eric perez, australian aluminium council: meeting customer energy needs: what does industry need...

1 Australian Aluminium Council Ltd. www.aluminium.org.au

East Coast Gas Outlook 2013

Meeting Customer Energy Needs:

What Does Industry Need From Energy Policy?

Eric Perez - Australian Aluminium Council

22nd October 2013


Presentation Overview

1. What does a customer need from an energy market?

2. The customer – Australian Aluminium Industry.

3. Outlining the energy policy mix in Australia.

4. Are Australia’s energy markets working?

5. Policy tensions and the role of government.

6. Conclusions.



A deep and efficient domestic gas

market.

• close contracts for supply over

investment timeframes.

• pro-market, not anti-market.

How do we get there?

• multiple measures.

• stimulate supply.

If we don’t?

• fuel switching, lost investment,

lost value.



What do Australian domestic gas

customers see?

Few suppliers.

Complex market.

Clear squeeze points in future supply.

Suppliers participating as buyers.

Poor information on supply and price.

Government involvement.



Newcastle

Adelaide

Alumina Refineries

Bauxite mines

Aluminium Smelters

Kwinana Pinjarra

Wagerup Worsley

Boddington Huntly Willowdale

Portland Geelong

Bell Bay

Gladstone

Weipa Gove

$50b+ Industry

Capital

Value

Over

16,000

Regional

Jobs

50+ yrs Ongoing

Investment

$9.3b Exports

Alumina &

Aluminium

Value

Adding

Industry

Regional

Presence

A key player in Australia’s

economic past & future…



Western Australia Eastern Australia Northern Australia

Australian Natural Gas Markets



Alumina refining is energy

intensive. Alumina refineries are

large users of Australia’s natural

energy resources, namely gas and

coal.

ENERGY SOURCE USAGE (TJ per annum)

Natural Gas 147,561

Black Coal 42,034

Fuel Oil 23,411

Electricity 6,370

Diesel 1,169

2/3 of the energy used by

alumina refineries is gas

dependent.



0

20

40

60

80

100

120

140

160

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Gas

Diesel

Fuel oil

Electricity

Coal

Fuel Usage Trends in Alumina Refining P

J p

er A

nn

um


3. Outlining the energy policy mix in Australia.

CSG restrictions

– will impact on

the NSW

community and

manufacturing.

NSW Gas

Policy

QLD Gas

Policy

Complete focus

on LNG export

and ongoing

unconventional

gas exploration.



The simple answer is no.

Not enough suppliers.

Limited contracting opportunities.

Pricing.

Supply of gas for domestic use.



Desired Outcome

Possible Policy Mechanism

Increased gas supply to the domestic

market

National interest test.

Increase unconventional gas exploration.

Remove policy impediments to increased domestic

supply.

Stop warehousing and apply to new reserves.

Greater diversity of suppliers

Remove joint marketing arrangements.

Consistency of gas policy

Policy coordination needed to improve gas supplies

entering the domestic market.

Role for the Standing Council on Energy and Resources.

Pipeline capacity available to meet

incremental domestic demand growth

Maintain third-party access rights for new gas pipelines.

Greater market transparency

Establish a gas price index.



West Australian Gas – Not a functioning market

Highly concentrated market.

Local gas prices are high.

Contract provisions are hard to secure

15% reservation policy.


4. A Threat to Investment?

Source: ABS 2011 via DomGas Alliance 2012

WA Petroleum Exploration Expenditure ($)



Recognise the important role of domestic industry.

Competitively priced energy needed in order to enhance

Australia’s domestic and export growth potential.

Recognise the impact of energy policy.



What is the “proper” role for Government - commercial

participant or regulator?

Market participant.

Investor.

Regulator.


6. Conclusions

Domestic gas market users have opted to become more actively involved in the

identification of why the market is illiquid.

Gas supply may be insufficient to avoid constraining domestic use;

Each petajoule of gas shifted away from industrial use towards exports

means giving up $255 million in lost industrial output for a $12 million

gain in export output. That is, for every dollar gained $21 is lost;

Secure local gas supply is fundamentally important to a number of

industries including non-ferrous metals and basic chemicals, plastics,

pharmaceuticals and paints;

Gas exports are predicted to rise from 2 million tonnes in 2015 to up to 24

million tonnes in 2023;


6. Conclusions

Long term gas supply contracts have evaporated for local industry as a

consequence of export commitments;

East coast gas prices will rise; and

Current policy settings favour exports over domestic gas sales.

Large Scale Export of East Coast Australia Natural Gas: Unintended consequences

Australian Industry Group and

Plastics and Chemicals Industry Association

October 2012


6. Conclusions

Australian Domestic Gas Market…

Gas is a commodity but also an input.

The market is based on Government intervention… and fails

most measures of an efficient market.

Create an efficient domestic gas market.

Then, we let the market do its work… to maximise the value

from energy rather than the value of energy.

19 Australian Aluminium Council Ltd. www.aluminium.org.au Australian Aluminium Council Ltd. www.aluminium.org.au

Thank You

eric perez, australian aluminium council: meeting customer energy needs: what does industry need...

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australian customers

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