PM backs gas-fired power station in NSW

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Scott Morrison is prepared to forcefully intervene in the energy market by building a new gas-fired power station in the Hunter Valley in NSW if need be, and underwriting the construction of gas pipelines to feed a new national trading hub.

The new power station would replace the lost capacity caused by the closure of the Liddell power station if the private sector failed to "step up", while the hub would be established by expanding the small existing facility in Wallumbilla, Queensland.

To be known as the Australia Gas Hub, it would be fed by gas from up to five basins the government wants developed and be modelled on the Henry Hub in the United States.

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The Beetaloo Basin project in the Northern Territory is the government's development priority for its gas strategy. 

Situated in Louisiana, the Henry Hub is connected to nine interstate and four intrastate pipelines, making it the major distribution hub for natural gas in the US.

Due to its scale and liquidity in terms of being able to respond quickly to market demand, it sets openly and transparently the reference gas price for the US market.

The government will also lean on the three major east coast gas exporters to free up more product for the domestic market via a renegotiation of the current heads of agreement. That agreement requires a producer to offer excess export gas to the domestic market first before being able to sell it on the international spot market.

Mr Morrison will also threaten to enforce “use it or lose it” requirements on gas licences held by companies sitting on reserves.

In a major speech to be delivered on Tuesday at Newcastle, the Prime Minister will flesh out the details of the gas-led recovery he and COVID-19 business adviser Nev Power flagged some months ago, saying cheap gas for households and industry will be critical if the economy is to rebound from recession.

Notably, the speech sidesteps coal as a future energy fuel but will still stir controversy among the environmental movement and sections of Labor which argue there should be a stronger push towards renewables because gas is not much cleaner than coal.

Coronavirus-induced recession

Mr Morrison has argued previously gas should be the transition fuel as Australia moves from coal to clean energy sources. He will maintain this view on Tuesday, saying gas complements renewables, but with an added economic imperative because of the coronavirus-induced recession.

"This is about making Australia’s gas work for all Australians. Gas is a critical enabler of Australia’s economy,'' Mr Morrison will say.

"As we turn to our economic recovery from COVID-19, affordable gas will play a central role in re-establishing the strong economy we need for jobs growth, funding government services and opportunities for all.”

Mr Morrison will tell the energy sector that if it does not outline by the end of April 2021 its investment plans to replace the 1000 megawatts of capacity that will be lost when the Liddell coal-fired power station in NSW closes in April 2023, the government will build a gas-fired plant through its company, Snowy Hydro Limited.

"If the energy companies step up to deliver on the target, the government will step back," say policy documents.

"But if the market doesn’t step up, the government is prepared to take the necessary steps to ensure the required dispatchable capacity is built.

Investment decisions

"To that end, Snowy Hydro Limited is already scoping opportunities to build a new gas-fired generation project at Kurri Kurri in the Hunter Valley.''

The government will reaffirm it has no plans to fund an extension of Liddell, although it would not oppose a private operator doing so.

However, the private sector has not built a new dispatchable energy generator in NSW in a decade and there is no commercial interest in new coal-fired power.

Mr Morrison will say that with Liddell to close by April 2023, final investment decisions need to be made by the end of April next year so there is time to build any new generators.

So far AGL, which owns Liddell, has committed to replacing just 100MW of the lost capacity through an upgrade of the existing coal-fired generator at Bayswater in NSW. Mr Morrison said that would not count towards the 1000MW replacement.

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Scott Morrison: "Affordable gas will play a central role in re-establishing the strong economy we need for jobs growth, funding government services and opportunities for all.” Alex Ellinghausen

A large part of the speech will focus on unlocking supply, boosting pipeline infrastructure and, hence, lowering the price of gas on the east coast for the long term.

The government will commit $28.3 million to formulate plans to tap into five gas basins, starting with Beetaloo in the Northern Territory, followed by the North Bowen and Galilee Basins in Queensland.

Supply chain

To ensure "unlocked" gas can be transported to the new hub and markets along the east coast, a National Gas Infrastructure Plan will identify "gaps, barriers and opportunities across the whole supply chain" and will "signal to the market priority infrastructure investments'' including pipelines and import terminals.

In the same way as he is threatening to do with Liddell, Mr Morrison says the government will step in to facilitate these investments if the market does not.

"If private sector investment in these priority projects doesn’t occur, the government will consider – like it has for electricity transmission – appropriate actions to back these projects,'' the policy document states.

"This may include streamlining approvals, underwriting or a special-purpose vehicle.

"The government wants the market to step up and make timely investments
in the gas market. However, if industry does not step up, the government
will step in."

This threat is in line with recommendations made to the government by Mr Power's committee, which included taxpayers underwriting pipelines to connect Australia's many untapped gas reserves.

The Prime Minister is also expected to amp up pressure on NSW and Victoria to develop their onshore gas reserves including the vast coal-seam gas deposits in NSW's Pillaga region, and conventional reserves in Victoria.

Mr Morrison will contend the gas hub will empower consumers by improving transparency around pricing.

In addition, the industry will be "encouraged'' to develop a voluntary code of conduct for government commercial contractor negotiations.

"If industry does not do this by February 2021, the government will consider developing a mandatory code of conduct,'' the policy documents say.

The renegotiation of the heads of agreement, which is designed to unlock more gas for domestic use, follows a report from the Australian Competition and Consumer Commission that said east coast gas users were still "paying prices significantly above export parity prices".