Dr Alex St John, Science, Technology, Environment and Resources
Australia has extensive non-renewable (or traditional) energy resources, including oil, coal, gas and uranium. Tensions between domestic and export markets may increase significantly during the next few years, especially for gas.
Australia possesses 10% of global recoverable black coal resources, sufficient for around 125 years’ production at current rates. About 87% of coal production is exported; of the remaining coal used domestically, 88% is used for power generation nationally. The heavy use of coal in Australia’s energy mix is controversial, but coal still accounts for 35% of primary energy consumption and provides export earnings of more than $30 billion annually.
The production of crude oil, condensate and liquefied petroleum gas has declined since 2001. Australia possesses less than 0.3% of the world’s oil resources, and it exports most crude oil to Asian refineries. Completed and announced closures of refineries will shortly see Australian refining capacity halve compared to 2000–01 levels, and liquid fuel supply will increasingly rely on imports. In the 2013–14 Budget, funds were appropriated for the Government to investigate Australia’s compliance with its International Energy Agency fuel stockpiling obligations.
Australia possesses the world’s largest low-cost uranium resource, and it is the world’s third largest uranium producer. Moves to establish new uranium projects are possible during the 44th Parliament, after Queensland and New South Wales relaxed restrictions on uranium projects. New mines are being planned and constructed in Western Australia and South Australia. All uranium is produced for export and a domestic nuclear power industry seems unlikely in the near term, despite calls from some industry and scientific groups.
Australia is rich in natural gas on a per capita basis, possessing 2.0% of the world’s proven gas reserves, but only 0.3% of the world’s population. Economically demonstrated resources amount to 147,000 petajoules (PJ) of natural gas, sufficient for around 60 years of production at current rates. This figure includes both conventional and coal seam gas (CSG). Significant further resources of unconventional gas (including CSG and shale gas) have been inferred by geologists; Geoscience Australia speculates these potential resources could yield an additional 753,000 PJ of gas. Although this represents a large additional gas resource, only a fraction of this will be economically recoverable in the foreseeable future.
About 95% of Australia’s gas is currently produced from a few main geological basins—the Carnarvon Basin offshore from Western Australia (32%); the Gippsland Basin offshore from Victoria (23%); the Surat and Bowen basins in Queensland (21%); the Otway Basin offshore from Victoria (10%); and the Cooper Basin in South Australia (9%).
Australia also shares the gas fields in the Joint Petroleum Development Area that lies between Australia and East Timor; gas from this area is piped to Darwin for liquefaction and export.
Australia is divided into three gas markets; the Western and Northern gas markets that cover Western Australia and the Northern Territory respectively; and the Eastern gas market which covers South Australia, Tasmania, Victoria, Queensland, New South Wales and the Australian Capital Territory (see map). The three gas markets are not connected and market conditions are different in each.
Domestic and export pricing
In contrast to the wholly domestic Eastern gas market, domestic consumers in the Western and Northern gas markets compete with export customers for the supply of gas. Wholesale prices in the Western gas market ($8 to $10 per gigajoule, GJ) are now significantly higher than the historic norms in the Eastern gas market ($2 to $6 per GJ).
The start of LNG exports from Queensland in 2014–15 is expected to place upwards pressure on gas prices in the Eastern gas market. At the same time, a number of long-term domestic gas supply contracts in New South Wales and Victoria will expire and new supply contracts will need to be negotiated. Lobby groups representing gas users claim that some Eastern gas market users are having difficulty sourcing gas supply; prices offered for long-term supply are around $9 per GJ, which is close to export prices.
Calls for market intervention
The significant rise in Eastern gas prices from historic norms that is expected to occur has prompted calls from some gas consumers for government action to ensure gas supply. In the Eastern gas market, manufacturing, mining and electricity production accounted for 74% of gas consumption in 2009–10. For these industries, gas is a significant cost and price increases could affect the viability of parts of these industries, particularly manufacturing.
Gas consumers sometimes call for a gas reservation policy, which would involve setting aside a proportion of gas production for domestic consumption, rather than export. Western Australia applies a domestic reservation policy to the resources it controls and Queensland reserves the right to implement one. However, both major political parties have consistently argued against such a policy and maintain that energy supply is best guaranteed by a well-functioning market. Whether a reservation policy would materially place downward pressure on prices, or contribute to surety of supply, is a matter of dispute.
Image source: Parliamentary Library. Source data courtesy of Geoscience Australia (CC BY 3.0 AU).
M Roarty, Australia’s natural gas: issues and trends, Research paper, 25, 2008-09, Parliamentary Library, Canberra, 2008.
Bureau of Resources and Energy Economics (BREE), Energy in Australia (series), BREE, Canberra, 2012 and 2013.
Bureau of Resources and Energy Economics (BREE), Australian gas resource assessment, BREE, Canberra, 2012.
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