The Oil Drum: Australia/New Zealand

Alan Kohler had an interesting column in The Business Spectator recently, in which he speculated that oil and gas producers could emerge from the credit crunch as the new financial "masters of the universe".

In 1999 a barrel of oil would have bought just 40 cents of global earnings. Now that earnings are falling and that figure has gone up to $US8 of earnings, the price of oil would have to fall to $US20 a barrel to return the purchasing power of a barrel to its long-term average. Just as the equity market looked cheap between 2003 and 2007 to anybody who could source capital from the debt markets, it now looks cheap to anybody who can source it from oil. ...

The other big liquidity pool is Asian central banks, which are now sitting on $US4 trillion of foreign exchange reserves, up from $US1 trillion in 2001. Private equity has a surprisingly resilient pool of liquidity ($US323 billion) but the buying power of this money has contracted dramatically with the availability of debt.

No, the real financial power now lies with those who are sitting on oil and gas. In Australia we have seen incredible wealth being generated out of the coal seam methane reserves in Queensland’s Surat Basin, thanks in part to a rise in the price of LNG towards parity with oil.

The world’s oil-rich – including the Australian gas producers – could emerge from the bear market as the new masters of the universe.

It certainly won’t be Gordon Gekko and his mob on Wall Street.

While gas producers in Australia have traditionally focused on natural gas production - originally in central Australia, later in Bass Strait and most recently offshore the north west and northern coastlines - in recent months we've seen a surge in interest in coal seam gas (CSG) production and stock market valuations of coal seam gas producers, triggered by a bid by BG for Origin Energy - one of the major players in the sector - a few months ago. The bid eventually failed, with Origin instead choosing to partner with Conoco Phillips in a CSG to LNG development, with Conoco paying $US9.6 billion ($12 billion) for a half-share of Origin Energy's CSG assets.

In this post I'll look at recent events in the industry and what they mean for Australian gas production in future.

Sydney Lord Mayor Clover Moore recently addressed the NSW State Parliament on the subject of peak oil (via Energy Bulletin).

Tonight I speak about a serious concern of my constituents about the consequences of peak oil, which will have grave local and global impacts. The term "peak oil" refers to the stage when global oil production peaks and future oil production begins to decline. With the global demand for oil increasing rapidly, production declines are predicted to result in severe petrol price increases as buyers compete for supplies. Given the dependence on oil, including for energy, food, travel and consumer products, disastrous impacts on the global economy are expected. While some say peak oil has already hit and others say it will occur in 2030, it is essential that we prepare. New South Wales and Sydney's over-reliance on petrol makes us extremely vulnerable to impacts, and we must protect current and future generations. Given the consequences of peak oil and the serious threat of global warming leading to climate change, governments have a responsibility to urgently reduce our dependence on fossil fuels.

This is a guest post from Garry Glazebrook of UTS (the University of Technology, Sydney).

After listening to Al Gore, Nicholas Stern, Ross Garnaut and Tim Flannery, it is now obvious to most thinking people that we have to address climate change, and soon. It is becoming equally clear that the fall in oil prices over the last few months is only a temporary respite, brought on by a faltering world economy, and that oil prices will likely surge again as soon as the economy recovers. The implication is a need for massive investment in renewable energy, energy efficiency and sustainable transport. But how to fund such investment without sacrificing our economy, jobs or lifestyles?

This is a guest post from Neil Howes. Neil is an Associate Professor at the University of Sydney. The post describes a response to the “Carbon Pollution Reduction Green Paper” (27 August 2008).

Executive Summary

We are proposing that the Government of Australia facilitates the replacement of 50% of Australia’s base-load coal fired electricity generation by financing the building of a high capacity National Electricity Grid (NEG) by 2020. This will interconnect high value renewable energy sites for wind, solar and geothermal energy to enhanced hydro electricity pumped storage capacity enabling these low CO2e energy sources to provide base-load power to major retail and industry consumers.

The objective of the plan is to :

(1) Link the East Coast and Tasmanian electricity grids (known as the NEM - National Electricity Market) to the Western Australian electricity grid via a 1500Km high voltage DC (HVDC) connection between Norseman, WA and Pt August SA,

(2) Build a new 1000 Km HVDC connection between Leigh Creek SA and Roma, QLD to link the SA and QLG regions within the NEM, in order to access solar and geothermal sites in WA, SA, VIC,NSW and QLD.

This would also require;

(3) A high voltage AC (HVAC) extension and upgrade of the WA grid north of Norseman, via Kalgoorlie, to the proposed Pilbara local grid to access stranded natural gas (NG) power in WA mining communities and solar thermal sites in the NW of WA

(4) A HVAC interconnection from Norseman to Esperance and Albany wind power sites with increased capacity HVAC connections along the SW coast of WA t4 Perth. This infrastructure project will assist the development of all renewable energy resources, starting with developing wind resources along the SW coast of WA, West Coast of Tasmania, and coastal and highland wind sites in SA, VIC, NSW and QLD with an installed capacity of 28GW by 2020.

Sorry about the lack of the weekend Bullroarer but I've been offline all weekend.

I will point to this story in "The Diplomat" though - Fighting On Empty - which looks at the Australian Defence Force's response to peak oil (one which has a very low profile).

The Australian Defence Force consumes annually 125 million litres of diesel and 200 million litres of aviation fuel, according to government statistics. The strategy and capabilities of the ADF are dependent on oil and they are exposed to the same price fluctuations that are wreaking havoc on business and household budgets. Considering the extensive lead time and lifespan for Defence capability acquisitions and the poor projections for oil, it is little surprise that there is a growing chorus of concern coming from within Defence ranks.

A number of serving officers and senior public servants have formed the independent Defence and Security Working Group under the umbrella of the Australian chapter of the Association for the Study of Peak Oil and Gas (ASPO). “The decline in global oil supplies will have profound consequences for the ADF and civil border protection agencies. Australia has recently embarked on several large military and civil national security projects involving the acquisition of aircraft, vessels and land transport. ...

If you've got a head full of great ideas for Australia's energy future and like the sound of two (!) $20,000 prizes on offer, then you should take a long hard look the Australian National Energy Essay Competion. Entries close 22nd August and the only catch is that you need to be an Australian citizen or permanent resident and under the age of 31 at 30 June 2008 (doh!).

We're in the middle of an interesting few weeks in the Australian oil market, so it's worth capturing these charts of international and regional oil prices from the Australian Institute of Petroleum for posterity.

This is a guest post from Community Action for Sustainable Transport Inc

Reducing the fuel excise and Federal investment in roads will not make travel affordable.

This is the message coming from a coalition of more than 20 transport and environmental groups who have signed off on an open letter to PM Kevin Rudd (see below), urging the Federal government to invest heavily in public transport to reduce the impacts of rising petrol prices.

“The Federal government’s urban transport priority must be to create a public transport system that takes people where they need to go, when they need to be there. More than anything else we need better alternatives to the car,” said Tristan Peach, spokesperson for Community Action for Sustainable Transport QLD (CAST).

This competition was announced a little while ago, but still has plenty of time until it closes.

Any younger readers (under the age of 31 that is, which is younger than I am) might like to try their hand at writing an essay to describe their vision for our energy future.

Young Australians are invited to help secure the nation’s energy future by presenting their ideas in an entry paper for The Warren Centre’s National Energy Essay Competition.

Entrants are competing for a total prize pool of $50,000, including two major prizes of $20,000 each (the Sumitomo Australia Prize and the Babcock & Brown Power/Wind Partners Prize).

The NEEC is about Australia’s energy future. Specifically, it is about the next phase of primary power generation and the future beyond that. The NEEC is also about the younger generation and their contribution to the future of Australia’s energy development.

The concept of an essay provides the opportunity for the contestants to create an analytic, speculative, or interpretative composition built on an understanding of the current power generation and delivery system and the influence on it of political, societal, demographic and technological changes, living patterns, technologies, transport and travel needs, existing and emerging industrial processes and other yet to emerge impacts, in a way which is understandable to the layman.

The outcome of the competition is aimed, with the media’s support, to provide a more rigorous and disciplined level of information in the public arena as a catalyst for reasoned debate on Australia’s energy future.

An explosion at Apache's Varanus Island gas plant in Western Australia on June 3 cut off 30 per cent of the state's domestic gas supply. Supplies to mines and industry in the Pilbara region (the heartland of Australian iron ore mining) fell by 45 per cent.

The supply disruption was exacerbated by an inability to start alternative forms of power generation - the coal fired Collie power station, for example, had damaged turbine blades and could not immediately return to service.

This has had a large impact on the local economy (the WA Chamber of Commerce and Industry estimates the crisis will have cost the state $6.7 billion, assuming energy supplies are fully restored by December) and makes an interesting case study of the effects of a sudden reduction in energy supplies.