Australia to push to further deregulate power markets

MELBOURNE Wed Nov 7, 2012 11:43pm EST

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MELBOURNE Nov 8 (Reuters) - Australia's government will lead a new push to deregulate state-based electricity markets and prices and cut red tape to make the energy sector more attractive to much-needed investment, Energy Minister Martin Ferguson said on Thursday.

Releasing an energy white paper, Ferguson said the government would also encourage states to transform to cleaner energy and to do more to develop gas, including coal seam gas, for both export and domestic consumption.

He said Australia had sufficient gas to meet both export and domestic demand until 2035, but with a tightening of market along the more populous east coast. But Ferguson rejected any push to quarantine gas production for domestic use.

"Intervention such as reservation policies to force price or supply outcomes are more likely to impede rather than promote supply," Ferguson said in a business speech to launch the white paper.

Australia's $50 billion coal seam gas to liquefied natural gas (LNG) export industry has sparked calls for gas to be reserved for domestic use due to fears that demand from energy-hungry Asian buyers will push up Australian gas prices.

The much less populous state of Western Australia does have such a policy, but Ferguson said he did not support a similar policy being implemented in the eastern states.

While state and federal governments needed to work harder to remove impediments to gas developments, companies themselves needed to ensure enough gas is kept for domestic use, he said.

"It is also incumbent on the gas industry itself to maintain a balanced supply for both the domestic and export markets," he said.

Australia's main oil and gas body said the white paper sent an important message to investors, that the government recognised the need for a market-based approach to developing gas resources.

"It is important that gas is seen no differently to other major export commodities such as iron ore, coal and wheat in that the benefits associated with development are maximised through links to international markets," Australian Petroleum Production and Exploration Association chief executive David Byers said.

He said Australia had reserves of about 819 trillion cubic feet of natural gas, with 1 trillion cubic feet enough to power a city of 1 million people for 20 years.

INVESTMENT NEEDED

The white paper sets out the government's long-term strategic policy for the energy sector as Australia moves to cleaner energy and away from a reliance on coal for domestic electricity.

Ferguson has said Australia was chasing about A$500 billion of investment to modernise its energy, electricity and gas generation, transmission and distribution sectors by 2030, although high production costs and lower commodity prices are making more difficult for investors.

He said Australia had A$270 billion worth of committed projects on its books, with a further A$230 billion worth of projects not yet committed.

The government wanted to work with state administrations to free up electricity pricing, allowing generators to charge higher prices at times of peak demand and sending a price signal to consumers, Ferguson added.

Australia's government has long pushed for fresh investment to upgrade electricity networks and replace the country's ageing coal-fired power stations - many of which date back to the 1960s.

Ferguson said the white paper would also push for greater use of clean energy, which would need investment of about A$200 billion by 2050, to help end Australia's reliance on coal and reduce carbon emissions. Coal fired power accounts for about 80 percent of electricity generation.

But the white paper makes no change to Australia's target to produce 20 percent of national electricity from renewable energy by 2020.

"While fossil fuels will underpin our energy security for many years to come, clean energy generation could growth to provide over 40 percent of electricity needs by 2035, and potentially up to 85 percent by 2050," Ferguson said.

"If this clean energy transformation were to be realised, it would require more than A$200 billion in new generation investment between now and 2050, including around A$50 to A$60 billion in gas, and A$100 billion in renewables."

Australia, which has the world's largest reserves of uranium, has no domestic nuclear power and no plans to develop nuclear power. Ferguson said it was not cost competitive.

(Additional reporting by James Grubel in Canberra; Editing by Robert Birsel)

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