Podcast: Will more oil and gas lower energy costs? Christina Hood and David Hall
Listen to the full episode here.
Vincent
“In late August the wholesale energy price spiked as high as $1,000 per megawatt hour as the country felt the effects of a dry winter. That's when the hydro lakes aren't replenished by ice melt and rain. That energy spike, it's just the market working right?"
Christina
“These markets are designed to be perfect in theory, then the messy realities of the real world get in the way. We have an electricity market which is really one-sided, where consumers don't really play in the market. The price goes up and up and that gives an incentive for more supply to come on. But it should equally be providing an incentive for demand to reduce or shift, and for other alternatives. It becomes very expensive for the small number of companies who have chosen to buy on the spot market rather than have long-term contracts.”
Vincent
“Am I right in thinking that the market hasn’t built in the climate implications of burning gas and coal for our instant energy needs?”
Christina
"In theory, all of the emissions in the electricity system are covered by the emissions trading scheme. It's kind of a fig leaf of a policy at the moment. It just drives planting trees to compensate for emissions rather than driving actual reductions in emissions. And then on top of that, we subsidise the consumption of fossil fuels for a lot of the biggest gas users. Methanex's gas consumption is subsidised by around $200,000 per employee per year under the ETS. And Tiwai is likely to be getting its electricity subsidy back shortly. That will be in the order of $100,000 per employee per year. So, while we claim to be pricing carbon, we do it at a rate that doesn't really have an effect, and then we exempt, effectively, a lot of the big companies from it anyway. So, we're not properly building in the climate impacts."
Vincent
“And we're going to add more because we're fast-tracking this LNG importing facility?”
Christina
“One of the big claims is that gas has lower emissions than coal but it's irrelevant because coal is cheaper. All it's going to do is fill the gap of some domestic gas, which is suddenly and unexpectedly short because our domestic gas system is unreliable and risky and has left us in a hole. Domestic gas has been around $7 to $8 a gigajoule. And we would be looking at $20 plus for LNG. And then that price flows through into electricity prices as well. It would be a huge economic shock. And it's one that the government doesn't seem to have analysed. It's going to put up gas prices enormously.
“So there's a little bit of a chicken and egg kind of thing there. But we sort of have a choice if we could either jack the price of gas up enormously by importing LNG and then have the market say; ‘Oh, well, that was stupid. Let's find cheap, low emissions alternatives that are just better and faster and cheaper’. Or we could just do those better, faster, cheaper things in the first place, which seems more sensible to me.”
Vincent
“Let's talk to David about that. Is there enough growth in renewables that we don't need to import LNG, and eventually we won't need to burn coal?”
David
“Not in the near term, but in the long term, absolutely. I think in the long run, renewables could replace very nearly all of our dependency on fossil fuels. If we're talking about time frames like 2050, there's definitely uncertainty over things like long-haul flights and industrial processes and so on. But renewable generation can be massively ramped up, and a lot of the economic tailwinds are pushing things in that direction.”
Vincent
“Let's talk about the near term. These dry winters are not going to leave us. How do we meet these kind of short term gaps between supply and demand?"
David
"There's an enormous opportunity looming with batteries. Home batteries, but also batteries on wheels, otherwise known as electric vehicles. With that combination of a solar and battery system, you can supply your own electricity and you can supply energy cheaper than you would if you were spending that money on fossil fuels or even purchasing electricity from the grid. So, in a number of cases, this can provide some of that energy that is needed and take some of the pressure off the current system. It's not going to work for everybody. We still need grid electricity. But by accelerating that uptake, it can really relieve some of the pressure."
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