With declining oil self-sufficiency over a number of years, Australia has become very dependent on energy transported by sea. On top of this, contemporary social pressure to reduce greenhouse gas emissions is forcing weather-dependent, renewable energy into our electricity system, raising doubts about the security of electricity supply, explains Robert Pritchard of the Energy Policy Institute of Australia.
The appeal of investment in electricity generation has diminished to the point that existing assets are being closed down and new assets are not being built without being underwritten by government.
For half a century, oil-dependent countries have been concerned about interruption to their oil supplies. Australia has made up for this by becoming a major exporter of coal, natural gas and uranium.
At their June 2019 Summit in Osaka, G20 Leaders endorsed energy security as a guiding principle for the transformation of energy systems:
"...the importance of [transforming] our energy systems into affordable, reliable, sustainable and low GHG emissions systems as soon as possible
... the role of all energy sources and technologies
... different possible national paths to achieve cleaner energy systems
... global energy security as one of the guiding principles for the transformation of energy systems, including resilience, safety and development of infrastructure and undisrupted flow of energy from various sources, suppliers, and routes."
What path should Australia now take in pursuing its energy security, at the same time as transforming its energy system?
What did we learn about energy security from the history of oil development? What did we learn from the activities of OPEC, from the creeping expropriations of oil concessions in the Middle East, and from the threats of some countries to use the ‘oil weapon’?
What did we learn from Russia’s push to establish the Gas Exporting Countries Forum and its threats to curtail gas supply to western Europe?
What are we now to learn from Iran’s recent threats to tanker traffic in the Straits of Hormuz?
We have learned there is no single pathway on which we should rely.
Over the last 30 years, Australian companies moved to expand their production and export of coal, natural gas and uranium to Asian markets. This strategy was so successful that it enticed Australia to call itself an ‘energy super-power’.
However, super-power status has little value if demand drops and export prices fall.
Climate policy disruption
Perhaps the greatest threat that now looms over Australia’s energy production is the Paris Agreement and the disruption of climate-related policies and actions.
Our vast resources of coal and natural gas could be quarantined by strict requirements to reduce emissions, unless we invest heavily in technologies to reduce their emissions-intensity.
How will Australia transform its energy system to accommodate its Paris Agreement obligations? How will Australia adjust its trading relations with its key customers? How will Australia manage the politics of climate change in its own region?
Destabilising our power systems
In most countries, including Australia, there is a rising demand for electricity, not just to keep the lights on, but as a source of heat for industry and as a transport fuel to eventually take the place of petroleum.
The introduction of high levels of weather-dependent renewable energy is, however, destabilising our power systems, threatening reliable supply, and forcing dispatchable, base-load generators out of business.
For some years, we may need to suffer political tinkering to keep the lights on, while doing the best we can to keep prices affordable. We may need to anticipate ongoing political interventions in markets through tougher environmental laws, carbon reduction targets and subsidisation of both old and new generation.
Our energy security in the future
The key theme, and the key ingredient, in managing our future energy security is diversity. There is no single path on which we should rely.
The overall challenge for Australia is to continue exporting energy security to its main customers, who will be dismayed if they find their energy supply choked off by political or market disruptions, and, at the same time, reduce its own high level of dependence on imported oil, while not exposing its power system to the vagaries of the weather.
Energy security therefore remains an increasingly complex challenge with multiple stakeholders interacting on multiple fronts, in different ways and with different levels of intensity.
The key theme must be diversity. Energy security will always be enhanced by the availability of a diversity of options and the flexibility to switch from one to the other.
Under this key theme, Australia should consider the pursuit of at least nine distinct energy security strategies:
- Investing heavily in carbon capture, use and storage and other emissions-reduction technologies – requiring a national effort to prevent our vast resources of coal and natural gas being quarantined by international emissions-reduction commitments;
- Diversifying our use of different energy forms – requiring a diversified portfolio of interchangeable energy forms that includes renewables, fossil fuels, nuclear power and hydrogen, all with a focus on reducing costs and lowering emissions – lifting the ban on nuclear power generation at the same time as enhancing the value of our vast uranium resources;
- Diversifying our supply sources – requiring a diversified portfolio of supply sources from different geographical regions and commercial suppliers, all with a focus on reducing costs and risks;
- Increasing competition – requiring as much competition as possible with the aim of reducing costs;
- Reducing our oil dependence or, ideally, attaining oil self-sufficiency – requiring increased domestic exploration – with adequate emergency stockpiling systems to play a balancing role during oil shortages;
- Interconnections – to reduce our vulnerability to system failure and fuel shortages;
- Fuel switching systems – to provide flexibility and adaptability;
- Energy infrastructure – to provide pipelines, transmission grids, and storage facilities and better protect our energy infrastructure from weather events;
- More efficient, innovative energy technologies – to reduce the energy intensity of the economy, including reducing fuel use in transport.
In implementing all these strategies, there should be regular consultation with our key trading partners, with industry and with the community, to entrench and underpin support for the agreed policies.
The right combination of policies is necessary for our energy security. There is no single pathway.
Robert Pritchard is executive director of the Energy Policy Institute of Australia, an independent industry policy body. This article represents the views of the author and does not reflect the official views of the institute or any of its members.