Energy market shifting towards gas: analyst

By Paula Wallace

Speaking at the Mining 2009 conference on October 28th, the firm’s executive director Paul Balfe said this would put upward pressure on gas prices. This would be due to both increased demand and increased competitiveness of gas versus coal “once coal is obliged to pay for the cost of its emissions”.
Under the proposed Carbon Pollution Reduction Scheme (CPRS) Balfe said in the short to medium term the default new entrant generation will be gas fired, that is more large-scale bulk generation.
“That will at least be until the commercialisation of large-scale carbon capture and storage….and I think even the proponents of those technologies would now be saying that’s looking post-2020.”
ACIL Tasman modelling shows that by around 2020-25, generators need to achieve average emissions from power stations that are at the level of current Combined Cycle Gas Turbine (CCGT), or around 0.4 tonnes per megawatt hour (MWh).
“In other words, beyond 2025, CCGT and natural gas becomes part of the perceived problem not part of the solution and we become heavily reliant if we are going to achieve those targets on being able to in fact access new low emissions technologies,” said Balfe.
In terms of the impact of the proposed CPRS on price, Balfe said, “for $30 a tonne we’re looking about a dollar per gigajoule. Currently average price is about $3.50. Thirty dollars should push the wholesale price to about $4.50.”
He said the Renewable Energy Scheme will serve to reduce the demand for conventional generation.
“We’ll have wind power, maybe geothermal, replacing some of the fossil fuel based power. So, in that sense it’s a negative for the CCGT plant.
“For the open cycle peaking plant in the gas industry it’s going to be quite positive.”
“We’ve currently got about 1,500 to 2,000 MW [wind capacity] under construction. We expect to see a fivefold increase in that by 2020,” said Balfe.
Given that wind farms do not always operate at 100 per cent capacity there is a significant opportunity for open cycle gas to provide back up and peak generation.
At the moment there are five active proposals for Liquefied Natural Gas (LNG) exports based on coal seam gas. Potentially there are proposals for up to 50 million tonnes of LNG.
“To put that in context, the Northwest Shelf, that’s been running for nearly 20 years has a current production capacity of 16.3 million tonnes.
“We’re talking huge opportunities. Is all of that going to happen? Probably not.
“There’s obvious scope for rationalisation and co-ordination of some of that but on balance now I think the consensus view would be that we will see some level of development of coal seam gas LNG. The question is how big and how quickly?” said Balfe.
Will there be enough available to support our environmental objectives under the CPRS for more gas fired generation?
“Yes our modelling is certainly showing that even with a moderate development of LNG we get gas into eastern Australian power stations that would meet those objectives.
“The key thing here is about the supply/cost curve, how much we can get at what price and…if we see a large scale LNG industry emerge it implies that the cost curve provides for abundant coal seam gas at relatively low cost.”
Balfe said, over time as drilling, technology and completion techniques improve the cost curve will shift.
“…and the larger the LNG development, the greater the vote of confidence…on the reliability and competitiveness and scalability of CSG production.”