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Australian energy may be more useful abroad than at home

Renewables or fossil fuels, we’ll send them offshore when it makes sense. Flickr/nosha

Australia is a major energy exporter. Are we going to continue to increase our contribution to Asia’s energy mix? Will it be clean energy? And is it possible that our best renewable energy resources will also be exported rather than supplying our own towns and cities?

Look at some statistics. Australia is the world’s fourth largest coal producer (behind China, the USA and India) and the largest exporter. We supply around 27% of world coal trade.

We export 82% of our black coal production. This accounts for 64% of world trade in metallurgical coal, used in steelmaking, and 19% of world trade in thermal coal, used for making electricity.

Gas, including conventional natural gas and coal seam gas, is becoming increasingly important for Australia as a domestic energy source, and more recently as a source of export income.

Since 1990, from a starting point of zero, Australia has become a significant exporter of liquefied natural gas (LNG), with around 50% of gas production exported. This is projected to increase to around 60% of production by 2020.

Our entire production of uranium is exported.

More demand for our energy overseas than at home

Over the past 20 years our energy production has been driven by rapid growth in global demand for Australia’s energy resources.

Since 1988–89, the value of Australia’s energy exports has increased at an average rate of 11% a year. In 2009-10 they accounted for 34% of the value of Australia’s total exports of goods and services.

Domestic energy consumption has increased at a slower rate. Consequently, the share of Australian energy production used for domestic consumption has decreased from about half in the 1980s to about one third in the past decade.

This is in line with other commodities such as iron ore, aluminium, base metals, titanium minerals, diamonds and gold, all of which are exported in much greater quantities than are kept for domestic use. Commodity exports provide close to 40% of Australia’s export income.

Yet we feel differently about energy because its importance is more apparent to us.

How can we assure ourselves that energy exports are in the overall national interest? And what will happen as we change the mix of our energy supply in favour of renewable sources?

There are two factors at play in deciding whether to use energy domestically or export. These are the economics of extracting the resource and the strategic value of future supplies.

Would we rather have power or money?

We need the promise of export earnings to attract huge investments; otherwise many reserves would be left in the ground. Australia’s largest resource project, the extraction of North West Shelf oil and gas, required both the domestic and export markets to fund the capital expenditure of some $19 billion to date.

On the other hand, our reserves are large enough that we know they can supply our domestic needs well into the future. At current rates of production, Australia’s energy resources are expected to last for many more decades.

We expect we can economically extract 539 years worth of brown coal, 111 years worth of black coal, 68 years worth of conventional gas, 100 years worth of coal seam methane, and 141 years worth of uranium.

Despite increasing energy production, there has not been a declining trend in these estimates. We keep making new discoveries and upgrading resources that meet economic criteria.

Before these resources run out there will be a dramatic change in our energy mix driven by the need to mitigate climate change and achieve long-term sustainability.

Renewable energy presently accounts for 5% of our primary energy consumption and 7% of our electricity generation. The latter should increase to at least 20% by 2020 to meet the expanded Renewable Energy Target (RET).

As more renewables come online, should we prepare ourselves for decreased energy exports? The majority of renewable energy production is extracted directly as electricity for which, presently, there is only a domestic market.

Or could it be that export markets will develop to fund solar, wind, tidal, wave, and geothermal generation and transmission infrastructure, competing with our own consumption?

Plenty of buyers for renewable power at home…

Renewable energy has a pattern of production and consumption quite different from fossil fuels. Our electricity sector is undergoing a major transformation to support the RET and public expectations for clean energy.

Rooftop solar hot water and electricity are examples of distributed production close to consumption. On the other hand, transmission infrastructure doesn’t yet exist to transport electricity from our best renewable resources to our population centres.

Solar energy offers a helpful flexibility because it can be captured in solar gas, as an alternative to electricity, and transported in a pipeline.

The mining sector is a big energy consumer and it is in the right locations to harness our continental solar, wind, and geothermal sources.

Australia is likely to host the international Square Kilometre Array project, an enormous radiotelescope spread over multiple outback sites, with significant energy needed to run its antennas, receivers, and data processing centres.

Desalination may emerge as a consumer of coastal resources including tidal and wave energy.

…and big plans to send it overseas

International connectivity under the sea is now common in Europe, and in Australia it is being contemplated for gas pipelines to Timor and electricity from Papua New Guinea.

The Association of South East Asian Nations has a strategy for interconnection to facilitate energy trade and security.

On a decadal time frame, a vast gas and electricity network could emerge spanning our region between China and Australia.

Our role in such a network would most likely be as a net supplier. This is because renewable energy sources are more abundant at high latitudes.

China has a similar potential to export renewable energy, with excellent wind and hydro resources and quite good solar in the west, although for the immediate future China is focussed on keeping pace with its own rapidly growing energy demand.

Whether the energy is renewable or fossil fuel, the same factors will control whether we use it here or export it. How badly do we need the power here? How secure do we feel about future supply? And would we rather have more money in our pockets?

Further reading

Australia’s natural gas: issues and trends

Australia’s coal industry

Energy in Australia 2011

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