What to watch out for in Australia’s energy sector in 2023?

Commentary

Most people agree that Australia’s energy policy has been a ‘failure’ over the last two decades. Dig a little deeper and you’ll find that it’s a failed direction that experts disagree with.

Some think we haven’t prioritized climate change enough, others think too much. Some think we failed to enable the private sector, others think we failed to control it.

Indeed, energy policy has been a key issue for all six Australian prime ministers over the past two decades. This dates back to the emissions trading scheme proposed by the center-right Liberal Party under Prime Minister John Howard in the early 2000s.

The carbon tax was crucial when Labor heir Kevin Rudd was ousted as prime minister by Julia Gillard.

Climate change policy was a core difference between Liberal Prime Ministers Tony Abbott and Malcolm Turnbull, who both pushed each other out of leadership on climate change policy, first in the opposition and then in government. did.

With COVID-19, Prime Minister Scott Morrison was generally more fish to fry, but he still appointed himself Minister of Resources so he could foolishly deny offshore gas exploration permits.

This is the real reason for the “failed policy” claim, and the frustration on both sides. The energy policy debate was hotly contested, but there was no overall winner.

But this is also why both sides are wrong. Australia has indeed had good policies in most areas over the last 20 years.

Yes, the industry worries about the looming threat of carbon taxation and emissions trading amid devastating lawsuits, exploration moratoriums, locked gates, late approvals, and constant badmouthing by politicians.

But while it felt like the rope was being pulled to a breaking point in a tug of war between frustrated factions, Mark has remained between the lines so far.

How else can you explain the results? Australia has enough energy to meet its needs. The three large power grids (and a few smaller regional power grids) provide a steady and stable supply of electricity.

Ongoing research and development has increased innovation, including the efficient installation and use of renewable energy. At the same time, Australia has the world’s largest coal port and has grown over the past decade to become the world’s largest exporter of liquefied natural gas (LNG), enabling it to become a super-provider to the global market.

While the energy sector has performed remarkably well over the past two decades, recent events have pushed the tug of war in one direction, raising the risk of a true energy crisis.

But not all is rosy

The first issue, which may surprise some readers, is the private sector.

Previously, the private sector was a layer to prevent wrong energy decisions. Because it could be relied upon to act in its best interests, which meant supplying enough energy.

However, the investment world has been engulfed in an uptrend that began in 1992. It’s a retirement pension fund.

In Australia, superannuation companies own more than 40% of the Australian Stock Exchange and are actively promoting climate action through investment vehicles.

Alongside Superannuation are individual activist investors like tech billionaire Mike Cannon Brooks. This year, he tried unsuccessfully to buy Australian energy giant AGL.

However, when AGL tried to split the company into two, an environmentally friendly company and a conventional fossil fuel company, Cannon-Brookes was able to influence the board and fight off the split.

In this context, AGL is not the only company compromised by activist investors looking for ESG points rather than efficient energy production, failing to reliably make wise energy decisions.

Government strengthens private sector turf

Of course, the government is the second issue. In Victoria, the state Labor government recently pledged to create a national electricity company, effectively re-privatizing parts of the sector.

At the federal level, the government does not have to privatize the sector. Instead, it sets prices by imposing caps on how much wholesale coal and gas companies can sell (oil can’t be capped because it’s bought from overseas). .

They are also expanding the powers of Australia’s energy market operators so that more decisions are made by legislation rather than the market. On the other hand, they also rejected the proposed market “capacity mechanism”. This came at the expense of energy reliability.

All of these decisions discourage the energy sector from doing its job.

The overpoliticization of the energy sector masks its underlying simplicity. The industry’s role is to provide reliable energy today and reliably plan for tomorrow. As long as customers are willing to pay industry to sell their energy, industry should do it. But now this is in jeopardy.

What will happen in 2023?

It is impossible to know what the future holds. It would be silly to guess.

But we can be grateful that bad decisions don’t always lead to bad consequences. Many bad policies over the years have been compensated by an industry motivated by satisfying customers and pushing or squeezing past the hurdles to do so.

But with some known possible outcomes, here are four interesting factors that I will continue to watch over the next year.

• First, the harshness of winter in Europe. If the winter is very cold, fuel can be very low and the impact on humans is severe. Their future energy supply, future prosperity, and implications for the war between Russia and Ukraine are all uncertain.
• Second is the world oil price. Will it increase or decrease from here? It’s a simple supply and demand problem. A slowdown in the global economy could lead to less oil being used and lower prices. But if global demand remains high, prices could rise, and if prices get high enough…the economy could slow down. I want a middle ground. The best solution is to increase supply. In that regard, attention should also be paid to OPEC and its relationship with Russia.
• Third, Australian gas demand. One obvious response that will come after the government imposes a price cap on domestic wholesale gas is increased local demand. Gas producers must find temporary solutions to meet that demand. This could ultimately come from ‘uncontracted’ gas destined for world exports (and not in favor of international prices). This may also prevent companies from meeting their obligations under international export contracts.
• Finally, Australian electricity stability in winter. Energy security across the East Coast is in jeopardy as coal-fired power capacity has fallen sharply this year. All the supply chain issues and aging infrastructure issues we had will continue into next year. A statewide blackout in South Australia in 2015 has sparked unprecedented energy security concerns and has resulted in several policy and system improvements. Still, near misses continue to occur frequently. When could the next game-changing blackout event occur?

In 2022, there were three energy “crises”: high oil prices, shutdown of coal generators, and high gas prices. Government policy is becoming the fourth crisis, and perhaps it will be the tipping point. Through all the 2022 crises, there was no shortage of supply. how long does it last?

Hopefully it will be a political tipping point before it becomes a reality. Former Prime Minister Kevin Rudd’s climate change policy has become an iceberg that will sink his premiership. What will happen to Prime Minister Anthony Albanese when he takes on the energy sector?

Views expressed in this article are those of the author and do not necessarily reflect those of The Epoch Times.