Bruce Robertson, Energy Finance Analyst, Gas/LNG September 2020
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Bruce Robertson, Energy Finance Analyst, Gas/LNG September 2020 Review of Project Rationale of AGA/APA Gas Import Jetty and Pipeline Project at Crib Point, Victoria Prepared by: Bruce Robertson, Energy Finance Analyst, Gas/LNG Bruce Robertson 24 Pacific Parade, Manly NSW 2095 AGL’s Crib Point Project 2 Expert Witness Report of Bruce Robertson About IEEFA The Institute for Energy Economics and Financial Analysis conducts research and analyses on financial and economic issues related to energy and the environment. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy. www.ieefa.org About the Author Bruce Robertson Energy Finance Analyst– Gas/LNG Bruce Robertson has been an investment analyst, fund manager and professional investor for over 35 years. He has worked for major domestic and international institutions, including Perpetual Trustees, UBS, Nippon Life Insurance and BT. Bruce is an active participant in the national debate on energy issues in Australia and has been invited to present to numerous government enquiries into the electricity and gas industries. Instructions The instructions that define the scope of this statement are set out at Attachment 1 (Letter of Brief dated 11 August 2020). Declaration 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 Panel. AGL’s Crib Point Project 3 Expert Witness Report of Bruce Robertson AGL’s Emissions Intensive Crib Point No Solution to High Gas Prices Crib Point Is Not Needed to Supply A Declining Gas Industry Executive Summary AGL’s Crib Point gas import terminal proposal is a clear indicator that energy policy in Eastern Australia has failed. Eastern Australia exports 72% of the gas it produces, and Australia is the largest exporter of LNG in the world. The only reason such a terminal is being proposed is that the cartel of gas producers that control the eastern Australian market have fixed domestic prices above international prices. Price fixing in Australia is illegal. AGL relies on the Australian Energy Market Operator (AEMO) analysis identifying potential future shortfalls in gas production in the southern states of eastern Australia.1 This analysis assumes demand levels that are unrealistic. Gas demand is falling especially in the gas-powered generation and industrial sectors. These falls will gather pace as gas is not a competitive fuel for any of the major sectors of gas usage. Grid scale battery usage is increasing rapidly. Battery cost deflation is quicker than either wind or solar. Batteries will crimp demand for gas. Technological change has not been sufficiently factored in to gas demand forecasts. AGL Energy, a company whose very name is synonymous with the gas industry and who produced the iconic “Living Flame” advertising campaign in 1979, announced on 13 August 2020 that there is a clear business case for big batteries usurping the role of gas in a renewables rich grid. Their EES, in Chapter 2 page 2-23, contradicts their public statements on batteries by stating that high greenhouse gas emitting imported LNG gas is the solution to grid firming. In the U.S. we are seeing grid scale battery projects emerge that are of a scale to rival gas peaking plants. Increasingly wind and solar projects are being co- located with batteries. Whilst in the short-term grid scale batteries will not totally usurp the role of gas in the power system, increasingly they will eat into gas’ market share. Gas usage for gas-powered generation has declined by 58% since 2014. Future declines for gas in the power system are now assured. Gas demand from all 1 Cribb Point EES Chapter 2 – Project Rationale 2-2 AGL’s Crib Point Project 4 Expert Witness Report of Bruce Robertson sectors has declined by 21% since 2014. Australia does not need to open up new gas supply or look to import gas. Gas is now a declining industry in Australia. AGL’s Project rationale relies on sustained demand from the residential and commercial sector.2 In Victoria, residential and commercial are the largest user of gas accounting for 60% of gas usage. This is an historical anachronism harking back to the days when gas was a cheap form of energy. AGL, the project proponent, clearly states it no longer is the cheapest fuel source. It is cheaper to heat domestic houses with heat pumps (air conditioners). Measures can be taken to wean domestic consumers off gas. It is cheaper, more energy efficient and safer to heat your home with heat pumps according to AGL on its company website. Methane is a high emitting greenhouse gas – importing LNG adds emissions. The Victorian government as committed to reducing emissions as stated in the EES project rationale.3 Crib Point is a wasteful venture. Eastern Australia exports the majority of gas produced and only a modest proportion is consumed locally. To burn gas, then to liquefy it and ship it is environmentally irresponsible when we can simply get gas out of a pipe. There are currently five gas import terminal proposals in Australia. If all are built, they will have the capacity to supply 87% of Australia’s east coast market. Australia - the world’s largest gas exporter - will be an import supplied market. Crib Point will dramatically increase emissions. To produce and ship LNG takes 17% of the input gas. Gas is burnt to cool the LNG down to -160° and there are losses in the shipping process. AGL claim in their EES that: “Importantly, the Project would also assist in Victoria’s transition to a low-carbon economy and provide the foundation for ensuring that energy security is maintained and keeps pace with a growing and changing Victoria.”4 A full lifecycle analysis of importing LNG shows that LNG is the highest emitting fuel available in the market. It will increase emissions not assist in Victoria’s transition to a low-carbon economy. The EES claims that Crib Point will “place downward pressure on gas prices for residential customers as well as vulnerable industrial and commercial customers, many of whom are large generators of employment”5 The problem on the east coast of Australia is one of allocation. Attempting to solve it via importing only adds cost to our gas supply as it embeds the cost of liquefaction and shipping into the domestic price. The Crib Point terminal should be rejected on economic grounds alone. It is expensive gas that is not needed. 2 Ibid. 3 Crib Point EES Chapter 2 Project rationale page 2-22 4 Crib Point EES Executive Summary page 1 5 Crib Point EES Executive Summary ES-2 AGL’s Crib Point Project 5 Expert Witness Report of Bruce Robertson Victoria’s Gas Consumption Victorian gas consumption was relatively flat from 2014 - 2020. This is in stark contrast to the East Coast gas market which, as a whole, has declined by 21% since 2014. It is important to note that residential and commercial consumption account for 60% of Victoria’s gas consumption. (See Figure 1) While gas is important for high heat applications and for some industrial processes such as fertilizer manufacturing that use gas as a feedstock, high domestic gas prices have led to great hardship for Australia’s industrial base. Figure 1: Victorian Gas Consumption 2014-2019 (PJ) Victorian Gas Consumption 2014-2020 (PJ) 250 200 150 100 50 0 2014 2015 2016 2017 2018 2019 2020 (e) Residential & Commercial Industrial GPG Total Victorian Gas Consumption 2014-2019 (PJ) 2014 2015 2016 2017 2018 2019 2020 (e) Residential & Commercial 111 125 123 128 123 125 125 Industrial 73 73 70 68 65 66 66 GPG 23 9 9 34 24 35 18 Total 207 208 201 230 212 226 209 Source: AEMO http://forecasting.aemo.com.au/Gas/AnnualConsumption/Total AGL’s Crib Point Project 6 Expert Witness Report of Bruce Robertson Domestic Demand Has Declined By 21% Since 2014 In 2014-15 three export plants at Gladstone, Queensland commenced operations. The three consortium operating the plants did not develop gas fields in Queensland in line with their approval conditions. Instead they bought gas out of the exisiting fields that traditionally supplied the domestic market. They forced domestic prices up above international parity pricing. Demand from industry and gas powered generation has declined as prices make these industries uncompetitive. Figure 2: The Clear Down Trend in Australian Domestic Gas Consumption Total Domestic Consumption (PJ) 750 700 650 600 550 500 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020e Source: AEMO 2010-2019 and Acil Allen 2020 AGL’s Crib Point Project 7 Expert Witness Report of Bruce Robertson Domestic Gas Consumers Pay More for Gas Than Australia’s Asian LNG Customers Figure 3 below shows how Australian gas consumers have, for some of the time, paid more for gas than consumers in Japan (Australia’s largest export customer). For most of the last 18 months gas consumers have paid a higher price than the ACCC deems appropriate. The ACCC uses the netback price as a benchmark for what consumers should be paying.6 Essentially, the ACCC deems that Australian gas consumers should not be paying for the expensive LNG process or shipping costs that the gas companies are including in the price of gas, as Australia has domestic gas supplies which only require the cost of a pipe to transport gas to the consumer. Figure 3: Spot Gas Prices in Japan, Sydney and the ACCC Netback Price Spot Gas Prices in Japan and Sydney and the ACCC Netback Price January 2019- July 2020 16.00 14.00 12.00 10.00 8.00 $A/GJ Sydney Spot Price 6.00 Japanese Spot Price 4.00 ACCC Netback Price 2.00 0.00 Source: Australian Energy Market Operator (AEMO), Ministry of Economy Trade and Industry (METI), The Australian Competition and Consumer Commission (ACCC) 6 ACCC.