Killing off domestic low cost energy mix – Queensland style

It was some surprise amongst friends that Angus Taylor (thought to be the rising star of the Liberal Party) said gas was the future of a low-cost energy mix. This seemed at odds with Tony Abbott’s (the Prime Minister’s) view that coal is the key. Some react to that story as an OMG moment. We take the story as one that is a design to disguise and deflect on what is actually happening and lead the consumer to a path to pay more. Some might even say it is a centrifuge of fluid appeal. The opening line story is from:

http://www.goulburnpost.com.au/story/2791033/angus-at-odds-with-abbott-over-coal/?cs=181

So there is no confusion as to what we believe: Lets us declare we are pro-market. What we question is whether pro-business rent-seekers are slewing benefits for the rent-seekers at the expense of the consumer. After reading the article immediately below, the story should unfold as to why the opening paragraph was so well linked:

Will Queensland defy the trend of declining demand? By Paul McArdle Wed, 24 December 2014 | Topic Summer 2014-15 in the NEM

“As early as 2011 and perhaps earlier, we’ve been posting commentary about how growth in electricity demand was slowing, and then began to decline.  Across the NEM this trend does not appear to be slowing (and there are a number of reasons for this).

However, within Queensland we wonder whether what we’ll see this summer and next will buck this trend?

Earlier this week we noted articles (Gladstone Observer, Courier Mail and SMH) about the arrival of the first LNG export tanker in Gladstone.  Billions of dollars of investment have been sunk into this new east-coast industry, a fair percentage of which being focused on the upstream tasks of releasing the coal-seam gas and delivering it to Gladstone.  With the three projects each opting for electric compression of gas delivery to Gladstone, we’re looking to see a sizeable increase in demand for electricity as a result.”

Good stuff, hey! Can you see that only a few benefit? We cannot save you, but we can make you aware!

Lets us look at some of those linked ‘demand risers’ in more detail:

The $170m Bauhinia rail electrification project has just been completed and is a spur line to link with the Blackwater System in Central Queensland. The Blackwater system too was upgraded to double its electrical capacity, so rather than using diesel trains carrying coal from the Rolleston mine all the way to the coast it will be all electric powered haulers, which will no doubt further increase electricity demand. Queensland now has electric locomotives rated to 4,000 kW each as opposed to the previous 3000kW. So this means each locomotives at 100% load factor it would be 4 GW of demand! For more information go to –

http://www.aurizon.com.au/projects/bauhinia-electrification-project

Therefore you can expect: Each new coal train is likely to have three locomotives and each locomotive is about 4 megawatts load rated and drawing current directly from the overhead wires. This is and 12MW additional load on the network for each new train. This load was not required before.

We then read the Queensland people and business in general will pay more for gas than other states in Australia. Despite that state having more than enough gas for domestic purposes. Our Queensland contact said it has something to do with the resources rent policy of the state government. We noted that the quoted price, last week, from traders is Brisbane trades for gas in the order of $4.21 per GJ. This was an increase, which was coincident on the arrival of the first LNG tanker in Gladstone to export gas. At that same time Sydney prices rose to $4.00 per GJ. However Victorian prices remained at around $3.50 per GJ.

Now, 13 January 2015, Paul McArdle reported Brisbane hub for gas trades had reached $8.69 per GJ, Sydney $4.52 and Victoria 3.75 per GJ. While we could argue Sydney and Victoria are merely movements in the market, it is obvious Brisbane is a seismic like demand wave pushing up prices.

We no longer need to speculate that higher Queensland gas prices will mean gas for electricity peaking generation plants will be a higher price. Being that the energy market is a spot market the higher bidder sets the price. In short, as electricity demand increases so does price. What this means for electricity generators is higher demand, higher Queensland gas prices, and the market rewarding them because the higher bidder sets the electricity price for them to benefit. How much higher Queensland gas prices will go will be interesting to follow. We no longer speculate as 13 January also see Queensland peak electricity prices running as much as 300 precent plus higher than the remainder of the eastern seaboard on that day.

A short while a go the Federal Government with the Queensland Government’s endorsing repealed the carbon tax (the inception program was called the Carbon Price) as it was claimed it was to blame for higher energy prices! But now those bodies welcome higher prices, and the investor rent seekers want to hear this glorious venture has raised higher revenues from higher prices. It may be immoral but it is not illegal they say.

We are told gas prices must increase to match world demand and the price continuum. But that is seeming a hollow argument as even Japan now appear to be reluctant to source or pay for our LNG. This is a shift from their previous willingness to pay high prices for gas. Why this shift? Because, new low-cost LNG producers elsewhere are joining the supply side, and Japanese LNG demand is moderating to lower levels of need. Other factors to indicate a lower LNG demand is lower oil prices, and alternate energy sources coming in lower priced too.

Why will the demand increase in Queensland, the key to this is three projects each opting for electric compression of gas delivery to Gladstone, and therefore an increase in demand for electricity as a result.

The confidence trick here is QCLNG and APLNG are electrified using electricity from the NEM, and the GLNG upstream project has gas turbine driven hub compressors and electric driven nodal compressors supplied by open cycle gas turbine generators. Therefore it is the gas prices that is be the price setters for the electricity price, not any increase electricity demand on the NEM. Good double talk is it not?

Then Hugh Saddler said, 7 January 2015, via WattClarity: “The excellent data available through NEM-Review tells me that a large new continuous load of around 400 MW came on line in Queensland on 27 October last. This suggests that the 2014-15 summer peak is likely to be considerably higher, for equivalent weather, than in recent years; this has already happened on 9 and 17 December. However, without knowing what the load is, it is difficult to be certain with such a prediction.”

The later we find most interesting and it is the unknown that is more to worry about. About what price you will end up paying.

Now back to Paul McArdle he continued to say:

“1)  We can see that, in summer 2014-15, we have already experienced a higher demand in Queensland than was the case in the whole of summer 2013-14 .

2)  Queensland demand (with respect to the competition) has already peaked to the level of 8,472.23MW

3)  That demand peak occurred as late as 17:15 on that day (hence as the effect of solar PV injections into the grid had receded).  This is something we would not have seen several years previously!

4)  We also see that price volatility is starting to look as something like what happened in summer 2012-13 as well.”

Co2land org concluded it will continue to be a good time for ole king coal generators in Queensland and those state consumers will pay the price. A price that will lead to other east coast states rising their prices too. However, it will not the market causing the rise it will be rent seekers and their influence on the policy makers.

The ray of sunshine is it may become too expensive for policy makers to bear!

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