Melbourne
*Check against delivery
Introduction
The annual launch of the Powering Australia is becoming a regular fixture in the energy industry calendar.
This is my fourth launch, and I welcome the contribution this publication, the fifth volume in the series, makes to the dialogue between industry and government on the all important issue of energy.
I thank Keith Orchison, once again, for giving us a thought-provoking overview of the trends and challenges facing the sector.
In the twelve months since last year’s launch there have been a number of major developments in the energy sector, both domestically and internationally.
We have had five new liquefied natural gas (LNG) projects sanctioned in Australia, including the development of a whole new coal seam gas to LNG industry in Queensland.
Construction has commenced on Australia’s first two on grid solar power stations – made possible by $770.5 million in Australian Government support.
The Government has finalised its carbon pricing package, with the legislation currently before the parliament.
Looking internationally, we have seen the terrible events at Fukushima, and a range of policy and technological developments all impacting on the global energy environment.
This year’s volume of Powering Australia gives a fresh perspective to familiar themes.
Front and centre is a clear articulation of the size of the investment challenge in the energy sector and the need for policy certainty to deliver required investment.
“Navigating a new electricity supply era” also reminds us of the important role that technology will play in reducing greenhouse gas emissions in the energy sector.
The stand out message to me from the report is the simple fact that the energy sector is going through a period of unprecedented change.
Recent developments
So let us take a few moments to reflect in more detail on some of the major changes underway.
Earlier this year I commissioned the Investment Reference Group to look at investment issues affecting Australia's energy sector.
This work showed that Australia is likely to need $240 billion of investment in our stationary energy sector through to 2030.
We all know – particularly given the capital intensive nature of the sector – that it is Australia's stationary energy sector that needs certainty on carbon pricing policy to make this investment.
With the carbon price legislation currently before the Parliament, this issue should be resolved by the end of the year.
The carbon price, along with our associated investment in technology through the Australian Renewable Energy Agency and the Clean Energy Finance Corporation, will drive change in our stationary energy sector in the years ahead.
This is important when we consider that stationary energy accounts for about half of Australia’s total carbon emissions.
Higher demand for gas will likely be a consequence of that change.
Of course, the market will decide the future energy mix, but gas is well recognised as a transition fuel, as our energy mix transitions away from its current strong reliance on coal and toward renewables.
It’s no surprise that global trade in LNG rose by 22 per cent last year – its highest ever rate of growth.
As I mentioned earlier, we are seeing this growth reflected in the five Australian LNG projects taking Final Investment Decisions in the last twelve months – including the $29 billion Wheatstone project on Monday this week.
This increase in global LNG demand pre-dated the Japanese earthquake, and the subsequent impact on Japan’s nuclear power.
Since then, we’ve been seeing a short-term increase in demand for LNG in Japan, with month-on-month figures revealing demand up by around 15 per cent.
An increase that is likely to continue over the longer term.
As a growing supplier of natural gas, we can help our trading partners, including Japan, to meet their growing energy needs.
After all, Australia’s LNG export capacity is on track to more than triple by around 2015/16 making us the world’s second largest LNG exporting nation.
Our domestic gas supply capacity is also set to increase, as is demand.
Gas-fired generation is forecast to account for more than one third of Australia’s electricity supply by the end of the decade.
More than double what it is today.
This increase in domestic gas demand, combined with the development of east coast LNG projects will affect Australia's gas market.
As yet, the ultimate consequences are unknown, but we need to be honest and recognise that this change is occurring.
Also related to the price of energy, Network regulation will be another key topic in the year ahead.
Energy prices are often the most headline-grabbing aspects of energy-market reform, and for good reason.
They affect almost every Australian, and they reflect the need for investment in energy networks.
The short-to-medium outlook is for continued price rises over the next few years.
And rising network charges will remain a major driver of these increases.
Significant expenditure on networks will continue as the current regulatory periods run their course over the next three to four years.
There are no easy fixes to the issues around investment and prices, but it’s important to work together on solutions in a genuine way.
It’s a matter of getting the balance right.
The Australian Energy Regulator has been reviewing the regulatory arrangements around network determinations.
Very soon, it will propose a number of Rule changes based on that review.
In turn, the Australian Energy Market Commission will consider them, and interested parties can take part in this process, one that takes place at arm’s length to government.
I emphasise my confidence in these institutional arrangements, and the AEMC will conduct a proper process.
Energy policy development more generally will be further informed by an updated National Energy Security Assessment being undertaken by the Government.
It will analyse the trends for Australia's energy security in the years ahead, and consider the main factors challenging the adequate, reliable and competitive delivery of energy.
It will encompass liquid fuels, gas and electricity.
It will also look at supply-chain risks, and the resilience of the energy sector to disruptions.
The National Energy Security Assessment will inform the Energy White Paper, with the intention to release a Draft Energy White Paper this year.
Conclusion
Keith will have much to reflect on in compiling next year’s publication.
By this time next year we should have completed the White Paper; have a carbon price up and running; and we will know where the contract for closure process has landed.
My hope is that the next edition of Powering Australia is able to reflect on how government is working with industry to deliver on these measures, and provide a lasting policy framework to drive investment in critical energy supply infrastructure.
Thank you for the opportunity to address you today.