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Sunday, April 9, 2017

Taking the blinkers off energy policy in Australia

The "Resources and Energy Quarterly" by the Office of the Chief Economist for March 2017 has the following Table of Contents:
About this edition 5
Resource and energy overview 6
Steel 25
Iron ore 33
Metallurgical coal 42
Thermal coal 51
Gas 61
Oil 73
Uranium 82
Gold 89
Aluminium, alumina and bauxite 97
Copper 113
Nickel 121
Zinc 127
Trade summary charts 133
Appendix 142

Renewable energy doesn't get a mention.

This oversight is the foundation on which opportunities for Australia's economic development are missed.

Two of the energy resources that are included - thermal coal and natural gas - are shown to have outlooks that aren't very promising in the case of coal and are at risk from high domestic production costs and low-cost competition in the case of gas.

Thermal coal exports for example are shown to decline in value by $5 billion per year to about $15 billion per year, though volumes are supposed to remain the same. Not all Australian coal mines will be commercially viable with this outlook that is actually describing export prices falling by 25 percent.

Australia's thermal coal export volumes and values

Natural gas exports as LNG are shown to have a large increase in capacity coming onstream at the same time as an even greater increase in U.S. LNG export capacity - with the U.S. exporters able to source feed gas at much lower prices than Australian exporters.

The quarterly report makes a courageous projection of rising volumes and value of Australian LNG exports even though noting some daunting obstacles:
  • Australia is not immune from supply-side competition. The United States will make the largest contribution to new capacity. The cost competitiveness of US exporters will largely be determined by the cost of their domestic gas, for which the reference price is Henry Hub. Henry Hub prices averaged US$3.0 per million British thermal units over the first quarter of 2017 (A$3.80 a gigajoule). 
  • While Australia's LNG exports are projected to rise, the capacity utilisation of Australian LNG export projects is expected to decline. The price competitiveness of Australian producers is one factor affecting the outlook for exports. Proximity to Asia will be an advantage, although the Panama Canal expansion in 2016 has lowered shipping costs from the US.
  •  A large cost for Australia's LNG plants is feed gas. The three LNG export terminals on the east coast — which are largely fed by CSG from Queensland’s Surat and Bowen basins — tend to have relatively high costs for feed gas. Unlike LNG ventures using gas from conventional reservoirs, LNG operators on the east coast will need to drill hundreds of new wells each year to maintain CSG production, with costs of over a million dollars per well.

Australia has an advantage with ample renewable energy resources to overcome the poor outlook for coal and the high-risk outlook for natural gas.

With the price of coal projected to decline to about $2 per gigajoule, and the cost of coal-seam gas likely to exceed the export price of LNG from US exporters, it is increasingly attractive, if not imperative, to export natural gas made from cheap coal and renewable energy.

Several processes are available to achieve this.

The bottom line is that these processes change 1 gigajoule of coal valued at perhaps $2 into 4 gigajoules of natural gas worth $32 by adding 3 gigajoules of renewable energy.

Available systems to make synthetic natural gas from cheap wet lignite and brown coal

Supercritical Water (SCW) Gasifier for Coal/Biomass