3 Apr 2024

 

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A year ago, I said how important it was for the energy industry and governments, to work together on our collective ambition to deliver a lower carbon future, without putting at risk energy reliability or affordability. Unfortunately – a year later – we haven’t made enough progress.

And while I remain optimistic, most would agree that our transition has slowed down and we are putting more hurdles up.

No country is immune from this challenge, however here in Australia, it’s proving to be a tale of two systems.

In our remote grids, while there is more to do, there’s momentum with a clear focus on developing the lowest cost of energy and using gas and batteries to firm the build-out of renewables.

Contrast that to our East Coast grid, where we’re seeing the transition slow down through dwindling gas supplies, extending the lives of our coal generation plants, and rising regulatory uncertainty.

The most efficient and effective way to decarbonise Australia’s energy system is to retire coal and diesel, build-out renewables, and support them with domestic gas and other forms of storage like batteries and hydro.

At APA, we see the energy transition through an agnostic lens. We own and develop renewable energy, firming solutions such as batteries and GPG, and gas and electricity transmission assets. We’re also working with our customers on future fuels such as hydrogen and carbon capture and storage.

This means we aren’t trying to pick winners. We simply want to work with our customers and communities to bring the energy transition to life.

But to ensure we deliver the transition as efficiently as possible, we need to address the urgent need for new gas supply.

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Boosting gas supply to drive the transition

Quite simply, we cannot decarbonise without gas.

Without gas, we’re going to see major disruptions to energy security and costs will increase, and we’ll be keeping the coal and diesel generators going for a long time.

While we’ve seen a shift in the public debate, with the role of gas in the energy transition becoming more widely understood and accepted, unfortunately it isn’t translating into action.

There’s also talk of prioritising LNG import terminals over domestic natural gas supply. At APA, we will always listen and engage with our customers on the solutions they need. However, for a country so rich in natural gas resources, it’s a bizarre conversation for our nation to be having when we haven’t yet unlocked the potential of our own domestic supply.

If decarbonisation and lowering the cost of our energy is our objective, neither extending the use of coal generators, nor the development of LNG import terminals, are solutions. These are just higher emissions, higher cost distractions.

New data from Frontier Economics – using AEMO’s data on the Surat and Bowen basins – shows that if we rely on imported LNG, we’re staring down potential price increases of between 55 and 100 per cent for Melbourne and Sydney industrial customers – if imported LNG gas were set the market price all year.

So while the time for import terminals may come, they shouldn’t be prioritised over domestically sourced natural gas.

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Driving investment through a supportive regulatory environment

The critical need for more domestic gas supply was reinforced by AEMO’s 2024 GSOO. Despite these warnings, government is putting up hurdles like:

  • Excluding gas generation from the capacity investment scheme.
  • Unnecessarily onerous project approval timelines for new gas projects.
  • Additional regulatory impositions in the gas sector, including the recently initiated review of gas pipelines by the AER.

Thus, we have one federal government body pleading for more gas supply, and another federal government body potentially curtailing it.

We need to encourage investment right along the value chain, and we need the right policy and regulatory environment to support it.

Over the past four years, APA has invested around $700 million to expand the East Coast Grid to make sure the predicted gas shortfalls didn’t eventuate from a lack of transport capacity.

We did this at our own risk, but our ability to bring these investments to market so quickly was possible because of the light-handed regulatory environment that was in place.

When you look at the peak gas demand the latest GSOO predicts, our networks must be expanded further. That’s why I’m concerned about the AER’s recently announced review of all significant gas pipelines in Australia over the coming years.

With the changing market dynamics that now require fast and significant investment, the new laws are destined to work against the objective of energy security, affordability and low emissions.

Gas transmission costs make up about four to five per cent of the total mass market gas price. So, if we were to heavily regulate our existing gas transmission assets, it’s not going to significantly move the needle when it comes to the cost of energy.

The bulk of our gas prices is driven by commodity prices, which are driven by supply and demand. Constrain our networks and limit supply – consumer costs will go up materially. Rely on LNG import terminals – consumer costs will go up materially.

Momentum growing in remote grids

By contrast, the renewables build-out in remote regions is gaining momentum and diesel is coming out because the market is facilitating and incentivising an orderly and productive transition.

The mining companies are motivated to decarbonise because it’s good for their business, decreases their energy costs, maintains reliability and lowers their emissions. They lean into the role of gas, they work with their communities well in advance of construction, and they operate in free markets, where they can deliver the best outcomes for all stakeholders by negotiating directly with their energy infrastructure developers.

It’s a great case study for the broader Australian market.

So Australia has a significant challenge ahead. We need to bring more gas to market, and we need to do so as quickly as possible by removing the barriers to investment.