Apparently natural gas bills are likely to get cheaper in Victoria in the short term, after the Essential Services Commission proposed a cut in the service charge paid to the monopoly distributors of gas throughout the state.
If natural gas would stay cheap nationwide, this will not only be good for those of us who currently have gas appliances, it will be rather convenient for governments both federal and state. New South Wales is seriously considering building a natural-gas fired baseload power plant instead of the coal-fired ones NSW has relied upon for many decades; federal Labor has proposed phasing out electric water heaters; for most people with gas available, a replacement with a gas system will be the cheapest alternative (and will have greenhouse emissions lower than solar-electric).
However, in the longer term, it’s pretty clear gas prices are going to go up, as explained to Geraldine Doogue in this radio interview with Nigel Wilson of the Oz:
Geraldine Doogue: OK, there are some interesting politics around gas now starting to emerge aren’t there, over the difference between the export price for gas and the price for domestic use. Why has gas for home use in Australia been capped?
Nigel Wilson: The price of gas in Australia is not so much capped as actually been unfortunately not reflected what’s been happening overseas. So for instance in Western Australia the price has been around $2 a gigajoule for the best part of a decade. Now overseas, gas prices have been at some stages, as high as $15 or $16 a gigajoule, which suggests of course that either the price in Australia is too low, or the price overseas is too high. The difference of course is that the price overseas is set by a market whereas the Australian price tends to be set by the use of gas in power generation when electricity prices are not necessarily a subject for market competition.
Until recently, natural gas wasn’t a globally traded commodity, but the quickly growing fleets of Liquified Natural Gas tankers have changed all that, and the USA and China, particularly, are importing more and more natural gas shipped on tankers. The massive developments off Western Australia are selling into this market; as the interview explains, if domestic customers are competing with overseas customers for the same gas, they will have to pay up – according to this Western Australia state government report, the bulk gas price is now around $6 per gigajoule in WA.
This hasn’t mattered in the eastern states thus far, as there have been no LNG exports from there. But that’s going to change. Santos is proposing to build a gas liquification plant in Gladstone, using coal-seam methane (that is, natural gas trapped in coalfields rather than the more usual oilfields). It’s likely that any new sources of natural gas in Australia are going to be considered for the same treatment, if the price differential remains the same.
If you look at the natural gas futures on the American NYMEX commodities exchange (the units are not exactly the same – 1 MMBTU is about 1.05 gigajoules, but it’s close enough), the price of gas futures for delivery all the way out till 2012 is even higher than it is now. At those prices, Australian customers are going to have to pay even more to get natural gas for themselves.
And then there’s another intriguing possibility – that natural gas will be converted into synthetic diesel. Additional uses for natural gas are only going to push its value in one direction.
Household customers already pay well above bulk prices for gas and a lot of their bill is actually the fixed supply charge, so it’s probable that for people with piped gas, it will remain the cheapest way to have a hot shower. But, despite estimates from people whose job it is to study such things that gas will be a cost-competitive way to generate electricity in Australia, you’d have to have doubts. And if it isn’t, one of the easiest, least contentious ways to reduce Australia’s greenhouse emissions goes out the window – but, as compensation, our natural gas producers will be rolling in even more dough than they’re getting now.
Let’s go back to the late 70′s. We’d had an oil price shock; governments scrambling around looking at energy savings, the public wanting to reduce power and fuel bills, etc.
Latrobe Valley power unions, with some ‘green’ groups, opposed the planned Newport gas-fired power station, to be built near Footscray.
One of the arguments: “it is inefficient to pipe natural gas to Melbourne, burn it to produce electric power (losses in furnaces, losses in conversion, transmission losses in power lines etc.), to run domestic electric stoves & ovens & water heaters. Better to pipe the gas to homes directly, and use gas hot water systems, gas stoves.”
That seemed a convincing argument. After much delay & several Inquiries, Victoria got a small gas turbine plant in the Latrobe Valley (Jeeralang) and a smaller Newport power station.
My questions: in the intevening 25-30 years, has gas-fired electricity generation become much more efficient? or have domestic appliances become more efficient? is coal much worse for CO2 production than gas, per kilowatt-hour? or are the economics different at present?
cheerio
Governments dont last long enough to make decisions,and corporations have too much power to make proper decisions.Ambi s post clearly identifies that..but lateral thinking is also possible today as with the examples.Co2 could be introduced into the useable gas pipes and taken out at a site more centrally focused to use the gas in a converted form or as a product..somewhere else.There is a a slackness about CO2 as a useable input into conversion,which probably means the climate warmers proponents have been too successful,and have robbed CO2 of its rightful place in our environment. I came across a internet site promoting a paper made out of calcium carbonate,which is essentially a product that could be CO2 based. And anyone willing to stick their nose in a chemical formulations book,or patents on line with Carbon dioxide as part subject may find this and that. It will not take long to feel,that whilst the expression of emitted Carbon Dioxide into the atmosphere has been duly and rightfully criticized the apparent usefulness of carbon dioxide hasnt gotten the same thorough concern. Basic matters like sea salt and other abundant materials,where no real loss of environmental facility, hasnt been researched ,so that material abundance has more players and more flexible outcomes.We have soil regularly blow into the atmosphere,China has a desert doing that,yet combinations of soil and sand particulates are readily seen as problems of international scope.Carbon dioxide to the rescue then!? I think so? And why is it that it either has to be gas or coal burning when simply what is the problem in doing both at the same time to reduce and amend the effects of either!? It hasnt been asked has it!? And just think if you could introduce gas into the existing coal burning processes and were able to capture the resultant emissions and convert them to useful product!? We are now run by morons both government and capital who only ask serious questions once others have pointed out their failures.As good citizens we should be asking questions that frighten government and corporations into admitting they are slackers,and cannot hide the fact.Sewerage is also another potential fuel,or in solid form able to be moved around and used in some way,carbon dioxide added to such and treated by fuel burning gases, may end up being burnable without any real problem of any type of emissions. I am pre prepared to accept the slackers will remain as is.
Yes. The latest combined-cycle gas turbines achieve close to 60% thermal efficiency. Particularly when you throw in transmission losses and the like, however, it’s pretty hard to beat using the heat directly, though.
The greenhouse intensity of gas-fired power from the latest combined cycle turbines is roughly half that of black coal, and maybe a third of that of brown coal like Hazelwood.
The economics of coal and gas for baseload power in eastern Australia are pretty close right now – the point of the post is that gas is likely to get dearer, making gas-fired electricity dearer.
Thanks Robert,
I was well overdue to be brought up-to-date on relative efficiencies.
Brown coal is certainly a poor fuel: so Victoria is “blessed” with huge quantities of a poor fuel.
I think I understood the point of your post, but wanted to bring energy efficiency into discussion as a factor (clearly I think that’s important in policy… as these power stations have lives on the scale of decades). Price fluctuations seem shorter term – ignoring the future carbon-pricing, whenever and however that arrives.
Cheerio
You won’t get any argument from me on energy efficiency – the only arguments about energy efficiency we have on LP tend to be whether it should be mandated directly or “encouraged” through increased energy costs.
Two words: Peak Gas.
Ok its unlikely to be a problem in Australia for a very long time, but its already a problem in North America (where US gas production has peaked and Canadian gas production is under pressure) and Europe (where North Sea gas production has peaked and Europe is hostage to Russian gas czars who have a nasty habit of turning off the tap).
I think this is debatable, its certainly a close run thing. In my situation where there’s no piped gas and has to be trucked in, ample sun (28 degrees south) and 100% GreenPower then solar-electric wins hands down.
carbonsink: the point of LNG is that if we get peak gas in North America and Europe, we get Peak Gas everywhere. It’s becoming a globally traded commodity, and the price will be the same modulo transportation costs.
And the comment about gas hot water heaters was based around the assumption that piped gas was available.
LNG is nowhere near as easily tradable as oil and won’t be for some time. At present LNG trade represents just six per cent of global natural gas consumption, whereas oil trade is around 50% of global oil consumption.
Its also very hard (and very expensive) to get new LNG terminals built. They’re about as popular as new nuclear power stations. Look at BHP’s attempts to build an LNG terminal in Malibu.
So for the forseeable future, localised peaks in gas production will continue to be a problem.