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Creating a sustainable energy strategy: An interview with Queensland's Mark McArdle

Australia's Queensland minister for energy and water supply Mark McArdle spoke at the recent Singapore International Energy Week 2013 on a range of energy issues

Mark McArdle was first elected to the Queensland Parliament on 7 February 2004 as the Member for Caloundra. During his time in Parliament, McArdle has held many central positions including Leader of the Liberal Party and Deputy Leader of the Opposition after the merger between the Liberal and National Parties.

He is extremely passionate about cost of living issues impacting Queenslanders and has initiated vital reform processes in the energy and water sectors since taking the portfolio. This includes creating a 30-year energy strategy and a 30-year water strategy in order to provide a sustainable blueprint for the future of Queensland.

Minister McArdle spoke at the recent Singapore International Energy Week 2013 on a range of energy issues.

What is your view of the role of renewables in your state’s energy mix? How do you balance the state’s role in the energy value chain and its carbon footprint, given that Queensland is an energy exporter?

Renewables are currently playing a large role in the State’s energy mix with one gigawatt of solar capacity installed on rooftops across the State.  It is anticipated that a shift in generation to a more diversified generation mix will continue to happen as technologies mature. It is important to let the market dictate what generation should be brought on line. This will create challenges for the generation and network sectors and this will need to be monitored and responded to in a timely manner, and hence, my department has been working on developing a 30-year electricity strategy.

You recently announced major reforms to the Queensland’s electricity sector.  What are some priorities that you hope to address through these reforms and why are they important to Queensland residents?

The key thrusts of the Queensland Government’s energy reform package are to address recent electricity price rises and to develop a more competitive and efficient market that is also robust and flexible, to allow the innovation that will come in the future.

One of the first actions of our Government last year was to establish an Interdepartmental Committee to undertake a comprehensive review of the State’s electricity sector and to provide options to get things on track.  Of highest priority were options to address the cost of developing electricity network infrastructure, which has been the main component of electricity price increases.  The committee released its report in June this year and implementation of their recommendations is well underway.

In the short term, we are focused on addressing price increases as we understand the importance of affordable electricity for all Queenslanders.  Whilst residential customers are at the heart of concerns, we also recognise that competitively-priced electricity is of vital importance to business and its productivity, which in turn is the key to Queensland’s economic prosperity. In the longer term, we have a vision for a vibrant and competitive electricity market, where customers are the focus.  We want our customers to be engaged, and have the information and ability to make choices about how and when they use electricity, and how to benefit from different products.  We know there will be innovation and new technologies and we want a system that facilitates these. 

That is why we are undertaking consultation on our 30-Year Electricity Strategy.  The Government has recently released a Discussion Paper for consultation with Queenslanders – both individuals and businesses.  This discussion paper outlines a range of objectives that will guide our electricity sector along with proposals to address current and future issues.  We will be undertaking broad consultation on these during the coming months before preparing our final strategy.

Given that Queensland has 98 per cent of Australia’s reserves of coal seam gas and Queensland plans to turn this into liquefied natural gas, how is Queensland planning to tap into the growing LNG market in Asia?

In order to meet increased demand for LNG, significant capital investments are under way or in the planning stages around the world. Australia has emerged as the major centre for investment in LNG production. New capacity, equivalent to nearly one-third of global trade, is currently under construction internationally, of which around two-thirds is located in Australia.

Asia is seen as the most important market for Queensland producers. Queensland projects have global LNG sales agreements with many users including the China National Offshore Oil Corporation, Tokyo Gas, GNL Chile, Chubu Electric, and the Energy Market Authority of Singapore.

Of all the projects in planning stages around the world, the projects most likely to attract final investment decisions are based in Australia, despite gas reserves being larger in other nations. Iran, Nigeria and Russia face greater political uncertainty, limited access to LNG technology and large growth in domestic gas demand. Australia’s overall investment climate is rated as relatively favourable by major petroleum corporations. In addition, the high cost of transporting LNG relative to most other commodities gives Australia an advantage given its close proximity to Asia.

The shale gas revolution by the United States brings with it the possibility of gas exports to Asia. How does this impact Australia’s position as an energy exporter and Queensland’s position in particular?

Queensland is exploring the possibility of shale gas. In a December 2011 report on fuel cost projections to provide outlooks/inputs for the Australian energy market operator, ACILTasman, estimated an aggregate shale gas resource of 25 000 PJ in Eastern Australia at a cost of around $9 per gigajoule to produce (2012 to 2013). The report noted that this would tend to limit upward pressures on gas prices because shale gas could add an additional source of supply to the market at this price, relieving gas shortage issues.

Queensland will face some challenges from international competitors. However, Queensland is well placed to meet those challenges. Specifically, Queensland’s projects have foundation contracts and the potential for future brownfield expansion.  With capital cost already outlaid in the initial construction phase of the projects, they are well placed to increase supply to a more dynamic and flexible gas trading market and compete with the greenfield developments

How will Queensland’s production output and position as an energy exporter evolve with the changing supply/demand landscape?

Prices in Asia have been amongst the highest in the world, partly due to the traditional system of linking gas prices in long term contracts to oil prices. The propensity for longer-term contracts has supported significant investment in Australia’s LNG industry, where companies used long-term supply contracts with Asian countries to justify investment in LNG projects. However, usually this investment supports initial trains. As the projects develop and grow, additional trains may be able to be supported. This may allow for increased flexibility for Australian LNG exports to trade within the Asian market on a short term, spot market basis.

If Asia can develop a dynamic and successful trading hub, Queensland companies are likely to participate to take advantage of the new opportunities that the trading hub may bring. Australia’s proximity to Asia will always provide an advantage over other nations like the US and Canada. As a number of Asian nations have no natural energy resources of their own, security of supply becomes an important issue, and Queensland will remain well placed to alleviate those concerns.

You are minister at a time when unconventional gas is seen as a game-changer and demand for the fuel continues to rise on the back of economic growth in Asia. What role will unconventional gas play in Asia and on global markets?

New drilling and extraction technologies are unlocking enormous new coal-seam, shale and tight gas resources that are transforming gas (and oil) around the world. Other than Australia, it appears likely that the United States (US) is in a position to quickly develop an export LNG industry that could then be available within the Asian-Pacific region.

The Queensland Government has had a long history of involvement in the gas industry in Queensland and has supported its growth with targeted support since the mid 1990s. However, it wasn’t until the late 1990s, following discoveries near Moura, Injune and Wandoan, that it was demonstrated that large volumes of coal seam gas (CSG) could be produced.

Supported by this development and government involvement in the gas market, demand in Queensland and the Eastern Australia gas market has grown significantly. Currently, Queensland’s gas demand is around 240 Peta-Joules (PJs), with Eastern Australian demand at 780 PJs. 

The emergence of unconventional gas extraction technology and new discoveries around the world will see significantly more supply options for gas buyers in Asia and around the world.  Queensland will strive to capture these opportunities, as will other exporting countries.

With Asian countries looking to diversify their sources of fuel from fossil fuels to renewables, what do you think Asia’s future oil and gas landscape will look like? How do you see the fuel mix in Asia evolving by 2035?

The International Energy Agency predicts that global gas demand will grow by 55 per cent to 2035, and this could possibly equal demand for coal as the energy market searches for lower emission fuels. Demand for all energy sources are expected to increase over that time; however, gas and nuclear are expected to show the largest increases. 

Although renewable energy will play an impactful role in Asia’s energy mix going forward, gas is likely to become a more sustainable alternative to coal given its lower carbon emissions. Gas-fired power generation, particularly in developed economies, has accounted for nearly three-quarters of capacity growth between 2000 and 2009.

Although renewable energy will play an impactful role in Asia’s energy mix going forward, gas is likely to become a more sustainable alternative to coal given its lower carbon emissions. Gas-fired power generation, particularly in developed economies, has accounted for nearly three-quarters of capacity growth between 2000 and 2009. In addition to its lower carbon emissions, gas-fired generation offers several advantages over coal. These include lower capital outlays for gas-fired generation and shorter project lead times; flexibility in providing either peak or base load power; and the ability of gas to act as a supplement to intermittent renewable energy sources.

As more LNG supply projects come online around the world, what are your views on the global LNG supply/demand landscape from now until 2020?

Natural gas supplies around one-fifth of the globe’s energy needs, compared to one-third from oil and one-quarter from coal. Around 30 per cent of natural gas produced is internationally traded (predominately pipeline trade). However, the Asia-Pacific market relies on LNG trade, which is more efficient for longer distances, and LNG makes up 75 per cent of long-distance natural gas trade. The Asian natural gas market is the fastest-growing gas market worldwide, and is expected to become the second-largest by 2015, with 790 billion cubic metres of natural gas demand.

Rapid growth in LNG production capacity for export is likely to continue, supported by large capital investments. Rapid increases in demand may come from countries wanting to reduce their dependence on nuclear power, carbon reduction schemes and to meet growing energy needs.  The latter point is important as the bulk of growth in gas demand is expected to come from non-OECD nations, particularly China and India.

Given the varying gas prices across markets and increasing production of shale gas, how do you see this affecting gas prices in Asia?

The increasing supply competition in the LNG market could put downward pressure on gas prices depending on the timing and quantity of Canadian, United States and East African export capacities and demand growth rates. Asia needs to be prepared for that and develop a market with an ability to react quickly to changes to market fundamentals.

Whilst increased supply is important, gas prices in Asia may also be improved by the prospect of an Asian gas market trading hub. An Asian gas market trading hub will provide confidence in the legitimacy and transparency of natural gas prices. 

A competitive natural gas market in Asia would however need a more flexible LNG supply chain than is currently in place. This will require a continued expansion of shipping availability and third-party access to re-gasification terminals in the Asia-Pacific region. 

This interview was conducted by the Energy Market Authority of Singapore.

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