Re: Strategic goal for a safe climate

AGL Employee

Hi mpitcher,

 

There are mixed views reported in the media about whether gas is needed or not which has made some members of the community question the rationale for the project. 

 

Early in 2018 the media reported Victoria would experience significant gas shortages within three years based on a gas forecast report from the Australian Energy Market Operator (AEMO) despite falling gas consumption in the state. AEMO told the media it was hoping the report would encourage a market response to help fill the gap but warned some intervention may be needed if the private sector does not come up with a solution. 

 

In June 2018 AEMO Gas Statement of Opportunity, the AEMO stated ‘no supply gaps are forecast before 2030 under expected market conditions.’ But the AEMO’s executive general manager of planning and forecasting, David Swift still warned that the supply-demand balance in the Australian gas market was still very tight. 

 

"An increased need for gas-powered generation due to weather related or contingency events could still adversely impact this forecast and tighten the supply demand balance once again," Mr Swift said.

 

But the report also said new gas reserves and additional gas supply infrastructure would need to be delivered to keep on top of the issue. 

 

The most recent ACCC interim report into gas supply found conditions in the east coast gas market have eased considerably since the extremes reported in 2017, only action by governments and the gas industry to increase domestic gas supply can bring material price reductions into the future.

 

Mr Sims told the AFR that LNG import proposals could play an important role and would cap gas at international LNG prices, so the east coast wouldn’t see the very high prices experienced in 2017:

 

"The good news if you will won't have 2017 happen again … but it won't give you cheaper gas, it won't give you gas below export parity."

More recently, David Maxwell, chief executive of Cooper Energy, which is building the $355 million Sole gas project off the Victorian coast, confirmed figures from the ACCC that gas prices in the southern states are firming up in the $9-$11-a-gigajoule range for long-term contracts.

Mr Maxwell told the AFR the proposed LNG import terminals had ‘‘changed the conversation’’ with industrial gas buyers:

‘‘It puts a ceiling on price, which is essentially the LNG import price; that’s a little way north of $11.”

As a company with 1.4 million gas customers, we can’t just rely on the AEMO for evidence of a gas supply crisis. A new AEMO report will be published shortly. We will wait and see whether their position remains the same.

 

A report by EnergyQuest, released 21st December 2018, identified a major gas shortfall from 2022 in the southern states including Victoria. It also emphasised the need to progress LNG projects to avoid the crisis.

 

Furthermore, at the Australian Domestic Gas Outook Conference, the CEO of Orica, Alberto Calderon called on the government to use a gas export cap to address gas shortages and high price.

 

Renewables are the future of energy and AGL is committed to getting out of coal from 2022. However, to develop a pathway to a modern, decarbonized generation sector, gas is still needed to enable a cost-effective and reliable energy transition.

 

Over 80 per cent of electricity produced in Australia is sourced from the combustion of fossil fuels. Given the sheer scale, decarbonising the generation sector is likely to take several decades of replacing the existing generation fleet with low-emissions substitute technology such as solar and windfarms.

 

AGL's generation fleet plays a critical role in the transition to a decarbonised generation sector, providing valuable low cost and efficient generation over the coming decades while the power sector transitions to more renewables and distributed energy resources.