In terms of energy resources, Australia is truly blessed. The island-nation is already an important fossil fuel exporter with the potential to become a heavyweight in the upcoming renewables sector. Its enormous landmass is dominated by large deserts with an abundance of solar and wind energy which could herald the next development phase of Australia's energy sector. The latest announcements underscore the likely scenario that the country will remain an indispensable and influential part of the world’s energy system.
A lucrative business
The resource base for Australia’s energy sector is impressive. The country is already the world’s largest exporter of coal. Low domestic demand means that producers can ship significant quantities to international buyers. In 2018, Australian mines produced 301.1 Mtoe of coal of which 249.4 was exported, accounting for a market share of 29 percent of the global total.
In addition, Australia has quickly ramped up the production of LNG during the past decade, even overtaking Qatar at one point to become the world’s largest exporter. In 2019, the country produced 88 million tonnes while the Arab state produced 77. Geography is a major advantage due to Australia’s proximity to the world's largest buyers in East Asia such as Japan, South Korea, and China.
The country’s economic interests in the fossil fuels business have consequences. Criticism is growing for Australia’s weak track record on sustainability and continued support for coal and natural gas. However, the inescapable truth of climate change is influencing voters' perception of the energy business. The evidence is undeniable that natural disasters are growing both in numbers and ferocity.
At the same time, the fossil fuel industry employs thousands and is an important source of revenue for the government. Therefore, the transition is not easy for a liberal-national coalition that has been in power since 2013 and prides itself on the country's economic achievements. It seems, however, that the political establishment has changed its opinion on renewables as massive projects provide a sustainable alternative.
Renewables and hydrogen
The potential of Australia’s future renewables sector is massive due to sun-scorched deserts and windy coastal regions. The enormous Sun Cable project could provide the country’s northern cities, such as Darwin, with electricity while exporting a significant chunk. Singapore is willing to import the electricity through a yet-to-be-built 3,750 kilometers subsea pipeline that could provide the city-state with 20 percent of its energy needs.
The technical difficulties and the project’s estimated price tag of $22 billion are serious challenges. If all goes according to plan, construction could start in late 2023 after a financial close in the same year. According to Michael Gunner, Chief Minister of Australia’s Northern Territory, “massive projects don’t happen overnight and this is genuinely massive.” Related: Oil Prices Crash After OPEC+ Reaches Deal To Ease Cuts
Furthermore, in the past few years, hydrogen has become an important topic where Australia’s potential is significant. With the availability of large volumes of cheap electricity produced from solar and wind becoming a certainty, green hydrogen could decarbonize major industries.
Due to the significant losses in the electrolysis process to produce hydrogen, cheap electricity is a necessity. Australia’s sun and wind potential combined with vast open territories, low population density, and a business-friendly government make it an ideal choice. The recently announced Western Green Energy Hub is currently the world’s largest announced renewables project.
The initiative includes a massive 50 GW of solar and wind that would cover 5,900 square miles (or 15,000 square kilometers) which is half the size of Belgium. With a price tag of $75 billion, it costs three times more than the Sun Cable project.
The vast majority is intended for export purposes. According to Martin Tengler, BloombergNEF’s lead hydrogen analyst, “while it’s too early to tell, most of the hydrogen will be exported…The question will be how much demand Japan and Korea will have by then and how much they can supply domestically.”
The project is intended to reach its financial close in October 2023. There remains a healthy dose of uncertainty about whether it will come to fruition. Nevertheless, Australia's significant environmental potential, geographic advantages, and necessity of alternatives for its coal and natural gas industries ensure continued interest from the government's perspective. If the international economic outlook remains upbeat, expect more positive news from Australia.
By Vanand Meliksetian for Oilprice.com
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