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Increasing gas supply is vital to managing energy prices according to AI Group

Phaedra Deckhart
Phaedra Deckart
05 July 2018

A new report out today from Ai Group says increasing gas supply is vital to curtailing energy prices as the sector explores other sources of dispatchable capacity and moves increasingly to using gas to “firm” cheap renewable energy.

According to the report:

"Import options make considerable sense at this point: they provide substantial and flexible supply to avert fuel shortages..."

The report, titled “From Worse to Bad, Eastern Australian Energy Prices”, points out that the rapid expansion of gas exports from the Eastern states, and to a lesser extent the moratoria on gas exploration, drove up gas prices, increasing the cost of fuel for gas fired generation at the same time as several old-coal fired plants were closed at short notice.

Short notice for closure doesn’t allow the market time to respond by increasing investment in new replacement generation to meet demand, which is why AGL has given seven years’ notice of plans to close Liddell in NSW’s Hunter Valley.

aigroup_report_eastern_australian_energy_prices_july_2018_chart2

Chart 11 sourced from Page 18 of the Ai report, "From Worse to Bad, Eastern Australian Energy Prices" .

Ai Group notes forecasts of a decline in gas resources over the longer term and options being considered to avoid a scarcity problem, including CSG developments in Queensland and New South Wales, shale gas exploration in the Northern Territory and proposed LNG importation terminals, including one by AGL at Crib Point in Victoria. It says gas import terminals offer a good solution to increasing competition and substantial supply at modest cost.

The report is consistent with a paper by AGL’s Chief Economist, Tim Nelson, which has recently been published, which looks at the economics behind importing gas and how it can put downward pressure on energy prices.

The report also urges agreement on the National Energy Guarantee to provide greater investment certainty and the use of demand management to reduce energy demand where it is cheaper than new infrastructure.