Improving Australia’s energy resource industry

The Australian Government's Energy White Paper 2012 has been released, setting out Australia's energy policy for the future.

The Australian Government's Energy White Paper 2012 has been released, setting out Australia's energy policy for the future.

Launched by the Resources Minister Martin Ferguson, the paper sets out a policy blueprint for the future energy markets in Australia, creating a strong case for a more efficient regulatory system with a competitive open market approach.

“Positive outcomes can only be assured through policy frameworks that shape effective market outcomes, manage uncertainty and attract investment in energy resources and infrastructure,” Ferguson said at the launch.

Describing the paper as a “strategic policy document that articulates the Australian Government position on the full gamut of energy policy issues,” Ferguson said the paper “provides assurance that we are heading in the right direction in helping to transform our energy sector.”

It predicts future energy needs will be meet by LNG as Australia sets out to the be the world’s largest exporter by 2021, but says that oil production will decline and that Indonesia is set to dominate as the world’s largest producer of thermal coal in coming years.

Here, we look at each of the predictions of our energy sector, and highlight some of the ways the paper sets out to improve Australia’s competitiveness in an increasingly demanding energy sector.

Coal

The paper states that coal will remain an "integral part of Australia’s economy" highlighting the current commitment to $17 billion worth of coal projects, with a further $40 billion under consideration.

The "suite of new investments in coal to expand existing operations" highlighted that increasing demand has seen "an entirely new coal precinct has opened up in the Queensland’s Galilee Basin".

The paper predicts the export of thermal and metallurgical coal will grow to 689 million tonnes a year by the middle of next decade, while black and brown coal production are expected to remain ‘strong’.

However the paper does concede that coal producers ‘face continuing challenges’ around co-development, infrastructure, and carbon pricing adjustments.

It goes on to state that the long-term sustainability of the thermal coal industry will depend on the successful commercialisation of carbon capture storage and low-emissions technologies.

A $2 billion dollar technology development strategy around the large-scale development of carbon capture and storage aims to partner with the industry, research community and state governments to support the commercialisation of CCS.

Uranium

With Australia having around a third of the world’s uranium resources, the paper says uranium makes an ‘important contribution to the world’s supplies of low-carbon energy.

Australia’s current uranium exports are worth $610 million, and the paper says this number is expected to grow as the potential for expansion develops in coming decades, and as new planning projects get underway.

According to the paper, Australia’s rich uranium base means production and export over the next decade could match our ‘resource endowment.’

However it does state that one of the challenges facing uranium is its transportation, pointing to the declining number of global shipping routes available to Australian producers.  Opening additional ports in the country’s east and increasing international shipping routes are some of the ways the government will look to tackle these issues.

The paper also encourages both NSW and Queensland to lift their bans on uranium extraction.

Oil

According to the paper, Australian oil production is expected to decline in the absence of new discoveries, with new finds expected to be deep water which are smaller and at a higher cost.

High oil prices and new production technologies mean that in the medium-term smaller fields can be explored that were previously seen as non-viable.

The paper says that the potential for new oil resources in deepwater was high, as well as oil shale resources.

The need to develop sustainable fuel alternatives was also highlighted.

Gas

The paper says that gas is Australia’s third-largest energy resource with 184 years of gas available at current production rates.

With gas production expected to triple by 2020, as 70% of the world’s LNG capacity is currently under construction in Australia.

Seven LNG projects under construction will provide 60 million tonnes of additional LNG export capacity, which are valued at over $164 billion dollars and are expected to triple Australia’s export capacity to 80 million tonnes per year.

It is estimated that Australia will be the word’s largest LNG exporter by 2021, rivalling Qatar as a number of new projects come on line.

However, according to the paper, pressures in the development of onshore and offshore gas resources, the need to develop a gas supply hub market and impediments to adequate supply are all issues facing the industry.

Measures to ensure Australia remains competitive

The paper predicts that although the production rates of coal and LNG are expected grow, Australia is set to receive heavy competition from emerging markets.

Indonesia is predicted to overtake Australia as a thermal coal producer, and new LNG capacities emerging in the Middle-East, the Caribbean, North America and possibly East Africa, means ensuring Australia remains competitive is an important step in the future of energy markets.

To this end, the paper states: “Improving our industrial productivity and providing a business-friendly investment environment will be a major factor in maintaining our competitiveness.”

It adds that gaining the maximum return on national energy assets and building on the nation’s attractiveness as an investment destination was a must.

A roadmap set out in the paper to achieve these reforms include:

Promoting more efficient and effective business regulation

The paper recognises that Australia is a high-cost producer and states that to attract new investment it will be important to reduce the costs of regulation, increase productivity and improve oil and gas regulation, including development approval reforms.

Addressing the duplicative environmental regulation is seen as important, as is the need to deliver energy market reforms which aim to cut costs and streamline the approvals of major projects.

Addressing capacity constraints

The paper states that productivity is dependant upon a skilled workforce and efficient infrastructure.

Recognising that large-scale projects are often susceptible to planning delays, the government states that it is already engaged in a number of investment, advisory, reform and facilitation initiatives.

Enhancing energy and resource prospectivity

The paper reports that although Australia’s energy resources are expected to be ‘long-lasting’, global shares in mineral exploration is actually not increasing.

Perception of Australia as a ‘mature exploration destination’, global competition and high cost exploration, means additional high-quality resources need to be discovered.

The paper points to the greenfield areas, and aiming to make it the ‘world’s most attractive investment destination.’

The Government say the Productivity Commission will start an inquiry to determine if unnecessary regulatory burdens exist and to examine Australia’s framework for exploration, highlighting that the removal of barriers for exploration in Australia was important.

The industry reacts

The paper has been met with an overwhelmingly positive response from companies in the energy sector, who say the framework will help Australia deliver competitive energy solutions.

BP have said the report is a ‘well thought-out energy policy which should improve the resilience of Australia’s energy sector and deliver competitively priced energy into the future”.

President of BP Australia, Paul Waterman, said the White Paper was forward looking and would ensure Australia’s energy security.

“BP has consistently contended that in order to enjoy energy that is sufficient, secure and sustainable into the future, Australia should have a market-based policy framework which encourages innovation and efficiency.”

The Australian Coal Association has also welcomed the White Paper, saying it correctly highlights, ‘the importance of market efficiency, the creation of a stable regulatory environment and the appropriate development of Australia’s vast energy resources.”

Dr Nikki Williams, chief executive of the coal association says the paper reflects the coal industries needs.

“We are pleased to see that the Energy White Paper reflects the coal industry’s call for a competitive, market-bases approach while embracing the conditions of the global energy market,” she said.

“As one of Australia’s largest export industries, our competitiveness is vital on a world stage – out future export success is not a given and Australia cannot afford to be complacent.”

Australian Petroleum Production and Exploration Association chief executive David Byers said that paper provided the right framework for Australia’s growing gas industry and that it was right to reject the concept of market intervention.

"Australia's LNG sector is investing more than $180 billion in new projects and will create more than 100,000 Australian jobs this year. Only a market-based energy policy framework can enhance Australia's attractiveness as a place to do business and encourage the tens of billions of dollars worth of gas industry investment still to be approved.

"It is important that gas is seen no differently to other major export commodities such as iron ore, coal and wheat in that the benefits associated with development are maximised through links to international markets."

Shell Australia country chair Ann Pickard also welcomed the government's assessment that the market was the best way to determine energy prices and that domestic gas reservation policies were ineffective in ensuring domestic gas supply.

"Intervention in domestic gas markets would be counterproductive for both supply and prices, as they would discourage innovation and investment, especially in dedicated domestic gas projects," she said.

However, Greens Leader Christine Milne has slammed paper for giving ''a completely two-faced view of the future in energy – promotion of fossil fuels, rush for gas, at the same time talking about a clean energy future. It doesn't add up.''

"In the dash for gas, the paper calls for environmental regulations to be 'streamlined' – risking grave and irreversible damage to our fertile land and fresh water supplies," she said.

Ferguson was interrupted at the launch of the White Paper by anti-fossil fuel protestors who took over the podium during his speech, accusing him of being a ‘puppet’ of the fossil fuel industry and sang a satirical song about global warming.

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