Bruce Robertson, Finance Analyst, Gas/LNG September 2020

Review of Project Rationale of AGA/APA Gas Import Jetty and Pipeline Project at Crib Point,

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 and has been invited to present to numerous government enquiries into the 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.

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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

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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

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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

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Domestic Demand Has Declined By 21% Since 2014 In 2014-15 three export plants at Gladstone, 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

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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, 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. Gas inquiry 2017-2025. 3 August 2020.

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The east coast gas industry is controlled by 5 main companies: Shell, Origin, Santos, BHP and Exxon.

The east coast gas industry – or cartel - has consistently price gouged the Australian domestic consumer and governments have allowed them to do that. The cartel uses the Australian gas consumer to socialise its losses on export markets. Cartels, incidentally, are an illegal market structure, as is the price fixing that so clearly occurs.

The latest report of the never-ending ACCC gas price inquiry (the 10th interim or final report extending over two inquiries) highlights the fact that although prices for gas in Australia have fallen, the gap between what consumers pay and what consumers should pay has widened:

“The fact that LNG producers collectively sold 18 LNG spot cargoes into international markets at prices substantially below domestic gas price offers during this time increases our concerns about the level of competition in the market.

Viewed alongside the divergence between LNG netback prices and domestic prices, these sales highlight the need to better understand what is driving the price divergence and the importance of the ACCC’s further work in this area.

It may also be appropriate for the Commonwealth to consider extending and/or strengthening its Heads of Agreement (HoA) with the LNG producers, which is currently due to end in 2020.”7

The cost of the gas cartel to the economy has been immense. Not only has gas priced itself out of the electricity system (except for very niche peak power applications), it has also destroyed Australian gas intensive manufacturing. Gas use in industry has fallen 12% since 2014.8

High Gas Prices Have Ensured High Electricity Prices on the East Coast of Australia According to the ACCC, high gas prices have led to high electricity prices in the NEM:

“Another major factor in wholesale prices has been the significant shortages in competitively priced gas at a time when gas-powered generation would often be the logical source of replacement for lost -fired capacity.

Gas prices have doubled or tripled in recent years. We estimate that for every $1/GJ rise in gas prices, the wholesale price of electricity rises by up to $11/MWh, depending on regional differences in the NEM.”9

7 ACCC. Gas Price Inquiry 2017-25. Interim Report August 2020. Page 6. 8 AEMO. See Table 1. 9 ACCC. Retail Electricity Pricing Inquiry—Final Report. Page viii.

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The leveraged effect of gas prices on electricity prices is profound. To illustrate, we compare actual gas prices with the more reasonable National COVID-19 Commission’s (Advisory Body) (NCC) gas price target of $4/GJ.

In the first quarter of 2019, wholesale contract gas prices were $9-11/GJ10, wholesale electricity prices were $130/megawatt hour (MWh)11 and the contribution of gas generation in the NEM was strong. Gas generation sets the price for electricity in the NEM. If gas was at $4/GJ in Australia at that time, wholesale electricity prices could have been as low as $64/MWh, or 50% less than what they were.

The effect of inflated gas prices on electricity prices is profound. Imported gas is expensive gas as it has to go through the expensive liquefaction and shipping process. Australia would have no need for imported gas if prices in Eastern Australia were reasonable. It is notable there are no import terminals, or proposals to build them, in Western Australia. Gas prices in Western Australia are at a level that make import terminals uneconomic.

Crib Point import terminal will ensure that consumers in Eastern Australian pay globally uncompetitive prices for gas. High gas prices will raise electricity prices in the NEM placing a massive burden on the entire economy, not just gas consumers.

The Effects of The CSG To LNG Industry on The Australian Economy For many years prior to 2014, the price of gas in Australia was steady at $3-4/GJ. From 2014, Australia began exporting gas from the east coast. In 2020, Australia was recognised for the first time as being the lead exporter of LNG globally.

Australian consumers are often told that they must pay export parity pricing for gas now that Australia is a large exporter. Nothing could be farther from the truth. As report12 after report issued by the ACCC has shown, domestic consumers pay well above what they should.

The ACCC’s first inquiry into the gas industry, the East Coast Gas Inquiry 2015, concluded with a report in April 2016.13 In April 2017 the government directed the ACCC to start another gas inquiry for a period of three years. In July 2019 the inquiry was extended to December 2025. The ACCC is now conducting essentially a never-ending inquiry that republishes the same conclusions again and again – showing east coast domestic gas consumers are paying too much for gas. The government continues to respond with precious little action and certainly none that makes a material difference to the gas and electricity consumer on the east coast of Australia.

10 ACCC. Gas Inquiry 2017-2020. Interim Report. Page 9. 11 OpenNEM. NEM. 12 ACCC. Inquiry into the east coast gas market. April 2017. 13 ACCC. East Coast Gas Inquiry 2015. 22 April 2016.

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We are now up to the ACCC’s 10th report on the east coast gas industry. All the reports essentially say the same thing: that consumers are being price gouged by the gas industry and are paying more than they should for gas on a consistent basis.

Figure 4: The Never-Ending ACCC Gas Inquiry

Source: ACCC

Gas is Not a Transition Fuel Gas Usage in The National Electricity Market is Declining Significantly In Australia, gas usage in gas-fired power plants has declined by 58%14 since 2014 whilst renewables have increased to produce 25% of the energy in the National Electricity Market (NEM).15

14 AEMO. Gas Annual Consumption Total. 15 OpenNEM. NEM.

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Figure 5: Gas Usage by Gas Powered Generation in the National Electricity Market (NEM) 2010-2020 230

210

190

170

150 Petajoules Petajoules PJ

130

110

90 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020f

Source: Australian Electricity Market Operator (AEMO), IEEFA

The AEMO, the only agency to model a future electricity grid in its Integrated Systems Plan16, has shown that in a renewables rich grid, the role of gas is smaller than it is today by 2040. (See Figure 6)

16AEMO. 2020 Integrated Systems Plan. July 2020.

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Figure 6: AEMO Integrated Systems Plan – Least Cost Development – Central Scenario

Source: Australian Electricity Market Operator (AEMO) Integrated Systems Plan. Page 40. Note: Gas is the combination of CCGT (Combined Cycle Gas Turbines or gas baseload plants) and Peaking gas plus liquids (Open Cycle Gas Turbines or gas peaking plants)

In the Integrated Systems Plan, AEMO considers that investment into new gas- powered generation (GPG) is unlikely:

“GPG can provide the synchronous generation needed to balance variable renewable supply, and so is a potential complement to storage.

The ultimate mix will depend upon the relative cost and availability of different storage technologies compared to future gas prices.

This favours existing GPG plants, but further investment in GPG is less likely based on the assumptions used in this ISP, particularly in scenarios that have carbon budgets to meet.”17

17 AEMO. 2020 Integrated Systems Plan. July 2020. Page 53.

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Figure 7: Australian Electricity Market Operator (AEMO) Existing and New Developments by Fuel Technology

Source: AEMO

Gas peaking plants, also known as Open Cycle Gas Turbines (OCGT), only contributed 1.5%18 of the NEM’s generation in the year to 1 July 2020 whilst accounting for 12.5%19 of capacity.

Put simply, we need capacity in gas peaking plants but they do not operate for long periods of time. Only a limited amount of gas supply is required to power them.

All new energy investment in Australia is flooding in to solar, wind and hydro. The most recent example, post the COVID-19 lockdown, is the Central West Zone (REZ) where the government called for tenders for 3GW of renewable power projects and received responses for 27GW.20 The tender was 9 times over-subscribed, highlighting the high level of interest in renewable energy projects.

Importing Gas into Australia - The World’s Largest Producer Of LNG AGL’s import terminal proposal at Crib Point is one of 5 proposed import terminals across Australia. If all are built, they will have the capacity to supply 87% of

18 OpenNEM. NEM. 19 AEMO. Generation Information. 20 ABC. NSW Government's renewable energy plan attracts more than 100 potential investors. 23 June 2020.

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Australia’s east coast market. Australia - the world’s largest gas exporter - will be an import supplied market.

Table 1: Australia’s Gas Import Terminal Proposals

Australian Gas Import Terminal Proposals as at September 2020 Capacity Expected Cost Location Consortium Consortium Members (PJ) (A$M) Proposed Start Date Newcastle NSW Energy Projects & Infrastructure Kogas 110 $589 Commenced preliminary works with the Port of Newcastle Korea (EPIK) Woollongong NSW Australian Industrial Energy Squadron Energy, 180 $400m First gas to market in 2021, now 2022 more likely JERA, Marubeni, Cribb Point Vic AGL AGL 100 $250 First gas to market in 2021, now 2022 more likely

Pelican Point SA Venice Energy Mitsubishi, 50* $750-800 December 2020 (inc. a 500MW ) now 2022 more likely Integrated Global Partners Geelong Vic 80-140 250*

Total 490 *IEEFA estimate

The extent of the price gouge by gas companies on the east coast of Australia, means it is now economic to import gas into Australia as AGL’s Crib Point proposal attests. That this import terminal is proposed at all is a testament to how energy policy in Eastern Australia has failed.

Nearly every other country in the world (including Western Australia) has ensured that domestic consumers access gas at prices below international prices. Eastern Australia is one of the only exporting markets in the world where prices domestically are above international prices.

Essentially Crib Point import terminal proposal is equivalent to importing oil to Saudi Arabia or ice to Eskimo communities.

Methane Is A High Emitting Greenhouse Gas – Importing LNG Adds Emissions The Problem with Methane Conventional or ‘natural’ gas is made up predominantly of methane, a potent greenhouse gas contributing significantly to global warming.

Around 25% of man-made global warming is caused by methane emissions that have been growing strongly since 1985 according to data from the National Oceanic and Atmospheric Administration (NOAA).21 Methane emissions have grown by over 150% since pre-industrial times. (See Figure 8)

21 Ed Dlugokencky. NOAA/ESRL. Chapter 4.

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Figure 8: Global Methane Emissions Are Rising Strongly

Source: Earth System Research Laboratory.

Methane is exceptionally good at absorbing heat. On a 20-year timeframe, a tonne of methane is 86 times22 more effective at trapping heat in the atmosphere than a tonne of carbon dioxide, the greenhouse gas that wields the most control over Earth’s future warming in the long-term.23

Industry “convention” has it that we measure methane’s effect on the climate on a far less damaging 100-year timeframe. However, every state in Australia has already committed to a net zero emissions target by 2050. That’s less than 30 years away.

If Australia is to reduce emissions, the country has to look to the shorter 20-year timeframe to assess the damage that methane is doing to the global climate. That means Australia has to turn its eye to gas – the biggest contributor of methane.

Conventional or ‘natural’ gas releases methane domestically through gas leakages all along the supply chain and during production and via transport to customers and business.

Methane survives in the atmosphere for a shorter period than coal’s carbon dioxide, but over 20 years has 86 times the planet-warming potential. Electricity produced from LNG is arguably even worse over a 20-year time frame.

Methane is the greatest threat to the warming climate. If you leak more than 2% to 3% of methane, it is worse for the climate than coal. Yet global emissions of methane

22 IPCC. Climate Change 2013: The Physical Science Basis. Intergovernmental Panel on Climate Change. 2013. 23 National Geographic. is a much ‘dirtier’ energy source than we thought. 19 February 2020.

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are increasing rapidly as the gas industry continues to expand globally.

Claims from the Gas Industry The oil and gas industry’s slick public relations machine has entrenched in the Australian (and global) psyche the notion of gas as a “bridge” or “transition” fuel and the perfect accompaniment to renewables to provide power ‘when the wind does not blow, and the sun does not shine’.

This refrain has been enthusiastically taken up by state and federal governments.

Gas producers are particularly keen on reinforcing this, with Santos claiming in its 2019 results:24

“Natural gas has a key role to play in a lower carbon future as it produces 50% less greenhouse gas emissions than coal when used to generate electricity, can significantly improve air quality and is the perfect partner for renewable energy sources.” (our emphasis)

Nothing could be further from the truth.

The Gas Industry Sees Itself as More Than Just a Transition Fuel Conventional or ‘natural’ gas is currently characterised as a transition fuel in Australia, however the industry itself sees a much longer-term future for its product.

Although Australian states have committed to net zero emissions by 2050, the gas industry is proposing a long list of new gas projects around Australia, both onshore and offshore.

All of these new provinces, if they start, will be operating well beyond 2050, including Narrabri in New South Wales, the Galilee and North Bowen Basins in Queensland, shale fracking in the Northern Territory’s Beetaloo, major onshore and offshore projects in north-west of Western Australia, new provinces in the south of , and the opening up of onshore gas in Victoria.

The gas industry is using the transition narrative to embed itself into the energy future of Australia in the long term, crowding out other sources of power.

24 Santos Annual Results Presentation 2019. Page 8.

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The Gas Supply Chain The gas industry claims that conventional or ‘natural’ gas has 50% fewer greenhouse gas emissions than coal. Although echoed by governments, it is based on a half-truth.

To generate electricity, gas can be burned in combined cycle gas turbines (CCGT), commonly referred to as gas baseload plants, or in open cycle gas turbines (OCGT).

According to the gas industry-funded arm of CSIRO known as GISERA25, gas consumed domestically produces:

 50% fewer emissions than coal when burned in the more efficient combined cycle gas turbine (CCGT), or

 31% fewer emissions than coal when burned in an open cycle gas turbine (OCGT), known as gas peakers.

In Australia, CCGT are not a large part of the national electricity system for one very simple reason – they are very expensive to run. Gas prices in Australia are simply too high and it is not economic to run the plants when there are cheaper sources of power. In the U.S. there are large fleets of CCGT gas power stations as gas prices are at a decade-low.

While we continue to build a renewables rich grid, CCGT continues to be problematic because the turbines are far less flexible than gas peakers (OCGT). Similar to thermal coal-fired power plants, CCGT are not as flexible as OCGT and so cannot fill the gap when cleaner renewable energy is lower in price.

As Australia transitions away from the declining coal industry and into renewables, but while still using gas, CCGT would need to be retired and more of the emissions- intensive gas peakers (OCGT) will be needed. Gas peakers are less efficient but far more flexible because they can be rapidly started and shut down to fill in the gaps when renewable power is deficient.

While gas peaking plants are needed for a renewables rich grid, not as much gas would be needed to run them. They have high capacity but low capacity utilisation – they are simply not turned on very often and are operated for relatively short periods. They are also very expensive to run.

CCGT (gas baseload plants) are barely used in Australia and are likely to be retired in the near future.

IEEFA notes that GISERA’s claim of 50% less emissions from gas is at best dishonest and designed to mislead and deceive the public, investors and gas consumers.

25 GISERA. Whole of Life Greenhouse Gas Emissions Assessment of a Coal Seam Gas to Liquefied Natural Gas Project in the Surat Basin, Queensland, Australia. Final Report for GISERA Project G2. Page viii.

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Gas Cannot Lower Emissions Methane is the greatest threat to the warming climate. If you leak more than 2% to 3% of methane26, gas is worse for the climate than coal.

In a recent Bloomberg story about BP installing methane leak detectors on new gas producing projects, the company made admissions about the leakages:

“The company said the wider energy industry leaks about 3.2% of the gas it produces, which is probably almost enough to offset the benefit of switching from coal to gas.”27

According to GISERA, a 3% methane leakage is enough to offset the benefits of switching from coal to gas on a 100- year time frame.28 BP is therefore saying that gas is worse than coal for greenhouse gas emissions. BP is saying that gas In April 2020, using new satellite observations and atmospheric inverse modelling, scientists calculated is worse than coal methane emissions from the Permian Basin in Texas and for greenhouse gas New Mexico, which is among the world’s most prolific oil- emissions. producing regions and accounts for >30% of total U.S. oil production. They found methane emissions account for 3.7% of the gross gas extracted from the Permian Basin.29 The high methane leakage rate is likely contributed by extensive venting and flaring resulting from insufficient infrastructure to process and transport natural gas. Gas from the Permian Basin, one of the U.S.’ oldest and largest gas fields, is worse for greenhouse gases than coal.

Gas will not materially reduce our carbon footprint. In the Australian Government’s Energy Technology Roadmap, this point is made on page 28:30

26 See IEEFA. Volkswagen lied about emissions from their vehicles, and the gas industry is also lying about their emissions. 5 March 2020. View the link CSIRO Energy. Whole of Life Greenhouse Gas Emissions Assessment of a Coal Seam Gas to Liquefied Natural Gas Project in the Surat Basin, Queensland, Australia: Final Report for GISERA Project G2. July 2019. Page 26: A general consensus has emerged from these studies that climate benefits of natural gas replacing coal are lost where fugitive emissions from all upstream operations are greater than 3% of total production (Alvarez et al 2012; Zavala-Araiza et al 2015). The lower level of 2% was based on a shorter 20-year (Global Warming Potential) time frame as opposed to the 100-year time frame. Sourced from correspondence with Professor Ian Lowe. 27 Bloomberg. BP to Install Permanent Methane Leak Detectors on New Projects. 10 September 2019. 28 CSIRO Energy. Whole of Life Greenhouse Gas Emissions Assessment of a Coal Seam Gas to Liquefied Natural Gas Project in the Surat Basin, Queensland, Australia: Final Report for GISERA Project G2. July 2019. Page 26: A general consensus has emerged from these studies that climate benefits of natural gas replacing coal are lost where fugitive emissions from all upstream operations are greater than 3% of total production (Alvarez et al 2012; Zavala-Araiza et al 2015). 29 Science Advances. Quantifying methane emissions from the largest oil-producing basin in the United States from space. 22 April 2020. 30 Department of Industry, Science, Energy and Resources. Technology Investment Roadmap Discussion Paper. May 2020.

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“According to the International Energy Agency (IEA), switching from coal to gas can provide ‘quick wins’ for global emissions reductions and has the potential to reduce electricity sector emissions by 10 per cent.”

Reducing emissions by 10% compared to high emitting coal is at best a marginal progression towards net zero emissions, targeted by every state and territory in Australia.

Have Emissions from Gas Been Underestimated? Potent methane emissions from fossil fuel production are 25% to 40% higher than previously understood, according to a major new study published in the eminent scientific journal Nature.31

The research measured methane levels in ice cores. The methane produced by fossil fuel extraction has a signature that can be identified. By measuring methane radiocarbon from more than 200 years ago, when there were no industrial sources, the researchers knew that all fossil methane from that era had to be emitted naturally. They found that almost all the methane emitted to the atmosphere was biological until about 1870. That is when the fossil component began to rise rapidly. The timing coincides with a sharp increase in the use of fossil fuels:

“We’ve identified a gigantic discrepancy that shows the industry needs to, at the very least, improve their monitoring,” said Benjamin Hmiel, a researcher at the University of Rochester and the study’s lead author. “If these emissions are truly coming from oil, gas extraction, production use, the industry isn’t even reporting or seeing that right now.” (our emphasis)32

Significantly, researchers also discovered the levels of naturally released fossil methane are about 10 times lower than previous research reported. IEEFA notes gas producers can no longer blame flatulent cattle for the emissions their industry produces.

A Full Lifecycle Analysis of Gas Gives a Totally Different Picture The industry’s claims of gas producing 50% less greenhouse pollution than coal fails to consider a full lifecycle analysis of the product.

31 Nature. Preindustrial 14CH4 indicates greater anthropogenic fossil CH4 emissions. 19 February 2020. 32 ibid

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Australia is the world’s largest exporter of LNG33, with the gas industry exporting about three quarters of the gas it produces. Gas must be liquefied for export in an extremely energy intensive process that super cools the gas to minus 160°C.

Robert Howarth, a leading Cornell University gas emissions expert, said in a submission to the Irish parliament that:

“To liquefy and transport the gas requires a substantial amount of energy: to import one cubic meter of gas as LNG would require 1.2 cubic meters of gas to be produced, with 0.2 cubic meters consumed to produce and transport the LNG (Hardisty et al, 2012, , 5: 872-897).”34

The energy intensity of the LNG process is best illustrated by the fact that 17% of the methane produced is used to produce and transport the LNG. The direct emissions of methane in the shipping process are unknown.

“LNG is kept in liquid form by allowing some methane to “boil off,” resulting in evaporative cooling. In a typical voyage, 2 to 6% of the LNG is lost as gaseous methane due to this boil off. Usually, the methane is used as fuel to help power the ship, but it seems highly likely that some is emitted to the atmosphere, although I am aware of no data on this emission,” Howarth said.35

Howarth concludes that, taking in all of the emissions and burning as fuel, LNG produces more greenhouse gases than coal. (See Figure 9)

AGL’s Crib Point may be worse for the climate than coal.

33 Department of Industry. Resources and Energy quarterly December 2019. 34 Testimony of Robert W. Howarth, Ph.D. Cornell University, Ithaca, NY 14853 USA before the Joint Committee on Climate Action House of Oireachtas, Ireland. 9 October 2019. Page 2. 35 ibid

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Figure 9: Electricity Produced with LNG Emits More Greenhouse Gases than Coal-fired Electricity

Source: Robert W. Howarth. This graph shows the greenhouse gas footprint of LNG imported to Ireland from the United States compared to coal. Emissions of carbon dioxide are shown in yellow. The red bars indicate methane emissions in units of carbon dioxide equivalents.36

AGL’s Import Terminal an Unnecessary Increase in Emissions Australia is the world’s largest exporter of gas.37 If we divide Australia’s market into east coast and west coast markets, the eastern market exported 72% of gas produced in 2020 according to AEMO.38

Australia has a wealth of gas resources and yet domestic prices have been manipulated to keep them above international parity pricing. Lest there be any

36 Estimation of greenhouse gas emissions: Emissions of carbon dioxide are as reported in my 2011 paper and are based on data from the US Department of Energy. Emissions of methane from coal are as reported in 1996 by the Intergovernmental Panel on Climate Change. Methane emissions for LNG are based on a 3.5% emission rate for shale gas in the United States, as determined in my 2019 Biogeosciences paper, and the estimate of Hardisty et al. (2012) on the amount of natural gas consumed in the process of producing and transporting LNG. Methane emissions are converted to carbon dioxide equivalents using the 20-year global warming potential of 86 reported by the Intergovernmental Panel on Climate Change in their 2013 synthesis report. 37 Office of the Chief Economist. Resources and Energy Quarterly. June 2020. Page 67. 38 AEMO. Forecasting Data Portal.

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doubt about this, the proponent of Crib Point, AGL themselves consider this to be the case, hence their import terminal business proposal.

The problem in Australia is not one of gas supply, it is one of market manipulation. If eastern Australia had a proper domestic gas reservation policy on all gas fields, like the one that exists in Western Australia and indeed in most countries around the world, Australia would not be looking at importing gas with its attendant increases in emissions.

We Need Gas for Industry The East Coast Market is Interconnected and Is One Market The east coast gas market is one market connected by pipelines.

Despite this, the gas industry constantly wants to push state against state by saying, for example, that New South Wales is not “self-sufficient” in gas, or that Victoria should open up its limited farmland to gas exploration. In economic terms, this is nonsense.

The suggestion that each state should produce energy inside its own borders runs counter to how Australia has been established, as some states and territories will be better at producing products than others. Pitching state against state will send Australia down a road towards economic poverty.

For Some Applications There Are Substitutes, for Others We Need Gas Many high heat applications for gas can be substituted with cheap renewable power. Some however cannot, and therefore we need some gas production.

The Solution Involves Looking at Demand as Well As Supply Gas use in residential and commercial applications can largely be substituted for cheaper electrical heating in the form of air conditioners, induction cooking and heat pumps for hot water.39 40

In Victoria 60% of gas consumed is consumed by residential and commercial customers. This is an historical anachronism harking back to the days when gas was a cheap form of energy.

39 Melbourne Energy Institute. Switching off gas - An examination of declining gas demand in Eastern Australia. 26 August 2015. 40 Environment Victoria. A Gas-free recovery? New report shows how phasing out gas will benefit all Victorians. 3 June 2020.

AGL’s Crib Point Project 23 Expert Witness Report of Bruce Robertson

Gas is no longer cheap, and policies should be put in place to phase out the usage of gas in the home. Phasing out domestic gas usage would free up gas to be used for industry and obviate the need for Crib Point.

Even AGL Thinks Heat Pumps Are More Efficient Than Gas On the AGL website41, the company itself states that heating homes with heat pumps is more efficient than gas and can save the energy consumer money.

In the section titled “Why heat pumps are better than their gas counterparts”, AGL states:

More efficient Because they use electricity to move hot or cold air from one place to another, rather than to generate it, heat pumps can deliver up to 10-15 times as much energy as they use. In fact, premium heat pumps can heat up a room at 600% efficiency, while gas heaters are around the 50% to 95% mark.

Cost less to run Because they use less energy to run, they’re also better for your wallet. Although they may be more expensive to install, they can provide significant savings in the long run.

According to a 2015 Melbourne Energy Institute report, households in Canberra could save $1,733 per year and those in Melbourne $658 per year in heating costs just by switching off their gas and using reverse-cycle air conditioners.

Switching from gas to heat pumps to heat water can also lead to significant savings, not only because they’re more efficient. Heat-pump water heaters act as batteries, so you access electricity when it’s cheaper, and store it for later.

Not Only Are Heat Pumps Cheaper, They Are Safer AGL also states42 that heat pumps are not only more efficient and cheaper than gas, they are safer:

Safer than gas With heat pumps, you don’t need to worry about house fires or filling your home with dangerous fumes, unlike some gas heaters.

Policy Responses Would Fix Problems in the East Coast Gas Market Gas production on the east coast of Australia has tripled since 2014. Exports have gone from zero to over 1400PJ yet there is still talk of gas “shortages”.

41 AGL website. 42 AGL website.

AGL’s Crib Point Project 24 Expert Witness Report of Bruce Robertson

The east coast of Australia has enough gas to supply consumers. The problem on the east coast is essentially one of price and market structure, not shortages.

Western Australia previously had similar problems to the east coast, but they implemented a domestic gas reservation successfully ensuring cheap and bountiful sources of gas for domestic gas consumers.

On the east coast, a domestic gas reserve on existing and prospective gas fields would solve both the supply and price problems being experienced in the domestic market. For a more in-depth review of the east coast gas market and how a domestic gas reservation could be implemented, please see IEEFA’s report, “Towards a Domestic Gas Reservation in Australia”.43

Gas in a Low-Carbon Economy

Batteries are usurping the role of gas in the power system.

On 17 August 2020, AGL Energy’s newly appointed chief operating officer Markus Brokhof was reported to say:

“There is a clear business case for big batteries, and added that they were starting to compete with gas peakers on commercial terms to firm up supplies of wind and solar.”44

With gas prices globally being at historic lows, gas is struggling to compete with batteries. When gas prices recover, gas will not be able to compete. The cost deflation will ensure batteries pay a larger role in the power system at the expense of gas in the very short term.

43 IEEFA. Towards a Domestic Gas Reservation in Australia. 9 July 2019. 44 Renew Economy. AGL says batteries starting to compete with gas generators for peaking services. 17 August 2020.

AGL’s Crib Point Project 25 Expert Witness Report of Bruce Robertson

Figure 10: Battery Cost Deflation Even Steeper Than Wind and Solar

Source: Bloomberg NEF

AGL Energy now has big plans for installing several new batteries to complement its power generating operations. It has set a goal of installing 1,200MW of new battery storage and demand response capacity by 2024, and is tying executive and senior management bonuses to reaching growth targets for the company’s clean energy and storage portfolio.45

AGL has lodged initial development plans for a new big battery of up to 500MW at the Liddell coal-fired power station site.46 It plans to construct a 150MW battery in the first instance.

Further, AGL is installing a 100-150MW battery in the initial stage of its Torrens Island site in South Australia.

45 Renew Economy. AGL targets 1.2GW of new battery storage by 2024 plans tender. 13 August 2020. 46 Renew Economy. AGL seeks approval for 500MW big battery at site of Liddell coal generator. 14 August 2020.

AGL’s Crib Point Project 26 Expert Witness Report of Bruce Robertson

AGL is also progressing plans to add a 100MW/150MWh battery next to the proposed Wandoan solar farm in Queensland, and up to 200MW/400MWh of battery capacity spread across four sites in partnership with the Maoneng Group, including a 50MW/100MWh battery next to the .

Overseas, we are seeing batteries of such a size as to rival gas peaking plants.

Vistra in the U.S. has approval to expand an energy storage system under construction at its gas-fired Moss Landing generation station in California to 1,500MW/6,000MWh.47 This is gigawatt-scale battery energy storage. It’s the largest battery storage installation in the world and when completed, will be larger in capacity than every other utility-scale battery energy storage system in the U.S. combined.

At present, the largest battery in the world is the Hornsdale Big Battery in South Australia. It boasts a size of 150MW/193MWh. Hornsdale is 10% of the power and 3% of the duration of Vistra’s new battery.

IEEFA specialises in “following the money” to see what is actually occurring in energy markets. It is interesting to note that Capital Dynamics, an independent global private asset management firm, has signed an agreement with respected U.S. energy company Tenaska to develop a portfolio of 9 battery energy storage system (BESS) projects located throughout California.48 In total, the projects will provide approximately 2,000MW of power. The scale of this investment into grid scale batteries is unprecedented.

Meanwhile in Australia grid scale battery investment has arrived. On 20 August 2020, Neoen filed plans for a $3bn wind and solar farm with a battery 10 times bigger than the Hornsdale big battery.49 The Goyder South project in South Australia proposes 1200MW of wind energy, 600MW of solar PV, and a 900MW/1800MWh battery dwarfing the size of the Hornsdale big battery. These types of hybrid projects that totally exclude gas are the future of the power system.

Conclusion

AGL’s Crib Point terminal will add to greenhouse gas emissions at the very time we need to be reducing emissions. It is not consistent with the Victorian government’s policy of net zero emissions by 2050.

A high 60% of gas consumed in Victoria is by residential and commercial customers. Gas used for this purpose is an historical anachronism harking back to the days when gas from the Bass Strait was a cheap form of energy. It is now cheaper, more

47 PV Magazine. Plan to deploy 1500MW, 600MWh storage project gets approval in the US. 14 August 2020. 48 Capital Dynamics. Press Release. 19 August 2020. 49 Renew Economy. Neoen files plans for $3bn wind and solar farm with batteries 10 times bigger than Hornsdale. 20 August 2020.

AGL’s Crib Point Project 27 Expert Witness Report of Bruce Robertson

efficient and safer to heat a Victorian home with electricity, according to the Crib Point proponent AGL.

Weaning the domestic consumer off gas would supply more gas to Australia than Crib Point.

Crib Point should be rejected on economic grounds alone.

11 August 2020

Bruce Robertson Energy Finance Analyst – Gas/LNG Institute for Energy Economics and Financial Analysis

By email only: [email protected]

Dear Mr Robertson

AGL/APA Gas Import Jetty and Pipeline Project at Crib Point, Victoria

We act on behalf of Submitter 3088, Submitter 3129 and Submitter 2004. We write to you on behalf of Submitter 3088.

Submitter 3088 is one of Australia’s leading environmental organisations – an independent and not for profit organisation which campaigns to look after Victoria’s environment.

We write to you as an energy finance analyst. The purpose of this letter is to seek your expert opinion on the environmental effects of the Crib Point Gas Import Jetty and Crib Point to Pakenham Pipeline project (the project).

We seek your preliminary opinion to be provided in a draft report / slides by 19 August 2020. Your preliminary opinion will inform Submitter 3088 in preparing its written submission due on 26 August 2020.

We also request your expert opinion be provided as an expert witness report to be submitted to the Inquiry and Advisory Committee. We request that your expert report be provided by 23 September 2020.

References to Tab numbers in bold in this letter are to the documents in an electronic brief which we provide to you via DropBox (https://www.dropbox.com/sh/nyqlcz3lw0z71vk/AADWdEqXA5xAP6pwEdDPkAv_a?dl=0).

Environmental PO Box 12123 T (03) 8341 3100 Environmental Justice Australia is Justice Australia A'Beckett Street PO F (03) 8341 3111 the environment’s legal team. ABN 74052124375 Melbourne VIC 8006 E [email protected] We use our specialist legal skills to take cases to court and advocate for L3, 60 Leicester St, Carlton W www.envirojustice.org.au better environment laws.

Background

1. AGL Wholesale Gas Ltd (AGL) and APA Transmission Pty Ltd (APA) propose a new facility for importing and regasifying liquefied natural gas (LNG) and supplying it to the gas transmission network. The project comprises two main components:

a. Gas Import Jetty Works comprising a floating storage and regasification unit (FSRU) at Crib Point Jetty, jetty infrastructure including marine loading arms and gas piping on the jetty, and the Crib Point Receiving Facility on land adjacent to the jetty (Gas Import Jetty Works).

b. Pipeline Works consisting of an underground gas transmission pipeline approximately 57 kilometres long to transport gas from the Crib Point Receiving Facility to the Victorian Transmission System east of Pakenham, and associated infrastructure (Pipeline Works) (see description at Tab A.4).

2. On 8 October 2018 the Minister for Planning issued a decision determining that an Environment Effects Statement (EES) was required for the project due to the potential for a range of significant environmental effects. The purpose of the EES is to provide a sufficiently detailed description of the proposed project, assess its potential effects on the environment and assess alternative project layouts, designs and approaches to avoid and mitigate effects.

3. An Inquiry and Advisory Committee (IAC) has been appointed to review the EES and public submissions. The IAC will hold public hearings for 6 to 8 weeks, after which it will produce a report for the Minister for Planning. Following receipt of the IAC’s report, the Minister for Planning will then make an assessment as to whether the likely environmental effects of the project are acceptable (Minister’s Assessment).

4. The EES includes 27 substantive chapters and 17 technical reports addressing a range of topics. All EES documents are available online at: https://www.gasimportprojectvictoria.com.au/environment-effects- statement#view-the-ees. However, we seek your review and opinion only of the EES documents relevant to your expertise (energy finance) to assist in informing the submissions to be made by our client.

Instructions

5. We request that you prepare a report providing your expert opinion on the following:

a. Review Chapter 2 – Project rationale (Tab A.2);

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b. Review the following chapters, as relevant to energy finance:

i. Chapter 1 – Introduction (Tab A.1)

ii. Chapter 3 – Project development (Tab A.3)

iii. Chapter 4 – Project description (Tab A.4)

iv. Any other chapters you consider relevant to your enquiries.

c. Whether the project is required in light of the approved expansion of other gas projects across Australia (such as the import terminal at Port Kembla, New South Wales).

d. Any appropriate qualifications or conditions that should be attached to findings or conclusions made in the above EES documents (as relevant to energy finance).

6. As an expert you are able to consider any such material you consider relevant to your enquiry. Please identify in your report any further materials you consult outside of the briefed materials.

Expert Witness Code of Conduct

7. We have enclosed a copy of the Guide to Expert Evidence provided by Planning Panels Victoria, which is the relevant guidance for hearings before the IAC (Tab B.1).

8. In preparing your final expert witness report, please ensure that you include:

a. your name, address, qualifications, experience and area of expertise

b. details of any other significant contributors to the report (if there are any) and their expertise

c. all instructions that define the scope of the statement (original and supplementary and whether in writing or verbal)

d. details and qualifications of any person who carried out any tests or experiments upon which the expert has relied in preparing the statement

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e. the following 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.’

Important dates

9. We seek your preliminary opinion to be provided in a draft report / slides by 19 August 2020. We also request your expert witness report be provided by 23 September 2020.

10. The IAC will conduct public hearings over a period of 6-8 weeks, commencing on 12 October 2020. We anticipate that you will be called to give evidence before the IAC at the public hearings. Please advise of the days on which you will not be available to give evidence before the IAC (if required) during the period of 12 October to 30 November 2020.

Confidentiality

11. This request for an expert opinion and the subsequent report, as well as any correspondence relating to this request, is for the purposes of the Crib Point Gas Import Jetty and Crib Point to Pakenham Pipeline project EES process, including the public hearings before the IAC. It is therefore confidential and is protected by legal professional privilege.

Fees 12. We are instructed that you have agreed to undertake this work for EV on a pro bono basis.

Please contact Virginia Trescowthick if you have any questions or require further information.

Yours faithfully

Virginia Trescowthick Lawyer

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