Australia is experiencing an energy crisis despite its reputation as a top gas exporter, as regulators struggle to deliver electricity. A combination of challenges has led to severe energy shortages and high consumer prices in Australia, leaving the new government to face greater energy uncertainty than the country has previously seen.
Federal energy minister Chris Bowen is blaming the previous government for the current energy challenges being faced in Australia. He stated that the coalition government left a “bin fire”, making the country “ill-prepared … for the challenges we are facing today”. Meanwhile, the previous government is blaming the inexperienced incumbent labor party for the crisis. But rising energy prices and Australia’s ongoing reliance on coal have not helped the situation.
Energy prices have been gradually rising on a global level since 2021. The increase in demand following the pandemic has been difficult to meet, as oil-producing states work to ramp up their crude output after two years of curbs, driving up energy prices. More recently, the Russian invasion of Ukraine, and subsequent sanctions imposed on Russian oil, have caused even greater shortages and sent prices soaring.
And despite high hopes for Australia’s continued coal output under the coalition government, coal prospects are starting to look less favorable as the country responds to international pressure to switch to green. Australia still relies heavily on coal for its electricity production. It also continues to export the fossil fuel to several countries across Asia, such as China and India, as they show no sign of decreasing their dependence on coal.
But many of Australia’s major coal plants are aging due to a lack of investment linked with the uncertainty over the future of the energy source. In addition, the country has announced plans to shift many of its coal operations to renewable. The world’s largest coal port, the Port of Newcastle, is now expected to make up half its revenue from non-coal business by 2030, as it becomes powered by green energy. Meanwhile, in Queensland, there are plans to convert one port export terminal into a renewable hydrogen facility within the next few years.
The combination of challenges – the global increase in energy costs, the Russian invasion, coal outages, and the colder winter weather coming earlier – have all hit Australia at the same time, causing a major energy crisis. But perhaps this seems somewhat surprising for a country that has the reputation of being a top oil and gas exporter.
Australia’s coal reserves are thought to be one of the world’s largest, with around 89,707 million tonnes (mt) of black coal and 85,634 Mt of brown coal recorded in 2019. In 2019-20, Australia exported around 90 percent of its black coal production, 74 percent of its natural gas, and 78 percent of its crude oil.
However, in the last month, Australia has faced domestic shortages, forcing the country to look elsewhere for its energy supply. These shortages followed months of increased gas exports to countries that were looking to replace their Russian gas supplies. But as the cold weather came around earlier than anticipated, many states started to face energy shortages. Further limitations were experienced in the coal sector, as flooding earlier in the year in New South Wales (NSW) and Queensland, as well as technical problems, led to a reduction in coal output. This caused the energy minister to ask the state of NSW to restrict its energy use during evening peak hours to prevent power outages, last week.
The Australian Energy Market Operator (Aemo) also faced a difficult decision last week when it was forced to suspend the wholesale market for the first time in a decade and a half when it was unable to force generators back on. Aemo’s CEO Daniel Westerman explained, “The market wasn’t working. We had generators withdrawing from the market in preference to being directed by Aemo [to return].” “It was impossible to operate it,” he added.
The energy minister of NSL, Matt Kean, even obtained special powers from the NSW governor to treat coal supplies as an essential service should it be required. The “precautionary” and “proactive” plans would have allowed Kean to transport coal between plants if there were shortages, as well as to manage the use of the resource.
One expert communicated the sentiment of many in Australia, stating “It’s funny. We’ve had people saying, ‘we’re exporting all the gas’.” And “now it’s ‘we’re exporting all the coal’,” they added. This opinion is not surprising given the large percentage of gas and coal output that is exported each year, although Australia is not typically prone to such severe energy crises. But this has led some to suggest the introduction of a gas export tax to help boost investment in the renewable energy sector to ensure the future of the country’s energy security.
By Felicity Bradstock for Oilprice.com
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