Core Report Template

Commercial Assessment of CNG and LNG as Transport Fuels

2015/16

FINAL

Table of Contents

List of Tables and Figures ...... 3

1. Introduction ...... 8

2. Executive Summary ...... 9

3. Methodology ...... 11

4. Background ...... 12

5. Infrastructure & Investment ...... 35

6. Comparisons of Projected Fuel Prices ...... 39

7. Risks and Uncertainties ...... 51

8. Strategic Advantages for South Australia ...... 53

9. Conclusion ...... 56

References ...... 58

Attachment 1: CORE Inputs for RISE (Input-Output) Modelling ...... 59

Attachment 2: RISE Modelling Report (per DSD) ...... 64

Attachment 3: NGF Summary Sheet ...... 67

List of Tables

Table 4.1 Global NGV Uptake ...... 22

Table 4.2 Australia’s heavy vehicle fleet relative to other vehicle types | ‘000 Vehicles ...... 23

Table 4.3 Australian Diesel Usage by State and Vehicle Type | ML ...... 25

Table 4.4 Additional Potential Gas Demand As a Function of NGV Uptake | PJ, Annual...... 25

Table 4.5 Options for Marine Vessels to Meet Stricter Emissions Standards ...... 29

Table 4.6 Larger Australian Ports: Increased Ability to Support LNG Refuelling ...... 31

Table 6.1 Dated Brent Price Projections | USD/bbl...... 40

Table 6.2 CNG Cost Components in a Reference Oil Price Scenario | AUD, real...... 42

Table 6.3 LNG Cost Components | AUD, real ...... 44

Table 6.4 Diesel Cost Breakdown in a Reference Oil Price Scenario | AUD, real ...... 46

Table 6.5 NGV Vehicle Conversion/Price Premium | AUD ...... 49

Table 8.1 The Contribution of Transport to South Australian GHG Emissions ...... 55

List of Figures

Figure 2.1 A compelling value proposition for South Australia that builds sectors and achieves long term goals ...... 10

Figure 4.1 Overview of a CNG Filling Station ...... 14

Figure 4.2 CNG Compressor ...... 14

Figure 4.3 Priority Panel and CNG Storage Vessel ...... 14

Figure 4.4 Typical CNG dispenser ...... 15

Figure 4.5 CNG Fast-Fill Station Schematic ...... 15

Figure 4.6 International CNG Vehicle OEM’s ...... 16

Figure 4.7 LNG Refuelling Schematic: On-site Liquefaction ...... 19

Figure 4.8 LNG Refuelling Schematic: Delivered LNG ...... 19

Figure 4.9 Australia’s Heavy Transportation and Freight Fleet | Total Vehicles ...... 24

Figure 4.10 Australian Motor Vehicle Diesel Consumption: State Contribution and Vehicle Type Contribution ...... 25

Figure 4.11 Potential Added Gas Demand As a Function of NGV Uptake | PJ, Annual ...... 26

Figure 4.12 Australian GHG Emissions | Mt CO2-e, Quarterly ...... 26

Figure 4.13 Australian Consumption of Liquid Fuels | Gigalitres ...... 27

Figure 4.14 Estimated GHG Reductions as a Function of Conversion Rates and Target Fleet | Tonnes of CO2-e...... 27

Figure 4.15 Carbon Pricing Range up to 2014 | USD/t ...... 28

Figure 4.16 LNG Bunkering Possibilities ...... 30

Figure 4.17 Adelaide Brighton Cement’s Accolade II CNG Vessel ...... 31

Figure 4.18 Energy Development’s Karratha LNG Facility ...... 32

Figure 4.19 Typical LNG Supply Chain Integrated Several Applications ...... 33

Figure 5.1 Estimated Investment for CNG Refuelling Infrastructure | AUD/DLE ...... 36

Figure 5.2 Estimated Investment for LNG Refuelling Infrastructure | AUD/DLE ...... 38

Figure 6.1 Historical Crude Prices and Diesel TGPs ...... 39

Figure 6.2 Dated Brent Price Projections | USD/bbl ...... 40

Figure 6.3 CNG Cost Components (Refuelling Station with Distributed Wholesale Gas)...... 42

Figure 6.4 CNG Cost Components (Refuelling Station with Direct Wholesale Gas) ...... 42

Figure 6.5 LNG Cost Components (Refuelling Station with Distributed Wholesale Gas) ...... 44

Figure 6.6 LNG Cost Components (Refuelling Station with Direct Wholesale Gas) ...... 44

Figure 6.7 Relationship between TGPs and the Dated Brent Oil Price ...... 45

Figure 6.8 Relationship between Australian diesel TGPs and retail prices ...... 46

Figure 6.9 Diesel Cost Components | AUD, real ...... 46

Figure 6.10 Ratio of Capital City Diesel TGP price to the National Average ...... 46

Figure 6.11 Variance in Retail (Pump) Prices Across Australian States ...... 47

Figure 6.12 Relative Fuel Prices | Low Oil Scenario ...... 47

Figure 6.13 Relative Fuel Prices | Reference Oil Scenario ...... 48

Figure 6.14 Relative Fuel Prices | High Oil Scenario ...... 48

Figure 6.15 Estimated Years for the Average CNG Vehicle to Break Even ...... 49

Figure 6.16 Estimated Years for the Average LNG Vehicle to Break Even ...... 50

Figure 8.1 South Australian FY2015 Electricity Generation Mix | GWh ...... 54

Figure 8.2 Contribution of Transport to South Australia’s GHG Emissions | Mt CO2-e, Annual ...... 55

AUD Australian Dollars BBL Barrel

CNG Compressed Natural Gas

CORE Core Energy Group Pty Limited

DLE Diesel Litre Equivalent

DSD South Australian Department of State Development

ERF Emissions Reduction Fund

GHG Greenhouse Gas

GJ Gigajoule

GST Goods and Services Tax

Kg Kilograms

LNG Liquefied Natural Gas

MJ Megajoule

MPa Megapascal NGF Natural Gas Fuels

NGVs Natural Gas Vehicles

OEM Original Equipment Manufacturer (Can also refer to OEM Systems, LLC an American CNG Conversion Specialist) Psi Pounds per square inch

TGP Terminal Gate Price

USD US Dollars

Definitions

Articulated Truck Motor vehicles constructed primarily for load carrying, consisting of a prime mover having no significant load carrying area, but with a turntable device which can be linked to one or more trailers. Bus Motor vehicles constructed for the carriage of passengers. This category includes all motor vehicles with 10 or more seats, including the driver's seat. Energy Equivalency Diesel and natural gas have different calorific values. For meaningful comparisons between fuels, CORE has converted different fuels on an energy equivalency basis whereby the fuel units are converted to an equivalent unit of energy. DLE units are frequently referred to in this report which is a quantity of fuel equal to ~38.5MJ of energy or one litre of diesel fuel. Gross Combination Tare weight (i.e. unladen weight) of the motor vehicle and attached trailers, plus its maximum carrying Mass (GCM) and towing capacity. GCM is the weight measurement used for vehicles such as articulated trucks used for towing trailers. Gross Vehicle Mass Tare weight (i.e. unladen weight) of the motor vehicle, plus its maximum carrying capacity excluding (GVM) trailers. Heavy Rigid Trucks Rigid trucks of GVM greater than 4.5 tonnes. Rigid trucks are constructed with a load carrying area. This includes trucks with a tow bar, draw bar or other non-articulated coupling on the rear of the vehicle. Light Commercial Vehicles primarily constructed for the carriage of goods, and which are less than or equal to 3.5 tonnes Vehicles GVM. This includes utilities, panel vans, cab-chassis and forward-control load carrying vehicles (whether four-wheel drive or not). Light Rigid Trucks Rigid trucks of GVM greater than 3.5 tonnes and less than or equal to 4.5 tonnes. Rigid trucks are constructed with a load carrying area. This includes trucks with a tow bar, draw bar or other non- articulated coupling on the rear of the vehicle. Liquefaction The process by which natural gas is transformed into the liquid state by cooling it to -160 °C. The cooling is achieved by sending gas through various heat exchangers, transferring the heat to liquid hydrocarbons circulating in a closed circuit. LNG is roughly 1/600th the volume of the gaseous phase volume.

There are clear signs that the move toward sustainable transport fuels is gaining momentum internationally and that natural gas is moving to challenge oil as a preferred marginal source of primary energy in this critical area of the energy value chain – the second largest behind electricity generation.

South Australia has the potential to mark a leadership position in the research, analysis, investment and delivery of natural gas transport solutions nationally by being an early, but prudent mover, contributing proactively at an international level by linking government, research and industry, to enable quality investment decisions.

The dividends to be yielded through effective strategy formulation and tactical deployment make it compelling to invest in a complementary applied research and development program and design of a proposed three year implementation program based on extensive national and international consultation.

Paul M Taliangis Alexander Jarvis

CEO, Core Energy Energy Economist, Core Energy

Core Energy (“CORE”) has been engaged by the Department of State Development (“DSD”) to provide an independent, preliminary assessment of the economic rationale for growth of a natural gas fuels (“NGF”) sector in South Australia, leveraging local resources and providing sustainable benefits for future generations of South Australians.

This engagement provides input to a more extensive South Australia Government-initiated program ‘Gaseous Fuels for Transport and Heavy Machinery – Working Group #7’; in turn part of the Roundtable for Oil and Gas Projects in South Australia.

Under the framework set up by DSD, the SA Government has expressed renewed interest in gaseous fuels, particularly given Australia’s abundance of gas resources. It recognises there are significant opportunities for the development of more strategically reliable indigenous fuel sources for transport (road, rail, marine and heavy machinery).

Despite being present in the South Australian marketplace for many years, CNG, LNG and other gaseous fuels have limited market penetration due to a lack of cohesion and investment frameworks.

The gas industry is willing to invest in the technology and infrastructure needed to allow increased use of gas as a cleaner, cheaper transport fuel alternative, but supportive government policy is also needed as a driver for change.

DSD states;

“to build a sustainable and effective marketplace, the importance of developing an appropriate framework that considers infrastructure, market drivers, engine technology, and best practice regulatory environments to stimulate the uptake and development of gaseous fuels will be critical. This has the capacity to reduce reliance on imported fuels and leverage our resources to deliver increased economic, environmental, and strategic benefits to communities, industry and government.”

The prerequisites for successful development of a large scale and rewarding NGF sector are in place nationally and locally;

. Programs which can offer reasonable economic return on investment

. An indigenous gas resource and skill base which can be leveraged through value adding activity

. A growing recognition of the importance of managing emissions/pollution to create a sustainable environment

. Established safety and operational standards

. A track record of success with numerous gaseous fuel projects to date

. A large vehicle fleet presently fuelled by diesel/gasoline

. A critical mass of skilled construction and operational professionals

. A strong desire to embrace quality State Development programs which create jobs and economic value more broadly

This report sets out a summary of CORE’s assessment.

CORE has identified several compelling benefits associated with increased NGF use and has the firm belief that pursuing growth in this sector should no longer be overlooked. The economic, environmental and health advantages align with a long term sustainable vision and the unique opportunities for new sectors and jobs should be captured now, to support a manufacturing sector requiring a new direction.

. Reduce South Australia’s Carbon Footprint

> Approximately 20% less GHG emitted from the combustion of NGFs relative to diesel

. Improve Air Quality, Health & Environment

> Significantly reduce particulate matter- a known carcinogen and cause of acute respiratory illnesses

> Emit minimal NOx and SOx relative to diesel

> Reduce noise emissions by 50% by converting to gas-fuelled engines

. Reduce Business Input Costs for South Australian Firms

> In the longer term, CNG and LNG are projected to be 26-33 cents cheaper per diesel litre equivalent (“DLE”)

> A 50 cents/DLE advantage is expected if world crude prices recover more strongly

. Increased Energy Security

> NGFs substitute fuel imports for a cheaper, locally produced fuel

> Reduced exposure to foreign markets and supply disturbances

> By reducing imports NGFs will help to meet the International Energy Agency (“IEA”) 90 day petroleum reserve requirement which Australia is currently failing to meet

. Significant Returns to Government

> The carbon abatement achieved by substituting diesel reduces the expenditure required elsewhere to meet emissions targets

> State output increases directly for each litre of imported diesel that is substituted for locally produced gas fuel

> Additional utilisation for Cooper Basin gas resources is created in a new sector that can absorb higher priced wholesale gas (up to AUD 7-8/GJ) and still provide a considerable cost advantage over diesel

> A new sector will emerge, creating incomes from vehicle conversions and new refuelling infrastructure

> Opportunity for a long term technical knowledge base set up by targeted R&D programs

– Build a sector that engineers, designs and develops technology for the heavy duty NGF engine market

– Utilise an existing gap in the market (large capacity gas fuelled engines for heavy duty trucks and mining vehicles)

South Australia is emerging as a leader in renewable energy. NGFs are an alternative fuel source that can further this achievement and be a significant contributor to the state’s long term sustainable vision.

Figure 2.1 A compelling value proposition for South Australia that builds sectors and achieves long term goals

Long Term Sustainable SA Vision

South Australian Economy, Environment & Society

Cooper Basin & SA Energy

NGF Industry

NGF investment fundamentals are compelling and modest financial commitment is required at this stage;

. CORE analysis shows that the multi decades of social, environment and economic benefits to be gained from investment in NGFs are adequate to compensate for upfront investment in infrastructure.

. Creative mechanisms are likely to be required to encourage early stage capital investment. Community engagement will also be critical.

It is recommended that a focused, multidisciplinary team is established with an appropriate budget to develop a practical implementation plan for review and approval within six months.

The next stage involves development of a comprehensive work program based on clear objectives, time-bound deliverables, delivered by an accountable team. This mechanism should ensure that a coordinated push can occur, surpassing the modest NGF growth seen to date.

CORE has taken the following steps in order to provide an independent, preliminary assessment of likely scenarios for NGF utilisation in Australian transport.

. Identify the primary transportation applications of gaseous fuels and the existing state of the Australian market

> Review historical data, international trends, technological trends

. Assess the factors limiting growth

> Extensive research, industry consultation and case studies

. Estimate the investment costs required for CNG and LNG transportation projects

> Discounted Cash Flow analysis with validation from industry stakeholders and existing projects

. On an energy equivalency basis, derive a projection of the short, medium and long term relative fuel prices for CNG, LNG and Diesel

> CORE proprietary projection models. A bottom-up approach projecting each component of the final fuel price

. Identify and analyse the consequences of increased use of gaseous fuels for NGVs.

> Reconcile the historical data and scientific research with CORE projections

. Recommended next steps

> Evaluate the consequences of NGF growth and identify the superior mechanism by which growth in the natural gas fuels sector can be pursued.

Please note that this report profiles IntelliGas’ High Density Compressed Natural Gas (HDCNG™), a newer NGF that reportedly rivals LNG for storage and performance without incurring significantly greater costs than CNG which is technically simpler. The critical analysis done for this study pre-dates the emergence of HDCNG™ in the transport fuel market but Core recommends that the uptake and market growth of this fuel should be monitored by Working Group #7 .

4.1. Summary of NGV Technology and its Advantages

CNG and LNG are well established technologies being embraced by the transport sector internationally, with material growth over recent years.

Primary benefits include;

. lower transport operating costs due to lower fuel prices on an energy equivalency basis

> efficiency gains in transport provide widespread efficiency gains across many sectors within an economy

. reduction in GHG emissions of between 10 and 25%

. substantial reduction in particulate emissions (up to 90%) with consequential health benefits

. reduced noise emissions (generally around 50% below diesel and gasoline)

Main challenges include;

. upfront capital costs to establish refuelling stations and fuel processing facilities

. incentivising vehicle owners to convert their vehicles (retrofit vs new NGV) when refuelling infrastructure is inadequate

This has trapped the Australian NGV market in a coordination failure whereby there is insufficient infrastructure to incentivise vehicles owners considering an NGV conversion, but at the same time, the low market penetration of NGVs in Australia has not incentivised sufficient levels of investment in refuelling infrastructure.

Approximately 23 million vehicles currently use gaseous fuels globally (compared with 3,100 in Australia) and forecasts by leading government organisations are for this to become an increasingly significant source of energy for transport purposes and beyond (such as remote power generation).

The fuels have broad based application including cars, trucks, buses, trains, ships, refuse removal and other commercial vehicles/equipment, forklifts and remote power generation.

Gas provides approximately 25% of Australia’s primary energy but less than 1% of transport fuel.

4.2. Additional Benefits of NGV Technology for Australia and South Australia

In addition to the operating cost advantages and environmental advantages described in the previous section, there are specific benefits that gaseous fuels and NGVs can provide for Australia and South Australia.

. Substituting energy imports for an indigenous fuel

> Australia has an abundance of natural gas resources (~2% of world proven reserves) compared to modest oil reserves (~0.2% of proven reserves).

> Promoting natural gas for transportation would reduce our reliance on imported energy in the form of crude or its refined products. This has benefits for energy security and also favours an indigenous fuel source over an imported one.

> Exposure to unstable world crude prices can be reduced by substituting indigenous gaseous fuels. Australian oil resources and refining capacity are insufficient for providing a safety net in the event of supply disruptions.

. Economic Benefits

> Each unit of fuel that we produce locally rather than import is a favourable movement in the balance of payments.

> The Australian LNG export sector is substantial but it is a primary industry only- gaseous fuels extend our resource advantage further down the value chain.

> As a nation we stand to benefit by leveraging indigenous fuel sources beyond exporting it as a raw commodity.

> By converting natural gas into transport fuel, the value-add component to Australia’s natural gas is captured by local producers.

> There are opportunities in the market for product development and concentrated R&D programs. CORE has identified existing opportunities for new technology to be developed.

In the 2015 financial year, Australia imported roughly 60% more crude and feedstock then it exported.

4.3. Compressed Natural Gas (CNG)

CNG is formed by compressing methane to high pressures in the range of 20-25 MPa or 3,000 to 3,600 pounds per square inch (“psi”).

. Compression reduces the volume by a factor of 300 (or more) compared with gas at normal temperature and pressure.

. CNG is stored in steel or fibre-wound cylinders at high pressures.

. On board a natural gas vehicle, the gas travels through a pressure regulator and into a spark-ignited or compression ignition engine (additional requirements needed for a compression engine- discussed below).

4.3.1. CNG Vehicle Value Chain

There are 4 general steps in the CNG value chain:

. Transport gas from natural gas delivery system

. Compress natural gas

. Store CNG (In practice there is minimal storage involved in Australian CNG stations and typical refuelling facilities only have buffer tanks)

. Deliver CNG to vehicle via a fuelling station or dispenser

The compression and refuelling stages are addressed in further detail below:

Compression Process

A compressor station receives gas either from a distribution pipeline or transmission pipeline. Less compression is required when transmission pipeline offtake is available due to the higher pressure in these pipelines. Gas is passed through a gas dryer which contains scrubbers and filters that capture liquids and other unwanted particles.

Figure 4.1 Overview of a CNG Filling Station

Source: US Department of Energy Alternative Fuels Data Center

Once dry, the gas travels to a compressor. Here, the gas is compressed through two to five stages of compression until it reaches a pressure of 3000-3600 psig (20-25MPa).

Figure 4.2 CNG Compressor

Source: US Department of Energy Alternative Fuels Data Center

A priority panel then directs the CNG from the compressor to above-ground storage vessels.

Figure 4.3 Priority Panel and CNG Storage Vessel

Source: US Department of Energy Alternative Fuels Data Center

The fuel is then dispensed to a vehicle in a similar fashion to petrol and diesel.

Figure 4.4 Typical CNG dispenser

Source: US Department of Energy Alternative Fuels Data Center

Refuelling

There are two broad types of refuelling process – fast fill and time fill.

. Fast fill is similar to the experience at a petrol station. A vehicle is simply engaged with a dispenser and the CNG tank is filled in a short period of time.

. CNG at fast-fill stations is often stored in vessels at a high service pressure (30MPa), so it can deliver fuel to a vehicle faster than the rates that flow out of a compressor.

. The CNG dispenser can be alongside gasoline and diesel dispensers or independent.

Figure 4.5 CNG Fast-Fill Station Schematic

Source: US Department of Energy Alternative Fuels Data Center

. Time-fill stations are used primarily by fleets and work best for vehicles with large tanks that refuel at a central location every night and can be left idle for extended periods of several hours.

. At a time-fill station there is generally no need for storage. Unlike fast-fill stations, vehicles are generally filled directly from the compressor.

Time-fill stations are specifically designed to suit the fleet they will service. For example, a bus company may need a larger compressor that can deliver 10-20 litres per minute, while a 5 litre per minute filling time may suffice for a refuse truck company with a smaller fleet number and vehicle usage that includes greater offline time.

4.3.2. CNG Vehicles

CNG vehicles can be purchased as new or created by retrofitting the fuel and storage system of a petrol or diesel fuelled vehicle. CORE understands that retrofitting conversions can incur less additional costs than the premium price mark-up attached to a purpose built CNG vehicle.

4.3.2.1 New CNG Vehicles

There are a range of international OEM’s as illustrated below:

Figure 4.6 International CNG Vehicle OEM’s

Source: Clean Energy Fuels

There is a premium associated with a new CNG vehicle relative to its diesel or petrol counterpart. This cost comes down to two factors;

. Additional and more sophisticated components required such as pressurised fuel tanks, pressure cells (impact protection), methane specific catalytic converters and hardened exhaust valves.

. A lower number of vehicles across which R&D costs can be spread.

Both these cost factors should reduce over time as international uptake increases NGV sales volumes and incentivises automakers to allocate more capital to natural gas engine development.

4.3.2.1 Retrofitting

Retrofitting vehicles is relatively straight forward however the upfront cost is a significant consideration. The major process of CNG conversion for a diesel engine include;

. Compression Ratio

> CNG has lower compression ratios so piston modifications or replacements are generally required

. Valves

> Natural gas is ‘dry’ or has reduced lubricating properties. The engine valves have to be hardened.

. Spark Plugs

> A diesel fuel injector will have to be replaced by a spark plug. CORE understands the spark plugs have to be more heavy duty than a typical petrol engine spark plug.

. Heat Control

> Natural gas engines, which are spark-ignited will operate at higher temperatures than diesel engines. This can require added thermal protection, larger oil coolers and larger radiators.

4.3.3. High Density Compressed Natural Gas (HDCNG)

Higher density storage of CNG is a promising new development in the NGV market which aims to reduce the storage volume disadvantages CNG has in heavy duty vehicle applications. HDCNG™ and its auxiliary technology Cool5000™ is a product developed by IntelliGas Group, an Australian gas technology company. HDCNG™ has been trialled in heavy duty applications typically more suited to LNG such as mine haul trucks and prime movers.

Using stronger carbon fibre reinforced tanks, high density CNG is stored onboard at approximately 35MPa, giving it a significant storage advantage over regular CNG (20-25MPa). IntelliGas reports that HDCNG™ is a simpler technology, that does not incur the same degree of costs associated with LNG production and storage.

The technology is now being offered to the market, having completed tens of thousands of kilometres under load in two Western Star T4800 prime movers fitted with Westport HPDI engines. IntelliGas claims a 27% reduction in GHG emissions for the prime movers which displace 93% of diesel consumption with HDCNG fuel (7% of diesel use is retained by the vehicle as a pilot ignition fuel). As shown in the figure below, the truck has a horizontal fuel pack as well as Intelligas’ vertical fuel pack mounted behind the cab. A fuel booster system is also included, mounted horizontally on the chassis rail.

Figure 4.7 Demonstration Prime Mover

Source: IntelliGas

The development of HDCNG™ is being underpinned by the design of a virtual pipeline system which would use B- double road trains to deliver over 20,000 DLEs of HDCNG™ to off-grid locations. Virtual pipelines are already in existence in Australia such as the Kimberley project profiled in Section 4.8.3

The benefits marketed by IntelliGas would mean that HDCNG technology is a promising development for the NGV and NGF sector in Australia, especially if the higher pressure technology is still well suited to Australian road conditions. The less complex technology would reduce the upfront investment faced by LNG refuelling projects without suffering as great a disadvantage in fuel storage volume.

4.3.4. CNG Case Studies

Focus Areas Considerations Example

Passenger Buses . Need to maintain and 1988 saw the first 10 CNG optimize CNG fleets buses in Adelaide, a fleet that . Central depot for grew to 220 by 2004. refueling CNG Particulate reduction was estimated to be up to 95% . Potential for synergies with other fleets . Improve urban environment and health

Council Vehicles . Central depot for Unley Council: This was the refuelling CNG first commercial CNG fleet in . Motivated to improve Australia. In October 1999, environment and Collex Waste commenced health of council operation with their Isuzu fleet members of 6 dual fuel CNG refuse collection vehicles. Major . Ability for councils and benefits have included fuel Government to cost savings, a reduction in cooperate neighbourhood emissions and . Manageable scale engine noise reduction of up to 50%.

Forklifts and Small Business Fleets . Central depot for In 2011 Tasmanian natural gas refuelling CNG distributor Tas Gas Networks . Ability to utilise for has joined with Toyota Material other centralised Handling's Tasmanian dealer vehicles – trucks, FRM Toyota to offer vans compressed natural gas (CNG) for forklift trucks.

Commercial . Emission reductions A Toyota hybrid sedan run by . Reported 20% saving Eastmoor Taxis in Melbourne to LPG was the first cab in Australia to run on three fuel sources: battery electrics, liquid petroleum gas (LPG) and compressed natural gas (CNG).

4.4. Liquefied Natural Gas (LNG)

4.4.1. LNG Value Chain

. Liquefied Natural Gas (LNG) is natural gas cryogenically stored at atmospheric pressure but at temperatures less than - 160 degrees Celsius (°C). At this low temperature, LNG occupies 1/600 of the volume.

. Reduced volume and higher energy density from the cooling process makes it conducive to heavy-duty vehicles with high daily mileage requirements.

. LNG is a cryogenic fluid and must be kept at cold temperatures. This is achieved by storing it in double-walled, vacuum- insulated pressure vessels.

. LNG refuelling requires higher up-front investment as it is more capital intensive than CNG.

. LNG’s higher density means more energy is contained in the same volume relative to a CNG tank. The energy content remains the same once the substances return to atmospheric temperature and pressure but LNG enjoys a considerable storage advantage even once the adjustments for boil-off volume are made. Boil-off volume is space in the storage tank reserved for the small amounts of LNG that re-transition to gaseous form in the fuel tank. This gas can be utilised as fuel but only within a limited time frame of 5-7 days.

. LNG fuel tanks are typically mounted in the standard saddle position but other frame and cab locations can be used.

. There are two ways to deliver LNG to a refuelling station. It can be produced on-site with a liquefaction unit that is fed by a gas pipeline. In the majority of refuelling stations around the world LNG is delivered to the station via tanker truck. In either case, the LNG is stored onsite in special cryogenic storage tanks.

. To fuel vehicles, LNG is pumped into the vehicles much like other liquid fuels (although using more sophisticated fuelling equipment capable of withstanding the colder temperatures of LNG)

Liquefaction Options

Figure 4.8 LNG Refuelling Schematic: On-site Liquefaction

Source: NGV America

Figure 4.9 LNG Refuelling Schematic: Delivered LNG

Source: Encana

Refuelling

A typical LNG refuelling station consists of:

. A cryogenic storage tank for LNG

. A cryogenic submerged centrifugal pump skid for transferring the LNG

. Weights and measures certified dispensers for LNG, connected to a payment system

. LNG cooling system to deliver cold LNG and eliminate the risk of gas being released from the storage tank

. Gas and leak detection equipment

4.4.2. LNG Vehicles

LNG Vehicles only differ to CNG vehicle by the fuel storage systems.

The same natural gas engines are used but due to the different characteristics of the fuels, LNG vehicles tend to be more heavy duty and operate over larger distances. LNG Vehicles can be brought new or created by converting existing diesel/gasoline vehicles.

4.4.3. LNG Case Studies

Focus Areas Considerations

BOC Chinchilla Micro-LNG

. Up to 50 tonnes/ 70,000 DLE per day . AUD 200m cost over 15 years for feed gas, infrastructure and full supply chain costs

Westbury Micro-LNG . 50 tonne/ 70,000 DLE capacity . Australia’s first road transportation Micro-LNG project (2011) . AUD 150m investment . 40 jobs during construction . 15,400m2 area . 125 truck fleet serviced . 30m offtake pipe from the Tasmanian Gas Pipeline

ENN, Northamptonshire (UK) . ‘Plug and Play’ Micro-LNG refueling station . Unmanned system . 16 dual-fuel trucks serviced . Station includes 8 tonnes of cryogenic storage, dispenser, metering and billing systems. . Modular system gives flexible additions such as more storage and CNG refueling The fleet is owned by Whitbread, a food, beverage and hotel operator. 16-20% CO2 emission reductions are anticipated across their fleet.

4.5. Dual Fuel Vehicles

In addition to the LNG and CNG vehicles discussed above there are several hybrid variants available in the market. The alternative approach, known as dual fuel systems, retains the diesel fuel system to act as a liquid spark plug.

. Dual fuel trucks start on diesel fuel and continue to use a reduced amount of diesel fuel throughout their duty cycles. As the truck begins to pull a load, natural gas is injected along with the diesel fuel to propel the truck, significantly reducing the diesel used by the truck.

. Comparisons;

> Dual fuel systems are easier to install- the engine itself is virtually unaltered.

> Not as effective in reducing emissions and diesel consumption.

> Cylinder temperatures and pressures remain within the limits of pure diesel operation

> Tests have shown that the addition of Dual-Fuel components do not affect the base engine’s robustness or durability. The vehicle is easily converted back to diesel if circumstances required.

4.6. NGV Australian Market Penetration Versus The World

There are currently an estimated 22.3 million NGV’s globally with annual sales of over 2.5 million vehicles in 2014. Australia’s contribution to this figure is modest. Currently we account for roughly 0.02% of the world’s NGV fleet.

Table 4.1 Global NGV Uptake

Region/Country Existing Position Support Measures Outlook/Potential Australia . Modest Uptake . Alternative Fuels Excise Australia has abundant gas . ~3100 NGVs (~50% of Diesel but part resources and a large heavy of this advantage is lost vehicle fleet. There is . 45th in the world (17th OECD) due to fuel credits for significant potential but also a some vehicle types) need for a coordinated push

Europe . Italy is the standout with 850,000 . Italian alternative fuel The European Agency of vehicles, double the 2007 inventory. incentive (subsidy) Energy Regulators (ACER) This fleet is supported by almost averages ~AUD5000 forecasting model shows that 1000 refuelling stations. . Range of policies the potential for CNG in road . The market penetration rate in Italy elsewhere including tax transport could increase to 23.9 stands at 7% of new vehicle sales concessions and billion m³ and LNG in road transport 34.5 billion m³, . Germany ~96,000 NGVs; Bulgaria subsidies corresponding to 7.5% and ~61,000; Sweden ~44,000 20% of the final energy . Approximately 3000 refuelling consumption in transport stations in the rest of Europe respectively.

USA . More than 150,000 vehicles . Variety of state-based The US has significant . 72 public refuelling stations for LNG, incentives domestic gas reserves and 870 public CNG refuelling stations . Texas: NGV and Fuelling substantial private investment in the NGF sector has helped . Approximately 700 private refuelling Infrastructure Grants to build an extensive stations . California: Home refuelling infrastructure network. appliance subsidies, road tax exemptions NGV growth is expected to continue. 2014 NGV sales fell due to a decline in oil and gas exploration vehicle sales but heavy freight fleet sales grew. NGV production and sales exceeded 18,000 vehicles in 2014.

China and India . China has more than 2m NGVs with . Chinese policies included With an estimated number of sharp growth over the last few years subsidies for refueling vehicles over 200 million in . India has more than1.5m NGVs infrastructure. Smaller China and 100 million in India, policies also targeted even modest penetration in . India has only CNG private investment in percentage terms would be a . Over 7000 refuelling stations support NGVs huge addition to the global the Chinese NGV fleet . Judiciary-imposed NGV market. Dense population . India has over 700 CNG refueling mandate in India to use centres stand to substantially stations CNG buses benefit from the reduced GHG and particulate emissions of NGVs.

4.7. NGV Potential in Australia

4.7.1. Vehicle Use in Australia

The following section profiles Australian vehicle use, giving context for the fuel consumption that NGVs could potentially displace. A larger portion of this scenario assessment is focussed on the diesel fleet as this is the vehicle market that CORE identified as being more suitable for conversion to NGVs.

Globally, there are NGVs available for each of the vehicle types shown below although no NGV passenger vehicles are currently manufactured for the Australian market. The smaller size of the Australian vehicle market combined with moderate NGV uptake to date has not incentivised car manufacturers to produce passenger NGVs in Australia.

Table 4.2 Australia’s heavy vehicle fleet relative to other vehicle types | ‘000 Vehicles

NSW Vic Qld SA WA Tas NT ACT AUS Passenger vehicles 4,051 3,582 2,657 1,050 1,567 313 93 237 13,549 Light commercial 776 632 759 194 376 97 43 29 2,907 vehicles Light rigid trucks 46 31 35 7 17 3.2 0.6 1.0 141 Heavy rigid trucks 89 78 72 23 54 9 5 1.6 332 Articulated trucks 21 26 21 8.4 16 2 1.2 0.1 95 Non-freight carrying 2.9 6.4 5.6 1.9 5.1 1.0 0.4 0.1 23 vehicles Buses 25 20 21 5.6 15 2.7 3.9 1.0 95 Total motor vehicles1 5,247 4,567 3,771 1,348 2,185 450 155 284 18,008

. Australia has over half a million rigid and articulated trucks- a vehicle class that uses large volumes of fuel and has high mileage.

. There is an opportunity here for NGV to capitalise on the high fuel consumption and low payback time associated with this vehicle class.

1 Also includes Motorcycles and Campervans

Figure 4.10 Australia’s Heavy Transportation and Freight Fleet | Total Vehicles

200,000 LIGHT RIGID TRUCKS 175,000 HEAVY RIGID TRUCKS 150,000 ARTICULATED TRUCKS 125,000 BUSES 100,000 NON-FREIGHT CARRYING VEHICLES 75,000

50,000

25,000

0 NSW Vic Qld SA WA Tas NT ACT

. Australia’s light commercial fleet offers significant potential for NGV growth due to the large vehicle numbers.

. There are over three million LCVs in Australia, two-thirds of which are in Queensland, New South Wales and Victoria.

. Even a small percentage rate for conversion to NGV would see considerable growth in NGFs.

Figure 4.11 Australia’s Light Commercial Vehicle Fleet | Total Vehicles

900,000 LIGHT COMMERCIAL VEHICLES 800,000

700,000

600,000

500,000

400,000

300,000

200,000

100,000

0 NSW Vic Qld SA WA Tas NT ACT

Freight activity is concentrated on the Eastern seaboard (roughly 85%) but each population centre has a considerable level of road transportation based activity. This includes more local, ‘return to base’ delivery fleets and point to point freight operations.

The diesel usage of each state is shown in the following table along with the contributions of each vehicle type.

. New South Wales, Victoria and Queensland consume roughly the same volumes of diesel fuel for transport use.

. New South Wales holds 32.0% of the population but only consumes 23.4% of transport diesel.

. Queensland holds only 20.1% of the population but consumes 25.6% of the transport diesel volumes.

. South Australia has above average diesel consumption with 7.7% of the nation’s population consuming 7.2% of the nation’s transport diesel.

Table 4.3 Australian Diesel Usage by State and Vehicle Type | ML

NSW Vic Qld SA WA Tas NT ACT AUS LCVs 834 560 854 209 446 84 64 30 3081 Rigid Trucks 728 637 661 166 344 61 23 16 2636 Articulated trucks 807 1227 1084 410 784 63 66 6 4447 Non-freight carrying 10 28 23 2 8 1 1 0 73 trucks Buses 134 105 127 38 64 14 13 11 506 Total 2513 2557 2749 825 1646 223 167 63 10743

Figure 4.12 Australian Motor Vehicle Diesel Consumption: State Contribution and Vehicle Type Contribution

Tas NT ACT Non-freight Buses WA 2.1% 1.6% 0.6% carrying 5% 15.3% NSW trucks LCVs 23.4% 1% 29%

Articulated SA trucks 7.7% 41%

Vic 23.8% Qld 25.6% Rigid Trucks 24%

4.7.2. Increased Utilisation of Gas

Using the average annual fuel consumption of Australia’s vehicle fleet, CORE has calculated the potential volumes of natural gas that could be demanded. Currently there are no passenger NGVs available in Australia but this is not the case in many other countries such as Italy, Argentina and Iran. This category of vehicle is provided as an additional reference point in the analysis below.2

If 10% of Australia’s commercial diesel fleet (LCVs, Rigids and Articulated Trucks) converted or were replaced with NGVs then 41.4PJ of natural gas fuel would be required. The following figure and table shows the potential increased utilisation of Australian gas production given different substitution rates of the diesel and petrol fleet.

Table 4.4 Additional Potential Gas Demand As a Function of NGV Uptake | PJ, Annual

Vehicle Category 1% Conversion 5% Conversion 10% Conversion 15% Conversion Commercial Diesel Fleet 4.1 20.7 41.4 82.7 Total Diesel Fleet 5.1 25.3 50.6 101.1 Commercial Fleet 4.9 24.3 48.7 97.4 Total Fleet 11.0 55.1 110.3 220.5

2 Please note that a separate energy conversion rate was used for petrol volumes due to the lower calorific value relative to diesel. A conversion of 34.4MJ/L was used as opposed to 38.5 MJ/L for diesel.

Figure 4.13 Potential Added Gas Demand As a Function of NGV Uptake | PJ, Annual

180.0 Total Fleet Total Diesel Fleet 160.0 Commercial Diesel Fleet Commercial Fleet 140.0

120.0

100.0

80.0

60.0

40.0

20.0

0.0 1% Conversion 5% Conversion 10% Conversion 15% Conversion

4.7.3. Carbon Abatement and Emissions Reduction

4.7.3.1 Transport Sector and Diesel Fuel Contribution to GHG

Australia’s domestic transport sector accounts for a substantial part of liquid fuel use and GHG emissions.

. In the year to March 2015, transport accounted for 17.0% of Australia’s GHG emissions

. 70% of liquid fuel consumption occurred on Australia’s roads

. Over 43% of liquid fuel consumption in Australia is diesel.

Figure 4.14 Australian GHG Emissions | Mt CO2-e, Quarterly

200 Electricity Stationary Energy (excluding electricity) Transport Fugitive Emissions Industrial Processes and Product Use Agriculture Waste Land Use, Land Use Change and Forestry (LULUCF) 150

100

0 2009 2010 2011 2012 2013 2014 2015

Figure 4.15 Australian Consumption of Liquid Fuels | Gigalitres

70.0 Automotive gasoline Ethanol blended Diesel Aviation turbine fuel Liquid petroleum gas Fuel oil 60.0

50.0

40.0

30.0

20.0

10.0

0.0 2009 2010 2011 2012 2013 2014 2015

4.7.3.1 Potential GHG Reduction with NGVs

CORE has estimated the potential reductions in GHG emissions due to NGV growth given certain penetration rates in the vehicle fleet. To derive these estimates, CORE has assumed the following;

. 2.9kg of CO2-e produced per litre of diesel combusted; 2.7kg for unleaded petrol.

. Assumed reduction of 20% GHG when a DLE of natural gas is combusted rather than diesel or petrol.

. Annual diesel and petrol consumption has been taken from the ABS Vehicle Use Survey, released October 2015.

A 10% conversion rate in the Australian commercial diesel fleet would likely save over 620,000 tonnes of CO2-e annually. A lower 5% conversion rate in only the heavy diesel fleet would save over 220,000 tonnes.

Figure 4.16 Estimated GHG Reductions as a Function of Conversion Rates and Target Fleet | Tonnes of CO2-e

800000

700000 Heavy Diesel Fleet All Heavy Vehicles 600000 Commercial Diesel Fleet All Commercial Vehicles 500000

400000

300000

200000

100000

0 1% Conversion 5% Conversion 10% Conversion

In the first round of the ERF, the average price paid for a tonne of carbon abatement was AUD 13.50. Carbon pricing mechanisms are in a development stage and pricing has ranged from USD 1 to USD 168 per tonne of CO2. Generally, prices are in the range of USD 5-15. CORE believes there is upside potential in this pricing as emissions targets strengthen and demand for carbon abatement increases.

The carbon price is relevant for the NGF sector in two ways;

. It quantifies the social value that the emissions savings carry.

. It also shows the potential subsidy that NGV conversions could earn due to their reduced emissions.

This further incentivises a potential fleet owner. Governments faced with emissions targets could effectively buy this form of carbon abatement via a subsidy of NGV conversion.

Figure 4.17 Carbon Pricing Range up to 2014 | USD/t

Source: World Bank

4.7.3.1 Particulates

In 2012, the International Agency for Research on Cancer (IARC) (part of the World Health Organisation) classified diesel engine exhaust emissions as carcinogenic to humans. Particulate emissions have been linked to increased respiratory disorders also. The combustion of NGFs emits up to 90% less particulate matter although this gap is narrowing as emission controls become tighter and diesel vehicles are being fitted with more technology aimed at meeting these emission controls. Diesel fuel itself is becoming cleaner too with many nations mandating 10-15ppm maximum sulphur content as well as other restrictions.

4.8. Additional Application for NGFs

In addition to road transportation, NGFs have several other applications;

. LNG bunkering for marine vessels

. Locomotive fuel

. Remote/off-grid power generation.

Analysis presented in Section 5 shows that a substantial portion of the final NGF cost can be attributed to the infrastructure investment needed for liquefaction, compression and dispensing fuel. Accordingly, additional uses of NGFs become important to enable greater utilisation of refuelling infrastructure and reduce the cost per unit of fuel.

Integrated supply chains built around centralised production facilities reduce the investment risk and extend the benefits of NGF use. The following sections present additional applications for LNG and CNG as part of an integrated gas supply network.

4.8.1. Marine Transportation

4.8.1.1 Emerging Global Market

NGFs are gaining traction in the marine refuelling market due to stricter emission standards being introduced in key jurisdictions. Vessel owners are faced with the following alternatives to heavy fuel oil (“HFO”), combustion of which typically contravenes newer emissions standards;

Table 4.5 Options for Marine Vessels to Meet Stricter Emissions Standards

Refuelling Options Running Costs Capital Costs Increased due to installation of Retrofit Scrubbers, continue the use of HFO No change, continue running on HFO scrubbers Run on more expensive Marine Gas Oil (“MGO”) Increased due to more expensive MGO No change >1m conversion cost required to run Convert to LNG or dual-fuel system Reduced due to cheaper LNG on LNG

LNG is cheaper than HFO and MGO on an energy equivalence basis. The conversion cost for LNG is higher than retrofitting scrubbers for a cleaner burn of HFO but the running cost advantage is significant given the large volumes of fuel consumed by marine vessels.

The volumes of fuel required in shipping generally means that LNG is more viable than CNG. Usage is typically one of the following types;

> Localised shipping- along river networks or local coastline

> Hybrid/ dual fuel solutions- LNG can be used to power international vessels when transiting out of a particular jurisdiction with stricter emissions standards. Emissions standards for particular countries are typically stricter than standards in international waters.

. The investment required for NGF use in shipping is large (CORE understands that conversion costs are upwards of AUD 1m) and market penetration is slowed by the fact that a marine vessel generally has a life of 20-30 years meaning fleet turnover is gradual.

. Refuelling can occur several ways which changes the necessary infrastructure.

– Truck-to-ship bunkering can occur which does not require added infrastructure if existing liquefaction facilities are in place.

– For dedicated large scale LNG bunkering, the costs run into the tens and even hundreds of millions of dollars depending on the use of refuelling barges, storage capacity and makeshift docks/ refuelling jetties.

Figure 4.18 LNG Bunkering Possibilities

Source: Danish Maritime Authority

. Existing LNG bunkering facilities can be found throughout the North Sea and Baltic Sea. LNG refuelling infrastructure is currently being developed in South East Asia, the Middle East, Europe and United States.

. The momentum that is beginning to build in LNG refuelling is likely to increase. The more relaxed emissions zones should inevitably transition to the stricter standards already employed in some areas. LNG will also strengthen as a viable alternative when refuelling becomes more widely available.

4.8.1.2 State and National Prospects for LNG Bunkering

. LNG bunkering facilities are being developed in Singapore, Incheon and Busan which increases the likelihood that LNG fuelled vessels will eventually frequent Australian ports. There are existing NGF projects in the South Australian and interstate marine sectors;

> SeaRoad has purchased an LNG powered freight carrier for its Bass Strait voyages. This will be delivered in FY17 and will utilise LNG refuelling infrastructure at Westbury and Dandenong. The ship’s fuel units are detachable allowing for filling at the processing facility and subsequent delivery by truck.

> Adelaide Brighton Cement powers its vessel the Accolade II using CNG compressed at its Birkenhead site. CNG is typically not favoured for marine fuel due to the storage volume disadvantage but the Accolade II services a short (~45 nautical mile) route from Adelaide to a limestone quarry just south of Stansbury on the Yorke Peninsula.

Figure 4.19 Adelaide Brighton Cement’s Accolade II CNG Vessel

Source: Inco Ships

. In the short to medium term, South Australian ports are unlikely to have the shipping volume to support a LNG transportation project on a stand-alone basis but synergies with a road transportation project should be explored as the LNG bunkering market expands globally.

. The busiest South Australian port (by mass tonnes exported and imported) is Port Adelaide which accounts for only 1.3% of the national total.

. Five Australian ports handle over 90% of total exports and imports in Australia. These higher traffic ports that are more suited to an LNG infrastructure project are listed in the following table. The busiest container port is Port of Melbourne which handles 14.1% of total imports.

Table 4.6 Larger Australian Ports: Increased Ability to Support LNG Refuelling

Primary Cargo Total Annual Exports and Percentage Share of National Port Imports Export/Import Total Port Hedland, WA Iron ore ~290 million tonnes 48.7% Dampier, WA Iron ore ~180 million tonnes 16.0%

Newcastle, NSW Coal ~150 million tonnes 13.2%

Hay Point, Qld Coal ~100 million tonnes 8.6% Gladstone, Qld Coal, minerals, petroleum ~85 million tonnes 7.6% Port of Melbourne, Vic Container ~35 million tonnes 3.1%

Although South Australia’s ability to directly supply the LNG bunkering market is limited, this growth sector presents a unique opportunity to build a leading technical knowledge base. As the uptake for LNG bunkering increases, new technology will be required for engine conversions, fuel storage and fuel delivery systems. South Australia has a car manufacturing sector that needs a new direction as well as leading research institutions that could develop this technology.

With concentrated R&D programs, South Australia can leverage its existing human capital and manufacturing sector resources to design, engineer and innovate for this growth industry.

4.8.2. Locomotive Fuel

LNG can also be used in place of diesel in many locomotives. LNG is naturally suited to the stable power output and engine revolutions of a train engine.

. NGFs face an added storage disadvantage with rail transportation. To carry sufficient volumes of LNG, an additional tank car will have to be pulled which will displace a load car when trains run into length/ physical capacity limits. Dual-fuel locomotives offer a compromise but this technology is yet to see the same global uptake as in the road transport sector.

. There is potential for NGF use in locomotive engines but this would likely only be viable as part of an existing project that integrates other applications of LNG. A stand-alone liquefaction plant and refilling station would be a vast investment that rail volumes would struggle to recoup.

4.8.3. Stationary Fuel

LNG can be used in place of diesel and other fossil fuels for stationary power generation. This application is employed where power is required away from gas distribution networks and transmission pipelines. LNG can be supplied via truck to the on-site generator, a practice that is currently adopted in South Australia using APA’s liquefaction plant in Dandenong.

. Nestle has also pursued LNG for stationary energy in its coffee factory in Gympie. The plant uses 5 tonnes a day to power several boilers, roasters and air-dryers.

. In Karratha, Energy Developments has built an LNG liquefaction facility with a 200 tonnes per day capacity. LNG is then delivered (via CNG powered trucks) for power-generation in Broome, Derby, Halls Creek and remote communities across the Kimberley.

. EVOL LNG, a business unit started by Wesfarmers Kleenheat also produces LNG in WA and delivers it to off-grid generators. The Kwinana facility produces 175 tonnes per day and a fleet of cryogenic tankers supply mining operations throughout the Goldfields region.

Figure 4.20 Energy Development’s Karratha LNG Facility

Source: Energy Developments

4.8.4. Developing an Integrated NGF Supply Chain | Dandenong LNG

Existing NGF projects across Australia and abroad tend to offer refuelling across several different applications which spreads the investment cost for refuelling infrastructure across greater sales volumes. As shown in the case study in the next section, the Dandenong LNG spiking plant owned by APA Group is utilised for road transportation, stationary fuel and peak shaving in the Victorian Transmission System, and is expected to offer LNG bunkering in FY17.

Integrated LNG supply chains are also being pursued in several European cities. The following diagram shows there are several supply options across different scales of operation. The NGF industry tends to favour modularised infrastructure and supply units meaning that supply can expand readily and with minimal additional cost.

Figure 4.21 Typical LNG Supply Chain Integrated Several Applications

Source: Danish Maritime Authority

4.8.4.1 Case Study | Dandenong’s Emerging Integrated LNG Supply Chain

Integrated NGF Project Multi-Sector Applications

Dandenong LNG . Road Transportation ˃ Truck refuelling on-site at Dandenong or LNG trucked to Owned by APA Group, built 30 years satellite refuelling stations ago by BOC

. Stationary Fuel ˃ LNG transported by truck as far away as South Australia for industrial on-site power generation ˃ LNG trucked to Nestle in Gympie, QLD until the commissioning of Chinchilla Micro LNG

. LNG Bunkering

˃ SeaRoad LNG vessel due for operation in FY17 will require LNG bunkering at nearby Port Melbourne

. Distribution Network Peak Supply ˃ LNG is injected into the Victorian Transmission System during periods of peak demand.

. Interstate Supply Chain ˃ Truck refuelling and LNG bunkering available in Tasmania due to the Westbury plant and satellite refueling infrastructure ˃ Development of an ‘LNG’ Highway to allow refueling between Melbourne and Queensland where there is an existing Micro-LNG plant at Chinchilla.

Photo Sources: SeaRoad; Queensland Mining & Energy Bulletin; Pipeliner

A considerable barrier to NGV growth in Australia has been the availability of infrastructure, namely refuelling infrastructure. Currently there are only 62 refuelling stations for NGVs in Australia, with only a handful of these offering refuelling to the public. Individual vehicle owner and fleet owners are disincentivised by the lack of available refuelling infrastructure despite the running cost advantages of CNG and LNG. The private cost of conversion is analysed below in section 6 relative to CORE’s relative price projections. This section focuses on the upfront capital investment required for vehicle refuelling.

CORE has relied on several sources in identifying the investment levels required for typical CNG and LNG projects;

. Industry consultation

. Case studies of NGV projects both domestically and abroad

. CORE proprietary models and databases

The analysis reinforced that the scale of the NGV project is a significant factor in determining the delivered price of CNG and LNG fuel. The capex and opex components are considerably lower for larger scale refuelling projects as capital costs are spread over greater volumes. This reinforces the advantages of a larger scale uptake of NGVs. The benefits increase with greater consumer uptake which gives rise to a crowding in effect whereby the benefits to each NGV owner increase as more consumers adopt the technology.

The following analysis assumes that refuelling infrastructure operates close to capacity in terms of the volume of fuel produced. Accordingly, the results below should be interpreted as the approximate cost per DLE that refuelling investment requires in order for the investor to be recouped. The assumption that refuelling infrastructure operates close to capacity simulates what would occur in a mature market supported by a sufficient number of NGVs.

The operational costs and some capital costs for CNG and LNG refuelling would likely be lower than the estimates below if refuelling can be incorporated as part of existing service stations, as Caltex has done in its Tullamarine Star Mart station. Unlike a stand-alone refuelling station, this would enable costs to spread across diesel and petrol sales.

5.1. CNG Infrastructure Cost Analysis

The range of capital and operational costs for a CNG refuelling station are presented below. They have been converted back to a cents/DLE equivalent cost based on the typical nameplate refuelling capacity of the infrastructure. For CNG, two projects were considered- a larger public filling station and a smaller station for an individual fleet. The numbers shown in the figure below take the low and the high cost estimates produced from the two CNG projects.

. Large filling station

> Two compressors, producing approximately 6700DLE per day.

> ~1650DLE of storage

> Two fast-fill dispensers

> Receiving gas at a minimum of distribution system pressure (~30psi)

> Assumed capital and installation costs of AUD 2.5m.

> Useful life of the capital is assumed to be 25 years

> Operating costs including utilities, maintenance and staffing of AUD 1m per annum.

. Medium Sized Public Station / Large Private Filling Station

> Two compressors, producing approximately 3800DLE per day (This would fill 350-400 LCVS and 100-150 Rigids)

> ~1650DLE of storage

> Two fast-fill dispensers

> Receiving gas at a minimum of distribution system pressure (~30psi)

> Assumed capital and installation costs of AUD 1m.

> Useful life of the capital is assumed to be 25 years

> Operating costs including utilities, maintenance and staffing of AUD 0.5m per annum.

Discounted cash flow analysis, assuming a required return of 10% was used to derive the capital and operational costs of these refuelling projects. These are presented as a range below and are consistent with the typical cost estimates of existing projects in Australia. The numbers derived assume a high degree of utilisation for the capital but presumably a fleet owner with a private refuelling station would not refuel elsewhere. It also parallels the cost basis seen in the US where there are over 150,000 NGV vehicles and 1500 refuelling stations.

Figure 5.1 Estimated Investment for CNG Refuelling Infrastructure | AUD/DLE

0.60 Low Estimate High Estimate 0.50

0.40

0.30

0.20

0.10

0.00 Estimated Capital Costs Estimated Operational Costs

5.2. LNG Infrastructure Cost Analysis

The range of capital and operational costs for LNG refuelling stations are presented below. They have been converted back to a cents/DLE equivalent cost based on the typical nameplate refuelling capacity of the infrastructure. For LNG, two projects were considered- a larger public filling station and a smaller station for an individual fleet. Please note that the volumes for an LNG refuelling station are larger which enables the cost to be spread across greater sales units. However the capital costs associated with cryogenic storage and liquefaction are higher. Running costs to power the liquefaction process and service the more sophisticated capital are generally higher also.

. Large filling station

> One liquefaction train capable of 70,000 DLE per day

> CO2 absorption unit, dehydration plant, loading facility.

> 250 tonnes of storage

> Two dispensers

> Receiving gas at minimum of distribution system pressure (~30psi)

> Assumed capital and installation costs of AUD 60m.

> Useful life of the capital is assumed to be 25 years

> Operating costs of 2.5m annually- includes the large amount of power needed for liquefaction, staffing and maintenance.

. Smaller/Private Filling Station

> One liquefaction train capable of ~30,000 DLE per day

> CO2 absorption unit, dehydration plant, loading facility.

> 150 tonnes of storage

> One dispenser

> Receiving gas at minimum of distribution system pressure (~30psi)

> Assumed capital and installation costs of AUD 30m.

> Useful life of the capital is assumed to be 25 years

> Operating costs of 2.0m annually- includes the large amount of power needed for liquefaction, staffing and maintenance.

Figure 5.2 Estimated Investment for LNG Refuelling Infrastructure | AUD/DLE

0.60 Low Estimate High Estimate 0.50

0.40

0.30

0.20

0.10

0.00 Estimated Capital Costs Estimated Operational Costs

5.3. Investment Sources

As a result of identifying the advantages of NGV use over diesel substitutes, CORE believes there are several potential avenues for contribution to the cost of refuelling infrastructure or mechanisms that alleviate the cost of capital, particularly for an initial pilot program or highly focussed small-scale project:

. Carbon abatement programs such as the Emissions Reduction Fund (“ERF”)

. State and federal funds created to minimise structural unemployment in the automotive manufacturing sector. This includes the Australian Government’s AUD 155m Growth Fund.

. Larger industry stakeholders who stand to benefit from large uptake in the use of NGVs in Australia.

. Smaller businesses involved in NGV conversion or infrastructure installation who stand to receive a high volume of trade as a result of a pilot program (and longer term via a significant uptake of NGV vehicles in Australia.

. Concessions via policy whether it be through subsidy, rebate or tax concessions (e.g. LPG conversion subsidy)

. Philanthropic contributions from individuals or corporate entities attracted by the GHG emissions savings and health benefits from reduced particulates

6.1. Introduction

To assess the viability of NGFs in transportation, CNG prices and LNG fuel prices were compared to the market dominant, diesel. 96.2% of heavy vehicles run on diesel in Australia (62.9% if you include light commercial vehicles).

A bottom up approach was employed to derive medium and long term price projections. With the introduction of LNG exports in the Eastern Australia gas market, wholesale gas prices are transitioning to LNG netback prices which generally feature an oil price linkage in the pricing mechanisms. Similarly, CORE research and analysis has shown that the Australian diesel price is highly correlated to the Dated Brent spot price.

A projection of Dated Brent prices was then used as the foundation of each price projection.

6.1.1. Dated Brent Price Projection

The Dated Brent oil spot price is the primary reference for oil prices in the Asian region. It took over from the role played by Tapis Crude when production from major crude fields in Asia declined. Refiners in the region have since priced crude and other petroleum products according to the Dated Brent price.

6.1.1.1 Historical Crude Prices

Dated Brent is experiencing a period of low prices as shown in Figure 6.1 below. After 5 years of stable prices around USD 110/bbl, Dated Brent has predominantly been trading between USD 40/bbl and USD 60/bbl since late 2014. The significant drivers of this include;

. OPEC production which has not responded to falling prices as member nations fail to agree on coordinated production reductions

. Weaker outlook for global economic growth particularly in India and China which appear to be transitioning to steadier levels of growth relative to the rapid expansions seen in previous years.

. Debt concerns for US shale oil producers (higher marginal cost producers) have subsided, helped in part by equity issuance.

Figure 6.1 Historical Crude Prices and Diesel TGPs

200 National Average TGP (AUD cents/L) Dated Brent | AUD/bbl

150

100

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

6.1.1.1 Projected Crude Scenarios

For the purpose of this engagement CORE has developed three Dated Brent Oil price scenarios for the period 2015 to 2040. The projected scenarios have been constructed according to the anticipated trend in the following drivers to 2040.

Market Segment Driver Oil Demand . Global population growth . Long term trends in energy demand, energy mix and energy intensity . Sources of global economic growth . Sectoral change in OECD and Developing Economies Oil Supply & Cost . OPEC responsiveness to price changes . Impact of US shale oil producers . Marginal cost curve of global production- supply types that are economically viable at different price points . Oil production technology and methods- technological breakthroughs influencing output and production costs Technology & Substitution . Trends in energy efficiency particularly in the transport sector and power generation sector . Aircraft fuel efficiency . Shipping fuel efficiency . Global population density and urban sprawl- mass transit growth Energy Policy . Emissions and energy efficiency policy- incentives created for finding and implementing efficiency gains . Subsidisation of fuel consumption (particularly Middle East and North Africa) Geopolitical Issues . Production levels susceptible to conflict and sanctions- relative to historical average

Figure 6.2 Dated Brent Price Projections | USD/bbl

140 Historical Low Scenario 120 Reference Scenario High Scenario 100

0 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040

Table 6.1 Dated Brent Price Projections | USD/bbl

2015 2020 2025 2030 2035 2040 Low Scenario 50.00 55.50 47.50 46.50 47.50 47.50 Reference Scenario 50.00 66.00 70.00 70.00 70.00 70.00 High Scenario 50.00 91.60 89.20 88.00 88.00 88.00

6.2. Projected CNG Price

For CNG, the final retail price is made up of the following components;

. Delivered wholesale gas price

> The ex-field price of natural gas, transmission costs, distribution costs (if the refuelling station is not able to take directly from a transmission pipeline)

> Oil-price linkage based on the pricing mechanisms adopted by LNG export contracts

. Capital infrastructure associated with refuelling

> Compression, dispensers and minimal storage

. Operational costs for a refuelling station

> Running costs such as utilities, wages and maintenance costs

. Excise & GST

As described in section 6, CORE has used industry consultation and discounted cash flow analysis to estimate the cents per DLE required to recover the capital investment and operational costs associated with a CNG refuelling station.

There are different costs associated with the delivered wholesale price depending on whether the refuelling station can receive gas directly from a transmission pipeline or must incur distribution network costs also. Receiving gas from a transmission pipeline, at greater pressure, will reduce compression costs also.

There is some variance in the wholesale delivered price of gas in Australian cities. This can be attributed to different production costs in each supply basin and the transmission costs involved with transporting gas from the producing basin to the demand centre. For the purpose of this analysis, CORE has used a national average wholesale gas price and typical distribution costs for industrial gas supply in eastern Australia. There are minor price differences which should be factored into specific price comparisons and payback analysis.

Given a reference oil price scenario and the cost components listed in table 6.2, CORE estimates that a refuelling station could supply a DLE of CNG at between AUD 1.08 and AUD 1.13 per DLE depending on whether wholesale gas is supplied via distribution network or directly via offtake from a transmission pipeline. A larger scale public refuelling station that does not share costs with refuelling for other transport fuels (i.e. a stand-alone public CNG refuelling station) would likely supply fuel at an increased cost of 10 cents per DLE.

Figure 6.3 CNG Cost Components (Refuelling Station with Distributed Wholesale Gas)

1.40 Distribution Cost Transmission Cost GST Excise Capex & Opex Recovery Wholesale Gas Price 1.20

1.00

0.80

0.60

0.40

0.20

0.00 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039

Figure 6.4 CNG Cost Components (Refuelling Station with Direct Wholesale Gas)

1.40 Transmission Cost GST Excise Capex & Opex Recovery Wholesale Gas Price 1.20

1.00

0.80

0.60

0.40

0.20

0.00 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039

Table 6.2 CNG Cost Components in a Reference Oil Price Scenario | AUD, real

Component Unit 2015 2020 2025 2030 2035 2040 Wholesale Contract AUD/GJ 5.50 5.96 6.32 6.32 6.32 6.32 Price Transmission Cost AUD/GJ 1.00 1.00 1.00 1.00 1.00 1.00 Distribution Cost AUD/GJ 1.00 1.00 1.00 1.00 1.00 1.00 Excise AUD/kg 0.268 0.268 0.268 0.268 0.268 0.268 CAPEX & OPEX AUD/DLE 0.54 0.54 0.54 0.54 0.54 0.54 Recovery Total Retail Price | AUD/DLE 1.13 1.11 1.13 1.13 1.13 1.13 Distributed (incl. GST) Total Retail Price | AUD/DLE 1.08 1.07 1.09 1.09 1.09 1.09 Direct (incl. GST)

6.3. Projected LNG Price

The upfront investment required for an LNG refuelling station is higher than a CNG equivalent. The liquefaction process requires more sophisticated capital and higher running costs. However, the greater energy density of LNG also makes it more suited to longer distance transportation meaning the volumes associated with LNG refuelling stations are higher but the capital and operational costs are greater also.

For LNG, the final retail price is made up of the following components;

. Delivered wholesale gas price

> The ex-field price of natural gas, transmission costs, distribution costs (if the refuelling station is not able to take directly from a transmission pipeline)

> Oil-price linkage based on the pricing mechanisms adopted by LNG export contracts

. Capital infrastructure associated with refuelling

> Liquefaction, dispensers and cryogenic storage

. Operational costs for a refuelling station

> Running costs such as utilities, wages and maintenance costs

. Excise & GST

As per CNG price projections, CORE has used industry consultation and discounted cash flow analysis to estimate the cents per DLE required to recover the capital investment and operational costs associated with a LNG refuelling station. One small and one large refuelling project are described below which shows there is considerable economies of scale achieved for larger volume projects.

Please note there are different costs associated with the delivered wholesale price depending on whether the refuelling station can receive gas directly from a transmission pipeline or must incur distribution network costs also.

The variance in the wholesale delivered price of gas in Australian cities, described in the CNG section above, will also apply to LNG costs.

Given a reference oil price scenario and the cost components listed in table 6.3, CORE estimates that a refuelling station could supply a DLE of CNG at between AUD 1.05 and AUD 1.09 per DLE depending on whether wholesale gas is supplied via distribution network or directly via offtake from a transmission pipeline. A smaller scale operation would likely supply fuel at an increased cost of 15 cents per DLE.

Figure 6.5 LNG Cost Components (Refuelling Station with Distributed Wholesale Gas)

1.40 Distribution Cost Transmission Cost GST Excise Capex & Opex Recovery Wholesale Gas Price 1.20

1.00

0.80

0.60

0.40

0.20

0.00 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039

Figure 6.6 LNG Cost Components (Refuelling Station with Direct Wholesale Gas)

1.40 Transmission Cost GST Excise Capex & Opex Recovery Wholesale Gas Price 1.20

1.00

0.80

0.60

0.40

0.20

0.00 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039

Table 6.3 LNG Cost Components | AUD, real

Component Unit 2015 2020 2025 2030 2035 2040 Wholesale Contract AUD/GJ 5.50 5.96 6.32 6.32 6.32 6.32 Price Transmission Cost AUD/GJ 1.00 1.00 1.00 1.00 1.00 1.00 Distribution Cost AUD/GJ 1.00 1.00 1.00 1.00 1.00 1.00 Excise AUD/kg 0.268 0.268 0.268 0.268 0.268 0.268 CAPEX & OPEX AUD/DLE 0.51 0.51 0.51 0.51 0.51 0.51 Recovery Total Retail Price | AUD/DLE 1.09 1.07 1.04 1.04 1.04 1.04 Distributed (incl. GST) Total Retail Price | AUD/DLE 1.05 1.03 1.00 1.00 1.00 1.00 Direct (incl. GST)

6.4. Projected Diesel Price

Diesel is the market dominant fuel for transportation in Australia. A major driver for NGV uptake is the relative price of diesel as price fluctuations change the time and mileage required for a vehicle owner to break even on the conversion cost or vehicle premium. The components of diesel prices in Australia are as follows;

. Commodity Price

> Platt’s Singapore Gasoil (10ppm) Price Index

. Freight

> Shipping Costs from Singapore to Australia (WorldScale shipping rates)

. Excise & GST

. Wholesale Margin

. Retail Margin

Figure 6.7 Relationship between TGPs and the Dated Brent Oil Price

2.5 Ratio TGP to Brent 2.3 Ratio of TGP to Brent (excise removed) 2.1 1.9 1.7 1.5 1.3 1.1 0.9 0.7 0.5 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

CORE has analysed the historical relationships between Dated Brent and Australian wholesale diesel prices as well as the relationship between retail prices and wholesale prices.

. The commodity price of diesel is represented by the Terminal Gate Price (“TGP”) which is the spot price that bulk volumes of product are sold at Australian fuel terminals.

. There is a long term average ratio of Australian Diesel TGPs to the Dated Brent Oil Price, as shown above in Figure 6.7

The terminal gate price is made up of freight costs to transport diesel oil from Singapore to Australia and the Singapore Gasoil 10ppm benchmark which in turn is priced according to the Dated Brent price plus a refining margin. The ratio is currently higher than the long term average and CORE understands this is being caused by a short term refining shortage in the Asian region. The projected diesel price assumes that this ratio will transition back to its lower average by 2017.

Figure 6.8 Relationship between Australian diesel TGPs and retail prices

180.0 Average Retail Diesel Prices Average TGP Diesel Prices 160.0

140.0

120.0

100.0 2007 2008 2009 2010 2011 2012 2013 2014

The separate components of the diesel price projections are shown in the figure and tables below.

CORE expects diesel prices to climb above AUD 1.40/ L by 2023 as world crude prices return to medium term sustainable levels.

Figure 6.9 Diesel Cost Components | AUD, real

1.80 Singapore Gasoil 10ppm, Delivered to AUS Wholesale Margin Retail Margin Excise GST 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039

Table 6.4 Diesel Cost Breakdown in a Reference Oil Price Scenario | AUD, real

Component Unit 2015 2020 2025 2030 2035 2040 Dated Brent Price AUD/bbl 50.00 66.00 70.00 70.00 70.00 70.00 (Reference Scenario) TGP Price AUD/L 1.05 1.13 1.17 1.17 1.17 1.17 Wholesale Margin AUD/L 0.05 0.06 0.06 0.06 0.06 0.06 Retail Margin AUD/L 0.06 0.06 0.06 0.06 0.06 0.06 Total Retail Price AUD/L 1.28 1.36 1.42 1.42 1.42 1.42

It should also be noted that there is some variance in the wholesale and retail price of diesel between Australian cities. This can be attributed to different levels of competition and different freight costs. For the purpose of this analysis, CORE has used a national average TGP and retail margin. The figure below shows that there are minor price differences which should be factored into price comparisons and payback analysis.

Figure 6.10 Ratio of Capital City Diesel TGP price to the National Average

1.06

1.04

1.02

1.00

0.98

0.96 Sydney Melbourne Brisbane Adelaide Perth Darwin Hobart 0.94 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Figure 6.11 Variance in Retail (Pump) Prices Across Australian States

175.00

165.00

155.00

145.00

135.00 NSW VIC QLD SA 125.00 WA NT TAS 115.00 2007 2008 2009 2010 2011 2012 2013

6.5. Price Comparison

6.5.1. Oil Price Responsiveness

The previous sections reveal that NGV running costs are cheaper on a DLE basis. The responsiveness of each fuel to world crude prices is an important factor as NGFs do not increase in price as steeply as diesel when oil prices rise.

. Approximately 50% of the diesel price comes directly from the world oil price.

. CORE understand that current medium and longer term wholesale gas contracts are structured around a 7% linkage to the world price of oil per barrel.

. This means that oil price increases (as anticipated by CORE in the reference or most likely scenario) will increase the running cost advantages enjoyed by NGV owners.

Figure 6.12 Relative Fuel Prices | Low Oil Scenario

1.90 Diesel CNG Direct CNG Distributed LNG Direct LNG Distributed 1.70

1.50

1.30

1.10

0.90 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039

Figure 6.13 Relative Fuel Prices | Reference Oil Scenario

1.90 Diesel CNG Direct CNG Distributed LNG Direct LNG Distributed 1.70

1.50

1.30

1.10

0.90 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039

Figure 6.14 Relative Fuel Prices | High Oil Scenario

1.90 Diesel CNG Direct CNG Distributed LNG Direct LNG Distributed 1.70

1.50

1.30

1.10

0.90 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039

6.5.2. Economic Payback for Individual Vehicle and Fleet Owners

The price advantage of CNG and LNG has been established in the previous sections. There are additional factors which adjust the ultimate economic payback to a vehicle or fleet owner and these factors are presented in this section.

. Costs of conversion

. Engine mileage and mechanical reliability

. Fuel tax credits and road user charges

> As of August 2015, any commercial vehicle with a GVM over 4.5 tonnes receives 13.06 cents back for every litre of diesel consumption on public roads. For stationary use and private-road usage, the entire diesel excise is credited (39 cents). The 13.06 cent credit means that commercial diesel users pay only the road user charge. On an energy equivalency basis, the price advantage of NGFs becomes eroded.

CORE research and industry consultation has led to the following estimated costs for vehicle conversions and the price premium for a new NGV vehicle:

Table 6.5 NGV Vehicle Conversion/Price Premium | AUD

Vehicle Type Indicative CNG vehicle/conversion premium LCV 8500 Rigid Truck (light 7) 11000 Rigid Truck (mid-size 14) 23000 Rigid Truck (heavy 26t) 36000 Prime Mover (350hp) 40000 Prime Mover (Dual-fuel 500hp) 40000 Bus 150000

Using the assumed investment required by a vehicle owner shown in table 6.5, the average years taken for payback is shown below according to each vehicle type. This has been calculated using the average annual fuel consumption of each vehicle type in Australia.

. It is estimated that heavy duty vehicles conversions will recoup their investment in 2-3 years when diesel prices rebound to AUD 1.42/litre as shown in figure 6.16.

. The CNG payback times are longer because CNG is more suitable to smaller vehicles that have lower average annual fuel usage.

. The average fuel consumption for mid-size and heavier rigid trucks is likely to be higher than listed above. Unfortunately the available data does not provide separate estimates for different classes of rigid trucks in Australia. Accordingly, CORE believes the payback times for these vehicles would be lower than the estimates shown below.

The payback times are for average fuel consumption. The higher consuming portions of the vehicle market would experience lower payback times.

Figure 6.15 Estimated Years for the Average CNG Vehicle to Break Even3

22 Years to Break Even 20 18 16 14 12 10 8 6 4 2 0 LCV Rigid Truck (light 7) Rigid Truck (mid-size 14) Rigid Truck (heavy 26t)

3 Assumes CORE’s projected long term diesel price of AUD 1.42/DLE and a CNG price of AUD 1.09/DLE. Please note that businesses may be eligible to claim back in the range of 13 cents per litre of diesel and this would increase the payback time.

Figure 6.16 Estimated Years for the Average LNG Vehicle to Break Even4

18 Years to Break Even 16 14 12 10 8 6 4 2 0 Rigid Truck (light 7) Rigid Truck (mid-size Rigid Truck (heavy 26t) Prime Mover (350hp) Prime Mover (Dual-fuel 14) 500hp)

4 Assumes CORE’s projected long term diesel price of AUD 1.42/DLE and a LNG price of AUD 1.05/DLE. Please note that businesses may be eligible to claim back in the range of 13 cents per litre of diesel and this would increase the payback time.

7.1. Major Risk Factors

CORE believes the following sources have the greatest potential to impact the uptake of NGVs in Australia.

. Reputable, affordable and reliable engine technology

> Diesel combustion technology is developed, proven and trusted by Australian consumers. Natural gas is an inferior lubricant compared to diesel, giving it a natural engine wear disadvantage. Historical R&D levels are much greater for diesel engines but CORE believes that gaseous fuel technology is approaching the reliability of diesel technology due to sufficient NGV growth internationally.

> There is the opportunity for an Australian R&D program to develop a heavy-duty larger capacity gas-powered combustion engine for use in heavy freight and mining vehicles.

. Wholesale commodity prices- Australian gas production and world oil production

> The relative price of diesel to gaseous fuels is a critical factor for vehicle owners when assessing economic viability of conversion to NGVs

> As noted previously, the diesel price is more responsive to world oil prices but it should be noted that the wholesale cost of gas is experiencing an increase as the industry transitions to LNG netback pricing. It should be noted that CORE’s projections feature its best estimates of the wholesale gas price increase and the running cost advantages of NGVs still prevail.

> There is greater upside potential in the price of diesel than the price of natural gas

. Adequate refuelling infrastructure

> Larger NGV growth requires wholesale public uptake, something which is unlikely to occur unless refuelling can occur with the similar convenience to petrol and diesel filling stations.

. Supportive Energy Policy

> The extensive range of energy policy will significantly shape the growth of NGVs in Australia. The running cost advantages must be preserved by excise and taxation regimes. Furthermore there is considerable potential for climate change policy to shape the advantages of NGVs.

7.2. Additional Emerging Fuel Sources

. Biodiesel

> Biodiesel shares similar environmental benefits to NGFs and Australia has over 126ML of installed production capacity and a further 90ML of mothballed capacity.

> Biodiesel has conversion advantages. Most diesel engines will run on biodiesel blends without the need for any conversion. Some vehicles require minor changes to fuel systems or fuel lines (one such situation is extreme cold climates where biodiesel can freeze).

> Late-model diesel engines are compatible with even high biodiesel engines while as some of the most recent diesel engines will need minor conversions due to the new inclusions of post-valve fuel injection which can be used to burn off particulate residue

> NGFs are produced from abundant gas reserves when compared to the more limited and uncertain organic bi- product volumes that are used to make biodiesel.

. Electric Vehicles

> Electric vehicles (“EVs) are being developed at an extremely fast rate. Over 300,000 new registrations were made globally in 2014 taking the total to roughly 750,000 vehicles. A third of these vehicles are in the US.

> Electric vehicles are restricted by the limits of battery storage however.

> Urban commuting and low-distance vehicle use are well suited to EVs but longer distance transport and freight are not suited by this option.

> NGV emission advantages are guaranteed while as EV emission reductions are still a function of a nation’s electricity generation which at the moment still includes larger quantities of coal in many nations.

The NGF sector is both innovative and environmentally friendly. The advantages and potential of the NGF sector have been identified by governments elsewhere;

. The current Queensland Government announced last December that the Queensland NGF industry will have access to a ’Strong Choices Innovation Fund’ which has put aside AUD 500m for job creation and the development of fuels and energy sources.

. Previous South Australian Governments evaluating strategies for road transportation.5

8.1. South Australian Economy

The following sections highlight that implementing a successful NGF sector is overdue and that growth in this area complements or furthers the success in other key areas, while providing opportunities in underperforming parts of the economy.

. Increased Gas Demand/Utilisation

> South Australia stands to benefit from NGV growth as increased utilisation of natural gas will strengthen the economics behind Cooper Basin gas production, particularly if that utilisation occurs in South Australia. As a state it will also reduce the domestic and foreign importation of diesel.

. State Economic Output & Efficiency

> Spending on transport fuel is a reality of most small businesses and larger industrials in South Australia. If gaseous fuels sourced from the Cooper Basin were used instead, that spending is captured as state output. Every litre of diesel that the state does not have to import from a domestic refinery or an internationally sourced barrel of crude will be a direct increase to Gross State Product.

> Due to the economies of scale and crowding –in effect enjoyed by the NGV market, there is an opportunity to give South Australian businesses a considerable efficiency advantage. If gaseous fuels infrastructure is conveniently located and the price advantages prevail, it gives South Australian businesses a considerable advantage with savings on transportation related running costs.

. Unique Opportunity for a Weak Manufacturing Sector

> CORE believes there is an existing gap in the NGV market that South Australia’s mature car manufacturing sector has the ability to capture. Australian road trains require large capacity engines (typically 15L) which are less important than other countries that utilise 12-13L engines. There is the opportunity for the state to leverage a world class human capital and infrastructure base, lead a targeted R&D program and fill this gap in the NGV market.

> A heavy duty, large capacity gas-powered engine has applications in the Australian transport sector and mining operations all over the world. This is an opportunity for a deteriorating sector that is desperate for a new focus and jobs.

. Services Sector & State Image

> The South Australian tourism industry has long been built around pristine regions with high quality food and beverage. NGV growth contributes to the overall image of the state as innovative and pristine. Contemporary media is highly responsive to carbon abatement and climate change initiatives. If South Australia can instigate considerable

5 South Australian Department of Transport and Infrastructure, South Australia’s Low Emission Vehicle Strategy 2012-2016.

growth in the NGF sector as part of achieving one of the smallest carbon footprints in the OECD, there is added interest and publicity for the state. This would translate into added visitors and a certain element of State pride.

At one stage, South Australia was on the frontier of NGV technology with the world’s first CNG bus fleets. CORE believes that NGV growth could again be pursued without heavy reliance on government funding.

8.2. South Australian Energy Mix

The state has emerged as a national leader in selected alternative energy sources. This is an achievement which South Australia can extend with the NGF transportation sector.

. SA has the largest installed capacity of wind generation in Australia and 33% of the state’s generation came from wind energy in FY2014. This is one of the leading wind generation statistics in the world.

. SA has 15% of the national rooftop solar PV capacity which supplied 18% of the NEM’s rooftop PV generation in FY2014. This is a considerable achievement given that South Australia’s total generation only accounts for 6% of the NEM.

Equivalent inroads stand to be made in the transportation sector with NGVs.

The State should seek to leverage its considerable gas reserves and parallel the notable progress it has made with solar and wind power.

Figure 8.1 South Australian FY2015 Electricity Generation Mix | GWh

5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Gas Wind Coal Rooftop PV Other

8.3. GHG Emissions in South Australia and Contributions from Transport

South Australia has typically contributed 5% of Australia’s GHG emissions. Transport related GHG emissions grew by 13.0% between 2003 and the end of 2013. Emissions from all other sources fell by 10.9% such that transport’s share of emissions grew from 20.1% to 24.2%.

NGV growth presents an opportunity to directly target a significant and growing contributor to state GHG emissions.

Figure 8.2 Contribution of Transport to South Australia’s GHG Emissions | Mt CO2-e, Annual

40 Transport Emissions Other Emissions 35 30 25 20 15 10 5 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Table 8.1 The Contribution of Transport to South Australian GHG Emissions

Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Transport GHG Emissions | 5.9 6.0 6.0 6.0 6.1 6.2 6.2 6.3 6.6 6.6 6.6 Mt CO2-e Total GHG Emissions | 29.1 29.9 29.9 34.1 32.4 32.4 32.1 29.8 28.2 29 27.4 Mt CO2-e Transport’s Share of Emissions | 20.1 20.0 19.9 17.6 18.8 19.1 19.3 21.2 23.5 22.6 24.2 %

9.1. The Key Issues Associated With Pursuing NGF Growth

NGFs present an opportunity with large upside potential and moderate upfront investment.

. In the current oil price environment running cost advantages are currently low, payback times are high

> The arguments for pursuing gaseous fuels for transportation in Australia and particularly South Australia are compelling but the current price climate favours diesel. For individual vehicle owners and fleet owners alike, the economic argument shifts in favour of NGVs as oil prices rebound.

. Australia should position itself to utilise indigenous resources and to manage any future oil price recoveries

> CORE believes there is significant benefit in substituting the consumption of foreign diesel for domestically sourced natural gas. It reduces energy security risk associated with supply interruptions.

> Production of Cooper basin gas will also optimise wholesale cost and retail cost across the full value chain

> A cheaper energy source in the freight sector can increase efficiency economy-wide and raise the competitiveness of Australian goods. A favourable movement in the Balance of Payments would also be achieved.

> Current NGV uptake is not high enough to help overcome the lack of infrastructure. Action is needed to instigate a coordinated push towards putting in place the necessary refuelling infrastructure.

> Recent projects involving ActewAGL, Toll Holdings, AGL and Caltex in the eastern states are promising and have prevailed despite depressed oil prices.

. Energy security will be enhanced by replacing imports

. Health and environmental advantages cannot be overlooked

> When compared to their diesel substitute, there are considerable reductions in GHG emissions associated with the use of NGVs.

> Furthermore, the particulate and noise emissions associated with diesel use are avoided. The adverse effects on health caused by particulate emissions are well-founded and presenting a major concern even in the relatively cleaner Australian air.

. R&D deficits need to be overcome but this barrier is an opportunity for a weak manufacturing sector

> Further development of internal combustion engine technology for gas-fired engines is required before the reliability and affordability closes the gap to petrol/diesel engines.

> CORE anticipates this gap to narrow in the short and medium term as international NGV growth incentivises the R&D budgets of global powerhouse vehicle manufacturers.

> South Australia is well positioned to help narrow this gap. A targeted, niche R&D program would require new jobs and the deployment of existing human and physical capital.

> CORE has identified (as verified via industry consultation) that there are existing gaps which need attention.

9.2. Next Steps

CORE recommends the following action in order to promote NGF growth and ensure the right actions are implemented such that the state and nation can capitalise on the advantages described.

CORE recommends that a multidisciplinary team is established with an appropriate budget to develop a practical implementation plan for review and approval within six months.

. Address Department of Planning, Transport and Infrastructure position with respect to CNG for buses

. Stakeholder engagement must be incorporated into the decision making process and there is considerable potential to alleviate the initial capital requirements through the following avenues:

> Smaller businesses involved in NGV conversion or infrastructure who stand to receive a high volume of trade as a result of a pilot program (and longer term via a significant uptake of NGV vehicles in Australia).

> Larger industry stakeholders who stand to benefit from a significant uptake in the use of NGVs in Australia.

> Carbon abatement market mechanisms such as the ERF. (The first ERF auction-round purchased 47 million tonnes for AUD 660m)

> Philanthropic sources particularly motivated by the health and climate-change relevance of NGVs

> Concessions via policy whether it be through subsidy, rebate or tax concessions.

CORE believes that projected running cost advantages will provide an adequate market mechanism for private uptake of NGV vehicles. However, despite some level of uptake and minor success stories, there has been somewhat of a coordination failure with NGVs in Australia. Clear and favourable policy sends a strong message to industry stakeholders that NGV growth will be pursued in the medium term and this will incentivise key areas of the NGV market:

. Infrastructure investment for refuelling stations

. Australian supply of conversion kits and factory made NGVs

. R&D for gas-injected combustion engines

CORE notes that fuel conversion subsidies have been used with some success in the past. The 2006 federal subsidy for LPG conversions enabled significant short term growth in LPG vehicle uptake. There are other indirect policies to support NGV uptake and incentivise market participants:

. Continued or increased uptake of NGVs for government fleets such as buses, refuse collection, Australia post vehicles.

. Tightening vehicle emission standards which will provide a favourable movement in the relative cost of an NGV

. Lower relative excise for gaseous fuels, increased fuel credits and rebates for commercial use of gaseous fuels

The Department of State Development and Working Group #7 should also continue to monitor the development of key emerging technologies such as HDCNG™ which have the potential to reduce barriers to growth such as upfront investment cost and fuel storage deficits.

. ABC News, ‘BOC opens new LNG processing plant in Chinchilla, first to fuel Queensland market’, Dec 2014.

. ABS Motor Vehicle Survey, October 2015.

. AEMO, South Australian Fuel and Technology Report, 2015.

. Alternative Fuels Data Center (US Department of Energy), website, 2015.

. APPEA Annual Production Statistics, 2014.

. Australian Greenhouse Office

. Australian Institute of Petroleum

. Biofuels Association, Biodiesel in Australia, website, 2015.

. CEFIC, Guidelines for measuring and managing emissions from transport, 2011.

. Climate Change Authority, Light Vehicle Emissions Standards in Australia.

. Cryostar, LCNG and LNG Filling Stations, website, 2015.

. Department of the Environment, Quarterly Update of Australia’s National Greenhouse Gas Inventory: March 2015.

. Encana, LNG Transportation, website, 2015.

. Energy Supply Association of Australia, Developing a market for Natural Gas Vehicles in Australia, June 2014.

. ENNEU, Whitbread plc partners with ENN to open its first UK LNG refuelling station, website, 2015.

. Gas Energy Australia, Cleaner, Cheaper Australian Fuels: A 2030 Vision for Natural Gas Fuels- CNG and LNG.

. Gas Energy Australia, CNG Position Paper.

. Hydrocarbons-technology, BOC LNG Plant Tasmania, Australia, website, 2015.

. IntelliGas, Demonstration Trucks; High Density CNG (HDCNG™), website, 2015.

. International Energy Agency

. Linde Engineering, LNG fuelling stations, 2015.

. Motor Mouth, Fuel Price Reporting.

. NGV America, website, 2015.

. NGV Journal, Gas Vehicles Report, August 2015.

. NGVA Europe & NGVA Global

. Platt’s, Pricing Methodology and Specifications.

. Total, Energies and Expertise, website, 2015.

. U.S. Energy Information Administration

. UN News Centre, UN health agency re-classifies diesel engine exhaust as ‘carcinogenic to humans, June 2012.

. Wall Street Journal, China Soon to Have Almost as Many Drivers as U.S. Has People, Nov 2014.

. Western Australian Department of Mines and Petroleum, Management of diesel emissions in Western Australian mining operations, 2013.

. World Bank, State and Trends of Carbon Pricing, 2014.

. World Health Organisation, Global Health Observatory (GHO) Data, 2015.

Summary of the Scenario Modelled

The following sections outline the quantifiable impacts that are projected to occur in South Australia given a certain level of uptake in the NGF sector. The inputs below are intended for use in the RISE input-output model and the focus below is to identify the ‘value-add’ components that will occur in South Australia net of the value-add components that will be removed due to the substituted diesel volumes.

Please note that the modelling has only focussed on several main supply impacts. Accordingly, the RISE modelling does not capture additional benefits which could potentially increase Gross Regional Product (“GRP”) and job creation beyond the results shown in Attachment 2. For example, the NGF supply chain includes fuel processing and distribution which would displace volumes of imported diesel. Stand-alone modelling indicates this could lead to a further 200 jobs.

Furthermore, the RISE modelling has captured a 2 stage impact (direct supply impact and immediate flow-on effects). This does not extend to consumption or investment multipliers which increase economic activity when incomes, wages and profits from the NGF sector are reinvested or spent by households.

The inputs derived are based on the following scenario;

. Conversion of 10% of South Australia’s commercial vehicle fleet to LNG use

. Stationary fuel consumption of 40 tonnes per day

. Building of refuelling infrastructure

> 6-10 satellite refuelling stations servicing a centralised liquefaction plant

. A new market for vehicle conversions, enabling the commercial fleet to run on LNG

Supply Impact 1 | LNG Liquefaction Infrastructure

. Comparisons with existing projects

> A similar sized project in the West Kimberly (200 tonne capacity plant) is on record as requiring 120 construction jobs which then reduced to 30 full time jobs once the project was operational. This project cost AUD 320m which included 5 power stations.

> Westbury Micro-LNG and Chinchilla Micro LNG (50 tonne capacity) have costs reported at AUD 100m-200m. The higher announced costs include the gas purchased for 15 years of LNG production (and potentially the truck conversions for the Westbury project).

. The projected NGF demand for a 10% conversion in the vehicle market as well as additional capacity for stationary fuel use and peak supply into the distribution network would require a central liquefaction plant of around 150 tonnes per day capacity.

. To distribute LNG, between 6 and 10 refuelling stations are needed to cover the primary road transport routes within the state.

> The interstate refuelling stations seem to cost around 1m each for capital and installation

> This would decrease if they are tied in with existing refuelling stations

. A 150 tonne capacity liquefaction plant is estimated to cost AUD 160m for installation and construction.

> Approximately 100 construction jobs and 30 permanent jobs

Supply Impact 2 | Vehicle Conversion Costs

There are two factors to consider in this supply impact, the overall revenue to be generated from vehicle conversions and the proportion of that revenue that is South Australian ‘value-add’, i.e. not just imported parts.

. Total revenue of the conversion market

> Estimated 274m of conversion revenue to be earned from converting the SA commercial fleet alone.

> This could be higher if SA became a market leader and interstate vehicles were converted here also (particularly interstate freighters which may be routed here anyway).

Potential Revenue Generated from Vehicle Conversions

Vehicle Type Estimated Conversion SA Commercial Fleet 10% of SA Total Revenue Cost (AUD) Commercial Fleet LCVs 8,500 194,244 19,424 165,104,000

Light Rigid Trucks 11,000 7,038 704 7,744,000

Medium Sized Rigid 23,000 11,634 1,163 26,749,000 Trucks Large Rigid Trucks 36,000 11,348 1,135 40,860,000

Articulated Trucks 40,000 8,429 842 336,80,000

TOTAL - 232,693 23,269 274,137,000

. SA value-add component of this revenue

> CORE’s research indicates that very few of the conversion parts are made in Australia at this time.

> The conversion process includes the following elements and accordingly CORE estimates that approximately 40% of the cost can be attributed to South Australian value add either through labour or minor local parts):

– LNG fuel tank (significant cost component- and typically an imported model)

– Labour- significant cost component especially if there is recovery of licencing or additional specialist training. The conversion process includes installation of the new fuel storage system, removal of existing diesel components, engine tuning and modifications of existing engine parts (e.g. adjusting compression ratios)

– Minor parts such as hardened valves and spark plugs

Supply Impact 3 | Cooper Basin Utilisation & Import Substitution

This section estimates the diesel substitution associated with a 10% conversion of SA’s commercial fleet to LNG as well as the South Australian ‘value-add’ component of each fuel.

. Diesel substitution

> As shown in the table below, 88.5 million DLE of NGF would be required annually for a 10% conversion of the SA commercial fleet

> Stationary fuel usage of 40 tonnes per day would displace 21.0 million DLEs of diesel annually.

> This is ~51,000 tonnes of LNG annually or 109 million DLEs

Vehicle Diesel Substitution Volumes | DLE

Vehicle Type SA Fleet Fuel 10% of fuel usage Consumption (DLE/ (DLE/ year) year)

LCVs 306,392,208 30,639,221

Rigid Trucks 167,787,013 16,778,701

Articulated Trucks 410,000,000 41,000,000

Total 884,179,221 88,417,922

The following table provides a breakdown of long term projected diesel and LNG prices. This reveals what proportion of the fuels can be attributed to South Australian value-add and what proportion is imported;

Breakdown of LNG and Diesel Final Prices

Diesel Price Component AUD/DLE LNG Price Component AUD/DLE Delivered Singapore Gasoil 0.78 Wholesale Gas 0.24

Excise 0.39 Transmission Pipeline Cost 0.04

Wholesale Margin 0.06 Distribution Network Cost 0.04 (distribution from terminal gate to petrol station) Retail Margin (petrol station’s 0.06 Excise 0.20 margin)

GST 0.13 Capex & Opex Recovery 0.51 (refuelling station margin)

GST 0.10

TOTAL 1.42 TOTAL 1.13

. The increased utilisation for the Cooper Basin has been estimated at 20PJ annually for a scenario where the NGF sector experiences 10% vehicle conversion across Eastern Australia and the Cooper Basin has the necessary

economics to service the Sydney, Brisbane and Adelaide NGF vehicle markets along with a minor role in the Victorian market.

Supply Impact 4 | R&D/ Engine Fabrication Operation

. A research and design facility that develops technology for heavy duty gas engines.

. An operation such as this would likely provide 50 full time jobs initially, with potential to grow to 100 jobs long term.

Sensitivities

The estimated supply impacts in the previous section have associated degrees of uncertainty. The following dot points outline a confidence interval that CORE reasonably believes these impacts to fall within.

. A LNG liquefaction plant with capacity of 150 tonnes has a 15% interval either side of AUD 160m.

. 6-10 satellite refuelling stations costing AUD 1m each could potentially be integrated with existing petrol stations. The reasonable range of costs associated with these stations is;

– Low: AUD 4m (6 refilling stations built into existing petrol stations)

– High: AUD 14m (10 refilling stations built as stand-alone stations)

. The volumes of fuel associated with a 10% conversion of the commercial fleet has a lower associated risk. This has been derived using ABS survey of actual vehicle use in South Australia. 10% of the fleet is roughly 20,000 vehicles and the average fuel consumption is subject to longer term trends. CORE has given this a 5% interval either side of 88.4 million annual DLE.

. The vehicle conversion revenue and the South Australian ‘value-add’ component has a higher uncertainty attached as this is a market that has not developed in Australia. A 20% confidence interval is given to the projected revenue of AUD 274m.

. It is estimated that 40% of the conversion revenue is due to South Australian value-add via parts and labour. As the market develops there is more upside potential for this (local suppliers could emerge and replace imported parts). There is a 10% lower boundary and a 20% higher boundary on the South Australian value-add component (i.e. an interval of between 30% and 60% of the overall conversion cost).

Additional research has looked at other components of the NGF value chain but these have not been included due to their overall neutral effect on state output. For instance, LNG will have to be delivered to remote sites for the stationary fuel market but this would likely just replace the existing diesel deliveries with no significant net change to economic value-add.

Gaseous Fuel Economic Development – SA 2015

Background The results shown below have been derived from assumptions provided by Core Energy Group on the establishment of a local SA industry to provide an alternative energy source (based on liquefaction and compression of natural gas) for the transport and energy generation sector (diesel motor based). A locally refined and derived fuel would provide a net benefit to the State as otherwise imported diesel product is replaced with a local substitute.

It is noted that the analysis uses an annual equivalent impact, where the additional gas demand sourced from SA’s Cooper Basin is based on the maximum annual penetration achieved after 10 years, according to the Core Energy assessment.

Four different components of the proposal are modelled:  The establishment (investment and construction) and ongoing operation of a Natural gas Fuel plant;  the investment of 8 gas re-fuelling stations;  The local impact of the demand for supply and servicing conversion kits required to use the alternative Natural Gas source; and  The flow on demand/investment for additional gas to be supplied into the SA market, based on increased demand via a Moomba supply.

Summary Impact (see attached results) Each of the 4 separate economic impacts is summarised below. Of these the most significant GSP and employment generation benefits occur as a result of the $160m investment in construction of a Natural gas fuel plant, with total (direct and indirect) employment (fte) jobs estimated at over 1200 jobs (note this includes secondary ‘consumption impacts’ flowing from derived additional incomes.) The investment impacts are, nevertheless annual, whereas the largest overall impact is expected to be derived from the ongoing increase in gas production and demand achieving around 264 additional ‘direct’ jobs at time of maturation. For all 4 activities the average annual 10 year impact is estimated as:  changing annual demand by $130m (or a total 1.3b over 10 years);  increasing gross regional product by an initial 75m per annum (or $750m over 10 years) & a further $68m flow-on impacts per annum (or 680m over 10 years);  creating an average of 310 new direct jobs annually, and 458 flow on jobs.

The economic impacts have been modelled using the 2013-14 RISE (Input-Output model). Price changes have been assumed as constant over the period.

1:) Investment Impact- 150 tonne Natural Gas Fuel Plant ($160 million investment)

Results – Construction impact – ‘one off’ annual impact  Final demand - $160m;  Gross Regional Product (GRP): First round impact $52m; Flow on impact $125;  Direct jobs (FTE): First round impact 273; Flow on impact 940.

(*note that as the ongoing demand substitutes existing activities, the operational impacts are expected to be minor & likely to have offsets with lower demand in existing diesel containment and transport associated activities)

2:) 8 Refuelling Stations (approx. $6m investment based on existing refuelling station)

Results – Construction impact – ‘one off’ annual impact  Final demand - $6m;  Gross Regional Product (GRP): First round impact $1.9m; Flow on impact $4.8;  Direct jobs (FTE): First round impact 10; Flow on impact 35. (*note that as the ongoing demand substitutes existing activities, the operational impacts are expected to be minor as per 1 above)

3:) Supply and Service Impact for Conversion Kits (approx. $274m investment over 10 years)

Results – 10 year retail and parts impact

 Final demand - $28m per year over 10 years;  Gross Regional Product (GRP per annum): First round impact $6.6m; Flow on impact $21m;  Direct jobs (FTE): First round impact 100; Flow on impact 173. (*note Impact based on constant annual average uptake with annual expenditure of approx. $28m )

4:) Additional SA Gas Demand – (20PJ annually with max demand after 10 years)

Results – Annual impact (includes upstream/downstream impacts via flow-on)

 Final demand - $125m per year achieved after 10 years;  Gross Regional Product (GRP per annum): First round impact $92m; Flow on impact $48m;  Direct jobs (FTE): First round impact 264; Flow on impact 272.

23 Nov 2015 Rob Esvelt-Allen Principal Economist Strategic Economics and Policy Coordination

Attachment Summary results Summary Output (Revenue) Impacts: South Australia, Years 1-10

Change in Final Output Impact ($m) Demand Production Consumption Offsetting Cons'n SECTOR ($m) Initial Induced Induced Sub-total Effect* Total Year 1 214.000 214.000 212.643 187.486 614.129 -67.266 546.864 Year 2 63.000 63.000 47.818 44.750 155.568 -17.601 137.967 Year 3 83.000 83.000 55.160 55.492 193.652 -21.164 172.488 Year 4 103.000 103.000 62.502 66.234 231.736 -24.728 207.008 Year 5 128.000 128.000 71.679 79.662 279.341 -29.183 250.159 Year 6 133.000 133.000 73.515 82.348 288.862 -30.074 258.789 Year 7 138.000 138.000 75.350 85.033 298.383 -30.965 267.419 Year 8 143.000 143.000 77.186 87.719 307.904 -31.855 276.049 Year 9 148.000 148.000 79.021 90.404 317.425 -32.746 284.679 Year 10 153.000 153.000 80.857 93.090 326.946 -33.637 293.309 Summary GRP Impacts: South Australia, Years 1-10

Change in Final GRP Impact ($m) Demand Production Consumption Offsetting Cons'n SECTOR ($m) Initial Induced Induced Sub-total Effect* Total Year 1 214.000 74.778 93.734 106.231 274.743 -39.487 235.256 Year 2 63.000 32.266 20.218 25.356 77.840 -10.332 67.507 Year 3 83.000 46.949 24.033 31.442 102.425 -12.424 90.001 Year 4 103.000 61.632 27.849 37.529 127.010 -14.516 112.494 Year 5 128.000 79.987 32.618 45.137 157.742 -17.131 140.611 Year 6 133.000 83.657 33.572 46.659 163.888 -17.654 146.234 Year 7 138.000 87.328 34.526 48.180 170.034 -18.177 151.857 Year 8 143.000 90.999 35.480 49.702 176.181 -18.700 157.481 Year 9 148.000 94.670 36.433 51.224 182.327 -19.223 163.104 Year 10 153.000 98.341 37.387 52.745 188.473 -19.746 168.727 Summary Employment Impacts (fte): South Australia, Years 1-10

Change in Final Employment Impact (fte) Demand Production Consumption Offsetting Cons'n SECTOR ($m) Initial Induced Induced Sub-total Effect* Total Year 1 214.000 425.8 786.8 715.6 1,928.2 -310.4 1,617.8 Year 2 63.000 173.5 160.2 170.8 504.5 -81.2 423.3 Year 3 83.000 215.7 179.2 211.8 606.8 -97.7 509.1 Year 4 103.000 258.0 198.3 252.8 709.0 -114.1 594.9 Year 5 128.000 310.8 222.1 304.0 836.9 -134.7 702.2 Year 6 133.000 321.3 226.8 314.3 862.4 -138.8 723.7 Year 7 138.000 331.9 231.6 324.5 888.0 -142.9 745.1 Year 8 143.000 342.4 236.4 334.8 913.6 -147.0 766.6 Year 9 148.000 353.0 241.1 345.0 939.2 -151.1 788.0 Year 10 153.000 363.6 245.9 355.3 964.7 -155.2 809.5 Summary Employment Impacts (total): South Australia, Years 1-10

Change in Final Employment Impact (total no. jobs) Demand Production Consumption Offsetting Cons'n SECTOR ($m) Initial Induced Induced Sub-total Effect* Total Year 1 214.000 352.8 775.1 794.2 1,922.0 -337.0 1,585.0 Year 2 63.000 147.0 154.4 189.6 490.9 -88.2 402.7 Year 3 83.000 177.9 171.9 235.1 584.8 -106.0 478.8 Year 4 103.000 208.8 189.5 280.6 678.8 -123.9 554.9 Year 5 128.000 247.4 211.4 337.4 796.2 -146.2 650.0 Year 6 133.000 255.1 215.8 348.8 819.7 -150.7 669.0 Year 7 138.000 262.8 220.2 360.2 843.2 -155.1 688.1 Year 8 143.000 270.6 224.6 371.6 866.7 -159.6 707.1 Year 9 148.000 278.3 229.0 382.9 890.2 -164.1 726.1 Year 10 153.000 286.0 233.4 394.3 913.7 -168.5 745.2 Summary Household Income Impacts: South Australia, Years 1-10

Change in Final Household Income Impact ($m) Demand Production Consumption Offsetting Cons'n SECTOR ($m) Initial Induced Induced Sub-total Effect* Total Year 1 214.000 47.570 67.655 53.456 168.682 -24.762 143.920 Year 2 63.000 14.598 12.904 12.759 40.262 -6.479 33.783 Year 3 83.000 19.452 14.652 15.822 49.927 -7.791 42.136 Year 4 103.000 24.306 16.400 18.885 59.591 -9.102 50.489 Year 5 128.000 30.374 18.585 22.713 71.672 -10.742 60.930 Year 6 133.000 31.588 19.022 23.479 74.088 -11.070 63.018 Year 7 138.000 32.801 19.458 24.245 76.504 -11.398 65.107 Year 8 143.000 34.015 19.895 25.011 78.921 -11.726 67.195 Year 9 148.000 35.228 20.332 25.776 81.337 -12.054 69.283 Year 10 153.000 36.442 20.769 26.542 83.753 -12.382 71.371 Summary Population Impacts: South Australia, Years 1-10

Change in Final Population Impact (no.of people) Demand Production Consumption Offsetting Cons'n SECTOR ($m) Initial Induced Induced Sub-total Effect* Total Year 1 214.000 453.3 839.3 757.9 2,050.6 -330.1 1,720.4 Year 2 63.000 184.8 170.8 180.9 536.6 -86.4 450.2 Year 3 83.000 229.7 191.1 224.3 645.1 -103.9 541.3 Year 4 103.000 274.5 211.5 267.8 753.7 -121.4 632.4 Year 5 128.000 330.5 236.8 322.0 889.4 -143.2 746.2 Year 6 133.000 341.8 241.9 332.9 916.6 -147.6 769.0 Year 7 138.000 353.0 247.0 343.7 943.7 -152.0 791.7 Year 8 143.000 364.2 252.1 354.6 970.8 -156.3 814.5 Year 9 148.000 375.4 257.1 365.5 998.0 -160.7 837.3 Year 10 153.000 386.6 262.2 376.3 1,025.1 -165.1 860.1 * The estimation of net impacts needs to take account of "lost" consumption expenditure by the local unemployed before taking a job (or the "new" consumption expenditure of those losing a job as they shift to welfare payments). This offsetting effect is driven by "rho" which can be set by the RISE user in the Base Data sheet.

Attachment 3: NGF Summary Sheet

Page intentionally left blank

Natural Gas Fuels (“NGFs”) are being deployed in transportation and stationary power generation around the world. Presented is a snapshot of the significant opportunities and advantages to be enjoyed by pursuing growth in this sector.

CNG and LNG | Compelling Multi-Sector Benefits Part of a Long Term Sustainable Future

GHG Reductions & . ~20% less GHG than the combustion of diesel fuel Carbon Abatement Long Term Sustainable SA Vision Increased Energy . Substitute imported diesel for domestic production that has a lower cost, less price volatility and is not susceptible to Security foreign supply interruptions South Australian . Reduce energy imports and help meet the IEA 90 day reserve storage requirement Economy, Environment & Society

Improvements to Health . 50% lower engine noise & Environment Cooper Basin & . Reduce the level of particulate emissions- known carcinogen SA Energy . Avoid diesel emissions of NOx and SOx

Reduced Business Input . Cost advantage of 26-33 cents per diesel litre equivalent Costs . Cost advantage increases to >50 cents if oil prices rebound stronger NGF Industry

Leveraging Cooper Basin . Increased utilisation of natural gas- 10% conversion rate in just the commercial fleet would see 41PJ of diesel imports Production substituted for Australian natural gas . Capture economic return further down the value chain, beyond just exporting a raw commodity

. Build a world-leading NGF Technical Knowledge Base in SA Utilise SA Manufacturing . Existing gap in the market is an opportunity for a niche, targeted R&D program Enablers Resources & Human . Larger gas engines (>15L) needed for the Australian heavy vehicle market Despite being present in the South Australian marketplace for many years, Capital . Revitalise and refocus a car manufacturing industry that needs a new direction NGFs have limited market penetration due to a lack of cohesion and investment frameworks.

Existing Support Mechanisms Potential Support Mechanisms

. Conversion of government fleets . Conversion subsidies Bottom Line Economic Value Impacts of a 10% Uptake in the SA Commercial Fleet . ERF: There is $4600 of carbon . Accelerated depreciation for NGF investment Employment & Household Income State Output Sector Flow-Throughs abatement in the average converted > Vehicle conversions

prime mover > Refuelling infrastructure . 1200 direct and indirect jobs required for the . Additional AUD 750m of Gross Regional Product . Additional output and jobs divided between many construction of refuelling infrastructure (“GRP”) over 10 years sectors: construction, automotive industry, . Automotive Transformation/ Growth . Excise & road user charges that reflect the lower . 310 new direct jobs annually . A further AUD 680m of flow-on-impacts are also manufacturing, services, energy & resources Fund: The NGF Sector has significant noise, GHG and particulate emissions . A further 458 indirect jobs annually projected opportunities for the manufacturing sector

This Report has been prepared by Core Energy Group Pty Limited, A.C.N. 110 347 085, for the sole purpose of providing DSD with an assessment of the CNG/LNG sector, in accordance with the strict terms of an agreed Engagement Letter.

This document has been prepared on the basis of a specific scope and does not purport to contain all the information that a particular party may require. The information contained in this document may not be appropriate for all persons and it is not possible for Core to have regard to the objectives, financial and other circumstances and particular needs of each party who reads or uses this document.

Core believes that the information contained in this document has been obtained from sources that are accurate at the time of issue, but makes no representation or warranty as to the accuracy, reliability, completeness or suitability of the information contained within this document. To the extent permitted by law, Core, its employees, agents and consultants accept no liability (including liability to any person by reason of negligence or negligent misstatement) for any statements, opinions, information or matter (expressed or implied) arising out of the information contained within this document.

© Core Energy Group – All material in this document is subject to copyright under the Copyright Act 1968 (Commonwealth) and international law and permission to use the information must be obtained in advance and in writing from Core.

Core Energy Group

Level 10, 81 Flinders St Adelaide SA 5000 T: +61 8412 6400 | w: coreenergy.com.au

Paul Taliangis Chief Executive Officer T: +61 8 8412 6401 E: [email protected]