renewables masking a “deep misunderstanding” about the sources of power generation, grids and pathways to lower emissions.
Informed communities and empowered consumers, it adds, are “key to Australia’s successful transition to a low-carbon future.”
The review, led by UQ professor Peta Ashworth, found that not only are householders are confused but there is little agreement on what energy literacy actually is.
Ashworth urges national action to provide trusted and accessible information.
In a sense, no general election is ever over – until the next one.
The effects of 2016 rolled through to 2019 (as, for example, 1993 did to 1996 and 2004 to 2007) and now both the Liberal and Labor parties are being reshaped as a result of the latest national exercise of democracy.
There will be many facets of this reshaping, affecting a range of policies, remembering that legislation has to get through the continuing Senate swamp.
For the energy market’s large stakeholders (generators, retailers, network operators, gas suppliers and large corporate consumers), the real import of 18 May is still being worked out and impacts will flow in to 2020, perhaps beyond. And then it will be time for another general election in 2022, the same year as Victorians go to the polls – with the ground possibly being altered by the next Queensland State election in October 2020.
In passing, it clearly is not lost on the inner circle of the Coalition that pre-election opinion polling found its single most popular policy was the “big stick” – breaking up energy companies perceived to be over-charging. This drew 72 per cent support from an early May Essential Report poll and 76 per cent from respondents indicating they would be voting for the Liberals or the Nationals (versus 66 per cent for those opting to vote Labor).
In a newspaper interview at the end of May, Angus Taylor, now Minister for Energy and Emissions Reduction, said the “big stick” legislation, which the government had failed to pass in March, would be a priority when parliament reconvened in July.
This reflects the fact that, for the mass market, the key energy questions are still what they have been for a number of years: will prices fall and will the lights stay on?
However, for the community at large, and not just inner-metropolitan dwellers, worry about climate change as well won’t go away – and will be refuelled by a large UN “summit” in New York on 23 September, another opportunity for both social and mainstream media to bang the drum on the “emergency.”
At least, emerging from the federal election outcome, it can be claimed with more certainty that a core issue for the majority of local voters remains by how much abatement should be pursued over what time frame and at what cost? (That’s why Bill Shorten’s dismissive “dumb question” response to being pressed on the costs of his climate and energy policies was so, well, dumb.)
Which is not to argue against there being a deep-seated desire in Australia to take practical steps to cut carbon emissions as well as to reduce costs (hence two million households investing in rooftop solar power).
Another important factor for energy investment in Australia is the extent to which international climate concerns are having a real impact on the global behavior of companies such as BHP, Rio Tinto and Shell, with the flow-on effect this will have for the rest of business here.
Still, for the moment at least, the Canberra energy focus is on domestic issues – and the local business community, having largely persuaded itself of the inevitability of a Shorten Labor government, thanks to poll-fuelled media coverage that was, simply, wrong, is needing to engage in a rather back-wrenching change of step.
This is illustrated by reporting of the behind-doors meeting at May’s end between Treasurer Josh Frydenberg and the Business Council.
Frydenberg subsequently informed the Australian Financial Review he had told 50 business leaders that (a) the government will not re-embrace the “national energy guarantee” and (b) will pursue ACCC market recommendations as well as the “big stick” proposition. The government’s energy agenda, Frydenberg added, will be to reduce complexity in the “big stick” legislation, to support more generation and to “provide extra back-up and storage for renewable energy.”
This is an approach that throws more weight on State governments in particular to both work more efficiently within the CoAG Energy Council on the Energy Security Board reform agenda and to pursue their own renewable paths in a way that does not lead to replication of the recent experience of South Australia on a broader canvas in the NEM.
As that French fellow wrote 170 years ago, “the more it changes, the more it is the same thing.”
Keith Orchison
30 May 2019