Securing gas supplies for domestic consumption over the long term

Tim NelsonAPPEA Conference - May 2012 - AGL External

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Agenda

› The objective function of energy policy

› The critical role of gas in Australia’s economy

› Supplies of gas in east-coast Australia

› Demand for gas in east-coast Australia

› A projection of demand/supply in 2030

› Climate change policy

» Economics of gas-fired generation

» Role of gas-fired generation

› A projection of demand/supply in 2030 (including power generation)

› Policy implications

» Integrating planning and energy policy

» A lesson learned from electricity

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3Energy Policy Objective Function

› Energy is considered an essential service for residential consumers

› Importantly, gas is also a vital input in the production of many domestically produced goods and services

› In this context, energy policy has three primary objectives :

» Security of supply;

» Minimised cost; and

» Removal negative production externalities (i.e. greenhouse emissions)

› Inherent conflicts exist between these objectives:

» Removing negative externalities increases end user pricing

» Greater security of supply may increase end user pricing

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Critical role of gas in the Australian economy

5Business useMany industries are critically reliant upon natural gas for production of their goods and services

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6Household use3.6 million small connections to the east-coast gas network that use gas for “essential service” applications

Usage VIC (GJ) NSW (GJ) QLD (GJ) SA (GJ)

Bottom 22.1 8.7 5.7 7.5

Middle 52.7 18.9 10.9 16.3

Top 99.2 42.6 23.5 39.2

› Hot water

› Cooking

› Space heating

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7

Supply of Gas

8Supply of natural gasEast-coast natural gas supplies are now dominated by coal-seam gas

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Demand for Natural Gas

10Demand for natural gasAll mainland east-coast states use significant quantities of gas for a diverse range of uses

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11Demand for natural gasGrowth in demand for natural gas has been steady since 1980 after rapid growth in the 1970s

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12Demand for natural gasBut demand for gas is set to go through a “step change” due to the development of LNG projects in QLD

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Demand and Supply by 2030

14Demand/supply position by 2030There is a tight supply/demand balance by 2030 even prior to the consideration of new gas-fired generation

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Climate change policy - role of gas-fired generation

16Gas-fired generationThe Clean Energy Future Act is likely to alter the economics of base and intermediate power generation

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17Gas-fired generationBut changes to gas pricing alter the economics related to fuel switching for the purpose of emission reduction

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18Gas-fired generationAnd peak demand continues to grow requiring further investment in gas-fired open cycle turbines

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19Gas-fired generationBoth climate change policy and peak demand generation is likely to result in an increase in gas-fired generation

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Projection of supply and demand to 2030 (including power generation)

21Demand/supply position by 2030There could be a shortage of gas across the east-coast by 2030 if significant new power generation loads materialise

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Policy implications

23Policy implications

› This paper has demonstrated the extremely tight demand/supply balance for east-coast gas to 2030

› Gas plays a critical role in the economy

» Essential input for business

» Essential service for households

› Rapid development of coal-seam gas reserves has increased community focus on production of natural gas

› But there has been little community focus on security of gas supplies

› Policy makers and the industry need to work together to communicate the importance of securing gas supplies

› Integration of planning policy and energy policy is critical

There must be greater integration of energy policy and planning policy reflecting the importance of security of supply

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24A lesson learned from electricity

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2007 2008 2009 2010 2011 (annualised)

Media Events

Calendar Year

NSW (6.7x Incr.)

QLD (6.2x Incr.)

VIC (3.9x Incr.)

SA (2.0x Incr.)

Up 41%

Up 80%

Up 92%

Up 39%

Sensible public policy may become more difficult if issues are not addressed ahead of time

Source: Media Monitors

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Further information

AGL Sustainability Report (online and concise summary)

www.aglsustainability.com.au

AGL Sustainability Blog

http://www.aglblog.com.au

John HobsonHead of Capital Markets

phone: +61 2 9921 2789Mobile: +61 (0) 488 002 460

e-mail: john.hobson@agl.com.au

Nathan VassHead of Corporate Communications

phone: +61 2 9921 2264mobile: +61 (0) 405 040 133

e-mail: nvass@agl.com.au

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