Energy and resources

Budget Review 2017–18 Index

Dr Alex St John

This year marks a turning point in Australian energy policy. Since the competition reforms of the mid-1990s, Australian governments (both state and Commonwealth) have increasingly left the development and provision of energy supply to the private sector, with some regulatory oversight of access regimes and consumer protection. However, during 2016 and 2017 there were significant challenges to security, reliability and affordability of electricity and gas supply, which have widely been labelled a ‘crisis’; these events have led the Turnbull Government to announce in this year’s Budget interventions that significantly expand the Commonwealth Government’s active participation in energy markets.

Gas

The Budget provides $86.3 million between 2017–18 and 2020–21 for programs designed to ‘increase gas production and support affordable electricity’.[1]  It includes $19.6 million over four years to implement the COAG (Council of Australian Governments) Energy Council’s Gas Market Reform Package as well as $7.6 million for gas market studies, including studies for potential pipelines linking South Australia to the Northern Territory and the gas provinces in Western Australia.[2] These pipelines have been proposed since the 1970s, with several feasibility studies already completed.[3] It is not clear that these pipelines would be economically viable on their own; the Northern Gas Pipeline currently under construction from the Northern Territory to Mt Isa in Queensland has been scaled back from its original capacity due to a lack of gas to transport.[4]

Significant funds will also be given to developing new gas fields, with $30.4 million to undertake scientific assessments of the impacts of unconventional gas production on water resources in three (unnamed) onshore gas basins, and $28.4 million over four years to encourage onshore gas development for the Australian domestic market. The latter amount is to support positive state-based programs, increase community benefits from gas development and provide better information to land-holders’.[5] This seems likely to support exploration incentive programs (like Plan for Accelerating Exploration (PACE) in South Australia), and programs aimed at improving social licence for onshore gas production, which gas companies have historically struggled with.[6] The measures are also aimed at encouraging state and territory jurisdictions to lift restrictions on onshore and unconventional gas development.[7]

These initiatives follow on from the Government’s attempts in early 2017 to increase gas supply in the domestic market, including the unprecedented announcement that the Government would intervene to apply export controls in the event of gas shortages.[8] It is unlikely that the Budget measures will deliver relief from high gas prices in the short term as new gas resources usually take several years to be brought onto the market. The initiatives may help to provide more supply in the future, although whether they will accelerate development of new reserves compared to normal market processes is not clear.

Electricity

The Budget also reaffirmed the Government’s commitment to the so-called ‘Snowy 2.0’ scheme, where pumped hydro energy storage in the Snowy Hydro scheme would be expanded. A feasibility study is currently being conducted into the project.[9] The project could cost $2 billion, and no funds have yet been committed to its construction. The Government has said that it could fund the scheme’s entire cost.[10]

Currently, Snowy Hydro is an unlisted corporation owned by the New South Wales Government (58%), the Victorian Government (29%) and the Commonwealth Government (13%).[11]  In his speech, the Treasurer indicated that the Commonwealth would be open to acquiring a larger portion, through purchasing some or all of the interests of Victoria and New South Wales.[12] Presumably, this would allow the Commonwealth to fund the expansion of the Snowy Hydro through an off-budget equity injection, which is an increasingly used model for federal funding of infrastructure projects. The Treasurer also indicated that such a sale would be contingent on the states using their sale proceeds for ‘priority infrastructure projects’, the expediting of planning and environmental approvals for the expanded Snowy scheme, and the Snowy Hydro remaining in public ownership.[13] However, the Victorian Government has already indicated that it will reject these conditions.[14]  Additionally, should the Commonwealth acquire all of the Snowy Hydro, a future Parliament could still privatise it in the future.

The Budget also commits $110 million for a proposed solar-thermal power plant at Port Augusta, South Australia, if required. Port Augusta, the site of the now-closed Playford and Northern coal-fired power stations, is already equipped with electricity transmission infrastructure, and so is considered a promising site.  A 50 megawatt plant with storage was the subject of a feasibility study by Alinta in 2015, which concluded that it would not be feasible to build at that time, and would cost around $577 million.[15] However, with the closure of all coal-fired power stations in South Australia (and the Hazelwood power station in Victoria) leading to a reliance on more expensive gas generation, the economics of the idea may have improved.

The Budget also includes $13.4 million over four years for the completion of a new Energy Use Data Model, to improve energy market forecasting and research. Improved predictions may aid in energy network planning, which is important as the energy markets shift from large centralised energy providers to networks of smaller energy sources.

Reception

The proposed gas market reforms have received mixed reactions. The Australian Petroleum Production and Exploration Association enthusiastically welcomed the budget measures.[16] The Australian Pipelines and Gas Association also welcomed the Budget, but expressed some caution about investment in new gas pipelines without new gas supply to fill them.[17] The Australian Industry Group, which represents manufacturers and other business, generally welcomed the measures but expressed some disappointment that the Government did not introduce more ‘immediate cost-relief measures’.[18] Commentators generally regarded the budget measures as a relatively minor suite of actions, but noted the increasing shift away from laissez-faire energy policy, and that there would be further opportunities for reform after the conclusion of the Finkel Review of energy security.[19]



[1].          The budget figures in this brief have been taken from the following document unless otherwise sourced: Australian Government, Budget measures: budget paper no. 2: 2017–18, 2017.

[2].          Council of Australian Governments Energy Council (COAG Energy Council), ‘COAG Energy Council Gas Market Reform Package’, COAG Energy Council website.

[3].          For example, see Snowy Mountains Engineering Corporation, Australian Natural Gas Utilisation and Transportation Study, The Pipeline Authority (Cth.), October 1976.

[4].          ‘Northern Gas Pipeline: Lack of producers cited as diameter of Tennant Creek-Mt Isa pipeline reduced’, ABC News, 4 April 2016; Jemena, ‘Northern Gas Pipeline’, Jemena website.

[5].          Australian Government, Portfolio budget statements 2017–18: budget related paper no. 1.12: Industry, Innovation and Science Portfolio, p. 14.

[6].          South Australia, Department of the Premier and Cabinet, ‘PACE Gas’, Department of the Premier and Cabinet website; Department of Industry, Innovation and Science (DIIS), ‘Land Access and Social Licence to Operate’, DIIS website; N Paragreen and A Woodley, ‘Social licence to operate and the coal seam gas industry: What can be learnt from already established mining operations?’, Rural Society, 23(1), October 2013, pp. 46–59.

[7].          M Canavan (Minister for Resources), $28.6 million investment in east coast gas security, media release, 9 May 2017; S Maher, ‘Cash injection to fire up investment in gas supply and prune power bills’, The Australian, 10 May 2017, p. 6

[8].          L Yaxley, ‘Government to impose export restrictions on gas companies to shore up domestic supply’, ABC News, 27 April 2017.

[9].          Snowy Hydro, ‘Expanding pumped hydro storage’, Snowy Hydro website.

[10].       S Anderson, ‘Malcolm Turnbull 'happy' to fund Snowy Mountains hydro expansion without state help’, ABC News, 16 March 2017.

[11].       Snowy Hydro, ‘Who we are’, Snowy Hydro website.

[12].       S Morrison (Treasurer), Budget speech 2017–18.

[13].       Ibid.

[14].       J Gordon and R Willingham, ‘Victoria set for Snowy storm’, The Age, 11 May 2017, p. 1.

[15].       Alinta Energy, Port Augusta solar thermal generation feasibility study, July 2015, p. 11.

[16].       Australian Petroleum Production and Exploration Association, Budget to help deliver new gas supply, media release, 9 May 2017.

[17].       Australian Pipelines and Gas Association, Budget gas measures welcome, media release, 10 May 2017.

[18].       I Willox (CEO, Australian Industry Group), Budget 2017: Clearing the decks for new tilt at growth, media release, 9 May 2017.

[19].       H Saddler, A Pears, R Dargaville and T Wood, ‘Budget 2017: government goes hard on gas and hydro in bid for energy security’, The Conversation, 9 May 2017; R Harris, ‘Gas policy shows worth of the long-term view’, The West Australian, 10 May 2017, p. 24.

 

All online articles accessed May 2017. 

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