Jerome Fahrer
Total Page:16
File Type:pdf, Size:1020Kb
REPORT TO ASHURST AND HALL & WILLCOX 25 SEPTEMBER 2020 GAS IMPORT JETTY AND PIPELINE PROJECT EXPERT WITNESS STATEMENT BY JEROME FAHRER ACIL ALLEN CONSULTING PTY LTD ABN 68 102 652 148 LEVEL NINE 60 COLLINS STREET MELBOURNE VIC 3000 AUSTRALIA T+61 3 8650 6000 LEVEL NINE 50 PITT STREET SYDNEY NSW 2000 AUSTRALIA T+61 2 8272 5100 LEVEL FIFTEEN 127 CREEK STREET BRISBANE QLD 4000 AUSTRALIA T+61 7 3009 8700 LEVEL SIX 54 MARCUS CLARKE STREET CANBERRA ACT 2601 AUSTRALIA T+61 2 6103 8200 LEVEL TWELVE 28 THE ESPLANADE PERTH WA 6000 AUSTRALIA T+61 8 9449 9600 167 FLINDERS STREET ADELAIDE SA 5000 AUSTRALIA T +61 8 8122 4965 ACILALLEN.COM.AU RELIANCE AND DISCLAIMER THE PROFESSIONAL ANALYSIS AND ADVICE IN THIS REPORT HAS BEEN PREPARED BY ACIL ALLEN CONSULTING FOR THE EXCLUSIVE USE OF THE PARTY OR PARTIES TO WHOM IT IS ADDRESSED (THE ADDRESSEE) AND FOR THE PURPOSES SPECIFIED IN IT. THIS REPORT IS SUPPLIED IN GOOD FAITH AND REFLECTS THE KNOWLEDGE, EXPERTISE AND EXPERIENCE OF THE CONSULTANTS INVOLVED. THE REPORT MUST NOT BE PUBLISHED, QUOTED OR DISSEMINATED TO ANY OTHER PARTY WITHOUT ACIL ALLEN CONSULTING’S PRIOR WRITTEN CONSENT. ACIL ALLEN CONSULTING ACCEPTS NO RESPONSIBILITY WHATSOEVER FOR ANY LOSS OCCASIONED BY ANY PERSON ACTING OR REFRAINING FROM ACTION AS A RESULT OF RELIANCE ON THE REPORT, OTHER THAN THE ADDRESSEE. IN CONDUCTING THE ANALYSIS IN THIS REPORT ACIL ALLEN CONSULTING HAS ENDEAVOURED TO USE WHAT IT CONSIDERS IS THE BEST INFORMATION AVAILABLE AT THE DATE OF PUBLICATION, INCLUDING INFORMATION SUPPLIED BY THE ADDRESSEE. ACIL ALLEN CONSULTING HAS RELIED UPON THE INFORMATION PROVIDED BY THE ADDRESSEE AND HAS NOT SOUGHT TO VERIFY THE ACCURACY OF THE INFORMATION SUPPLIED. UNLESS STATED OTHERWISE, ACIL ALLEN CONSULTING DOES NOT WARRANT THE ACCURACY OF ANY FORECAST OR PROJECTION IN THE REPORT. ALTHOUGH ACIL ALLEN CONSULTING EXERCISES REASONABLE CARE WHEN MAKING FORECASTS OR PROJECTIONS, FACTORS IN THE PROCESS, SUCH AS FUTURE MARKET BEHAVIOUR, ARE INHERENTLY UNCERTAIN AND CANNOT BE FORECAST OR PROJECTED RELIABLY. ACIL ALLEN CONSULTING SHALL NOT BE LIABLE IN RESPECT OF ANY CLAIM ARISING OUT OF THE FAILURE OF A CLIENT INVESTMENT TO PERFORM TO THE ADVANTAGE OF THE CLIENT OR TO THE ADVANTAGE OF THE CLIENT TO THE DEGREE SUGGESTED OR ASSUMED IN ANY ADVICE OR FORECAST GIVEN BY ACIL ALLEN CONSULTING. © ACIL ALLEN CONSULTING 2020 CONTENTS GLOSSARY I 1 INTRODUCTION 1 2 THE RATIONALE FOR THE PROJECT 4 3 ECONOMIC BENEFITS OF THE PROJECT 12 A JEROME FAHRER CURRICULUM VITAE A–1 B LETTER OF ENGAGEMENT B-1 C MODELLING REPORT C-1 GLOSSARY GLOSSARY Term Definition GJ gigajoule PJ petajoule TJ terajoule FSRU Floating Storage Regasification Unit LNG Liquefied Natural Gas GAS IMPORT JETTY AND PIPELINE PROJECT EXPERT WITNESS STATEMENT BY i JEROME FAHRER 1 1 INTRODUCTION introduction 1. This report has been prepared by Jerome Fahrer, Director of ACIL Allen Consulting in relation to the proposed Crib Point Gas Import Jetty and Pipeline Project (Project). 2. My address is Level 9, 60 Collins Street, Melbourne, Victoria, 3000. 3. I have been engaged by Ashurst and Hall & Wallcox, on behalf of AGL Wholesale Gas Ltd (AGL) and APA Transmission Pty Ltd (APA) to provide an expert report in relation to submissions to the Crib Point Gas Import Jetty and Crib Point-Pakenham Gas Pipeline Inquiry and Advisory Committee (IAC), on the economics of the Project. 4. Ashurst and Hall & Willcox have provided me with a letter of engagement which I have read. It is annexed at Attachment B of this report. 5. I have had no previous involvement in the preparation of materials in support of the proposed Project. 6. I am an economist with nearly 40 years of professional experience, firstly at the Reserve Bank of Australia (RBA) (1982-1994), where I led the RBA’s macroeconomic research, and since 1995 at ACIL Allen Consulting (previously Allen Consulting Group). I have led around 500 major economic consulting projects, with a particular focus on economic evaluation, economic impact, competition and regulation. 7. I have undertaken numerous economics expert witness assignments on a variety of subjects. These are set out in my CV. 8. Of particular relevance to this report, I have four times previously been an economics expert witness in cases involving resource projects: a. Olive Downs Coking Coal Mine Project – Mining Objection Hearing Pembroke Olive Downs Pty Ltd v Sunland Cattle Co Pty Ltd & Ors (MRA599-19, MRA600-19, MRA601-19, MRA602- 19 & MRA603-19) (2019, 2020) b. New Hope Coal in proceedings in the Land Court of Queensland related to the New Acland Stage 3 coal mine in Queensland MRA495-15, EPA496-15, MRA497-15 (2016) c. Adani Mining Pty Ltd in relation to the proceedings in the Land Court of Queensland Court (Carmichael coal mine) no. MRA428-14, EPA429-14, MRA430-14, EPA431-14, MRA432-14 and EPA433-01 (2014, 2015) d. Ashton Coal in relation to the proceedings commenced by Hunter Environment Lobby Inc in the NSW Land and Environment Court Matter (coal mine at Camberwell) No. 11154 of 2012 (2013). 9. Annexed at Attachment A is my curriculum vitae. 10. Annexed at Attachment C is a report by Owen Kelp on modelling the Victorian gas market which I requested to assist me to make an informed assessment of the economics of the Project. GAS IMPORT JETTY AND PIPELINE PROJECT EXPERT WITNESS STATEMENT BY 1 JEROME FAHRER 11. In preparing this report, I have relied upon the following materials, in addition to the submissions to the IAC, which are listed in the order to which they are first referred: a. GIJPP EES Chapter 2 Project Rationale b. AEMO, Gas Statement of Opportunities (2020) c. AEMO, Victorian Gas Planning Report March 2020 d. ACIL Allen Consulting, Chemical Industry Economic Contribution Analysis 2017-2018 e. Modelling report by Owen Kelp f. ACCC, Gas Inquiry 2017-2025, Interim Report July 2020 g. ACIL Allen Consulting, Multiple Impacts of Household Energy Efficiency: An Assessment Framework h. Bianca Peters and Stephanie F. McWhinnie “On the rebound: estimating direct rebound effects for Australian households:, The Australian Journal of Agricultural and Resource Economics, 62(1), pages 65-82, January 2018 i. Victorian Energy Upgrades, https://www.victorianenergysaver.vic.gov.au/__data/assets/pdf_file/0022/332194/VEU- Residential.pdf. j. Opennem, https://opennem.org.au/energy/vic1/ k. Sydney Morning Herald, https://www.smh.com.au/politics/federal/the-decades-old-energy- plan-suddenly-back-in-vogue-20180425-p4zbmx.html l. ACIL Allen Consulting, West-East Pipeline Pre-Feasibility Study, 2018 m. Energy Quest, Energy Quarterly December 2019 n. Energy Magazine, https://www.energymagazine.com.au/nsw-fast-tracks-port-kembla-gas- terminal/ 12. In summary, my opinion as set out in this report is a. The supplies of gas that Victoria has relied on for 50 years which have come from the Bass Strait fields are running down and will need to be replaced, given projected Victorian consumption of gas. b. The Project will be able to replace these supplies, in two important respects i. By securely contributing to the total amount of gas consumed by Victoria each year until 2040 ii. By securely contributing to peak demand in winter, when consumption of gas is around three times what it is in summer. c. While hypothetically the gas from the Bass Strait fields could come from Queensland, this is not a practical solution, as this gas is largely contracted for export and constrained pipeline capacity limits the ability to transport it to Victoria. d. Hypothetical replacement of the Bass Strait gas from the proposed import terminal at Port Kembla in NSW is not properly considered an alternative to the Project, because i. this terminal might not go ahead ii. even under proposed improvements to the Eastern Gas Pipeline that would transport this gas, it will onlt be able to make a relatively small contribution to securing peak winter supplies. e. The argument that is made in submissions, that the emerging gap between Vicorian demand and supply can be closed by reducing demand through energy efficiency GAS IMPORT JETTY AND PIPELINE PROJECT EXPERT WITNESS STATEMENT BY 2 JEROME FAHRER initiatives is unconvincing, in particular because energy efficiency initiatives are already incorporated in forecasts of demand. f. Victorian gas prices will be on average $1.09/GJ lower over the period 2020-2040 with the Project, compared to what they would be if the gas is supplied from other sources. g. The benefit to Victorian users of gas of this lower price is in the range $2.3 billion to $3.1 billion. h. Victorian manufacturing businesses, and in particular those in the chemistry industry, are intensive users of gas and will benefit significantly from secure and relatively inexpensive gas. i. The Project will also benefit gas users by making the markets for the wholesaling and transport of gas more competitive. Among other benefits, this will enhance security of supply. 13. I have made all the inquiries that I believe are desirable and appropriate and no matters of significance which I regard as relevant have to my knowledge been withheld from the Inquiry and Advisory Committee. GAS IMPORT JETTY AND PIPELINE PROJECT EXPERT WITNESS STATEMENT BY 3 JEROME FAHRER 2 T H E RATIONALE F O R T H E 2 PROJECT the rationale for the Project 14. Chapter 2 of Environmental Impact Statement (EES) for the Project, “Project Rationale” sets out the reasons that AGL and APA are pursuing the Project. In this chapter of my report I review the robustness of the arguments made in this chapter. This review includes discussion of the arguments against the Project made in submissions.