Guest Post: "Passing Gas"

Listening to Gerry Brownlee can really take it out of you. He’s been crying wolf the whole year about a “looming” energy crisis. It’s just around the corner! Cold showers for everyone! Honest, it’s really here this time!

Nobody else thought there was going to be a crisis. There wasn’t a crisis. As the Herald said: it was “all just politics”. But John Key won’t let that little fact stand in his way. It’s a convenient excuse to push his climate-change sceptic energy policy, and he isn’t about to miss out.

Do we have a security of supply issue? Let’s look at National’s numbers (below). They say that our dry year security margin (the red lines) has been falling since 1999. Actually, there was a spike in 1999 because new power plants were kicking in, in preparation for old ones shutting down. Apart from that spike, our security margin has been stable ever since the early 90s, when the glut of capacity built during the Think Big era was finally absorbed.

But it looks like it’s taken another dip at the end, right? That’s because National has fudged the graphs. They’ve cut off the graph at its lowest point and deleted all relevant information from 2007-11. Busted!

This is the *real*, undoctored graph, straight from page 61 of their source document, the Electricity Commission’s Survey of Market Performance paper

The red line shows what would happen if we took all the planned projects that haven’t been committed and threw them into the bin. The green line shows what we’ll have when all the projects that are “highly likely” to go ahead are finished, and the purple line includes the projects that will “probably” go ahead. (They all dip after 2011 because the assumptions about future projects stop at 2011.)

This is what National didn’t want you to see. Right now, our dry year security margin is higher than it’s been for most of the 10 years. When the “highly likely” projects come on stream in a few years’ time, we’ll have a greater supply margin than we’ve had for 20 years.

More importantly, nearly all of it comes from renewable sources. This includes geothermal power, which is every bit as stable as fossil fuel generators.

What does Key consider to be a sufficient margin? 10%? 20%? Funnily enough, in an energy policy supposedly all about “ensuring security of supply”, he doesn’t say what security of supply actually means. Not once. We don’t call him slippery for nothing.

Why have an energy policy entitled “ensuring security of supply”, then say absolutely nothing about what security of supply? Because the security of supply issue is a smokescreen for what National really wants to achieve: Backing out on the fight against climate change and to gut the RMA.

This whole “power crisis” is an excuse. There is no bottleneck – 1300 megawatt of generation (nearly all renewable) will be coming on stream in the next four years. Yet, Key wants us to drill for oil and build new fossil fuel power plants.

Key reckons that gas is a good option for New Zealand. Yeah, for another 7 years. This is from the MED Energy Outlook report:

The thick blue line represents how much we need, the coloured area represents how much we have. That big fat white space in between? That’s how much gas we’re going to have to buy and ship in from overseas. The report says:

“Several factors will determine how long these supplies last, but, without new discoveries, it seems likely that New Zealand will face a gap between gas supply and demand sometime in the 2010s.”

The domestic supply of gas will run out before the paint dries on these gas power plants. Then we’ll have to start buy gas from overseas producers to keep them running. Why is this a really, really dumb idea?

“The countries with the largest gas reserves tend to be the OPEC countries and Russia suggesting that a supply disruption affecting the oil market could also have an impact on the world gas market.”

While the rest of the world is moving towards sustainable energy, Key is proposing that we move in the opposite direction. He wants us to slow down on renewable energy, increase our exposure to skyrocketing international energy prices, and increase our reliance on an unsustainable energy source.

That ain’t ambitious.

Electricity Commission’s Survey of Market Performance paper

MED Energy Outlook report

National’s energy policy

Comments

[Macro]

Gas and COAL!!!
We want to look like China! - If we can see the country on a clear day.
Oh I forgot - You can strip the particulates! Yeah right!

[Spam]

Jordan,

Not sure who wrote this "guest post" but:

The gap opening-up in the energy market is a result of the market dominance by cheap, pre-paid Maui gas. It has just not been economic, at all, to develop other gas fields. Notice that Kupe stood undeveloped for years and years? Note that Pohokura was only discovered and developed when Maui was in decline?

The wholesale price in the US is around $US 10/MMBTU, or about $NZ 13.50 / GJ. Compare that to the approximate wholesale gas price in NZ (even with Maui in decline and the looming "shortage"), which is around $5 or $6 / GJ. i.e. about half the world price. Now: Development costs here are much higher than elsewhere, which means that more has to be found at these prices to be economically developed, although with the high oil price, associated liquids are very valuable.

With this 150 PJ / annum gas demand not being able to be met, this means a shortfall of around 4700 MW of generation. From that graph, with no new developments, its about a 90 PJ shortfall in 2016, which is a 2850 MW shortfall.

But that's OK! There is a stunning 1300 MW to replace it in the next 4 years! Plus cater for new growth. Plus to cater for phasing-out of coal. Anyone see a problem here?

And the government energy "strategy" to ban new thermal power stations is again effectively making people think very carefully before they go and invest in Oil & gas exploration.

And finally: The graph "that national didn't want us to see" shows that for "committed" new generation, the dry-year energy supply margin does drop fairly quickly. I guess this shows that the new generation that is coming on simply isn't enough. Never mind the fact that renewables need a higher supply margin that thermal stations.

[burt]

Jordan

I also look at the estimated dry year supply margin and think it tells us that we need to commit to significant mitigations for dry years.

Climate change alarmists are telling us that we can expect more extreme conditions including more prolonged drought and floods, more extremes of what we have seen this year. Basing a infrastructure plan on likely and possible developments is in my opinion extremely risky.

I don't understand why Labour want to attack National for planning more electricity generation infrastructure? Do Labour want continued high electricity prices? Do Labour like seeing pensioners and low wage people struggling to pay their power bills?

Perhaps Labour would like to hold it's primary health care hat in one hand, it's electricity supply hat in the other hand while thinking about old age pensioners who can't afford to switch the heater on for a moment and see if there isn't some fish hooks in it's approach of denigrating National's intentions without a solid plan of it's own.

[Oliver]

Jordan,

What do you think the impact of Tiwai Point closing down would be like? You should think about that because this was not the first year that we avoided cold showers by paying Rio Tinto to use less electricity. How many times will that happen before the good folk at Rio Tinto pull the pin and close down Tiwai point?

[B Whitehead]

When we have to pay companies money in order for them not to use electricity, it unlines the point that NZ can't always produce enough power to meet its needs. ie there are shortages of electricity & we are 'expected' to save to order to 'fix' the problem. Bollocks to that..Electricity is a commodity like any other consumable item, if I want to buy & use more thats my bussiness.
Interestingly this topic has been covered in far more detail than the one above. try the link below..

http://pc.blogspot.com/2008/08/both-big-parties-appeasing-warmist.html

[Macro]

"Interestingly this topic has been covered in far more detail than the one above. try the link below.."
Foolishly I clicked on that link! I've never read such utter dribble in my life! The fact is Mr Whitehead... Electricity is not just a commodity - it was National's stupidity in the early 90's and short sighted treatment of Electricity as a simple commodity that led NZ into the "mess" we are slowly evolving from today. Power companies LIKE to have a shortage! They charge more for selling less! Why build extra capacity when you can put the price up? Creating extra capacity requires a considerable lead time. Its not - oh! let's build a wind farm tomorrow senario. Further more the Nats propose to gut the current EECA!! Now that is a really stupid thing to do! Reducing NZ's ability to develop further efficiencies in Energy usage is just down right head in the sand stuff! The industries EECA has worked with have almost all been able to achieve a 20% - 30% cut in their energy inputs in the first instance and then gone on to even greater efficiencies afterwards. Why do away with that - even a died in the wool capitalist such as yourself - must see the stupidity of continuing extra costs in production! But NO! For the sake of IDEOLOGY gut it!

[B Whitehead]

"Power companies LIKE to have a shortage! They charge more for selling less! Why build extra capacity when you can put the price up?"

Quite correct Marco, under a normal market, this would happen, which creates the opportunity for a new or existing competitor to create more of that commodity & create a profit for themselves, However, opportunities are stifled by the ramifications of global warming, the RMA, & a government that has a history of changing the rules at the last moment for short term political gain. As you point out, creating more capacity requires a considerable lead time & quite substantial investment, because of these factors, its unlikely a new private company or group of investers would look at the idea of creating electricity as there are easier ways of making money.

[B Whitehead]

Sorry I meant Macro, not Marco

[Guest-Poster]

Spam: The projections for dry-year margin effectively go to 2011 (see below). Of course there are not enough developments between now and 2011 to cover half the country's gas plants shutting down along with everything else. It doesn't have to - yet - because Maui is still going. Even post-Maui, we'll still be able to import gas from overseas. But it's expensive, and it also exposes us to international gas prices - which are linked to oil prices.

Are you suggesting that we build more gas plants to drive up prices so that we spur more exploration and development? Who benefits from that, when the alternative is that we can become less dependent on gas?

Burt: To clarify what "highly likely" means, it refers to projects that haven't actually started (e.g. "Committed"), but is in the planning phase. There's no dice rolling involved, you just can't count your chickens before they hatch. But you can't discount the eggs, either, since you can't go from nothing straight to chicken - by the same token, you can't discount projects that are being planned prior to construction.

Spam again: The "committed" line drops off quite quickly because some projects that are planned for completion in 2010/11 haven't started construction yet, and so don't fall into the "committed" category. The fact that it falls off quickly just means that we're not building anything that takes ages to build.

Whitehead: Large industrial users make special arrangements with power companies because it makes good economic sense for both parties. When there's excess power, these industrial users get some of the cheapest electricity in the world (you didn't think they picked NZ for the convenient location, did you?). In return, they cut back when there's a dry year. It's a risk, but it's one that makes good business sense for them and for the power companies. There's nothing un-capitalist about this private commercial arrangement.

[Jordan Carter]

Interesting comments all. Note that I just provided the outlet for this post.

[lambtonquarter]

I'm not sure National have done anything wrong. First, if you go to the EC paper, they have used the graph they say they've used. It hasn't been doctored at all. It's right there in the paper in Chapter 3-3. So claims they have "fudged" the graph are wrong.

Secondly, National claim that "Our dry-year security margins have been
falling since 1999...[The graph] shows that since 1999 average dry-year energy margins have fallen."

The graph they've used shows exactly that -look at the red line - it clearly dips between 1999 and 2006/7.

They also say that "The 2008 figure is not included, but is likely to be lower again than 2006/7."

This is almost certainly true as well because of this winter's extremely tight electricity situation. The 2008 figure in the graph from a few pages on is an _estimate_ because the EC paper was written in 2006.

In terms of oil and gas - Well, Labour believe in it too - Parker gave a speech on 8 August in which he said "Fossil fuels, especially gas, will continue to have a critical role for some time to come."

He also said that "The government continues to support and stimulate exploration for oil and gas reserves..."

[George Darroch]

I thought it ridiculous at the start of the decade that the Labour Government was allowing, and investing in, many new gas plants. The entirely predictable result was burning unnecessary fossil fuels and exhausting Maui, instead of investing in the most cost effective solution - the low hanging fruit of efficiency.

It is doubly so a decade down the track, and National haven't learned from Labour's mistakes (and Labour have, moving away from that short-sighted strategy).

[stanb]

I

Jordon how about putting a link to this incredible website on your page.
its published in America & produced in Australia.
sponsored by the Rainbow branch of the EBC and " Culinary Institue America"

Its a lot of fun and a hoot! THIS SITE HAS HAD MORE HITs!....from within NZ than " the Standard"

www.dontvotelabourcartoons.com

Plus I dont know if you have seen this yet.

Saturdays Dominion Post.

Just weeks out from the election, the polls by Morgan and Fairfax Media-Nielsen have National leading Labour by 14 and 19 percentage points respectively

Translated into seats at Parliament, the Nielsen results would see the disappearance of New Zealand First and leave National with a majority 70 seats, 24 seats ahead of Labour on 46.

[Kevyn miller]

"Nobody else thought there was going to be a crisis. There wasn’t a crisis." That's right. It was all just a publicity stunt by Meridian to impress the decision makers at it's resource consent hearing for the North Bank Tunnel. I'm surprised they are repeating the tactic that failed them when they were trying to get consents for Project Aqua. The stunt seems to have backfired somewhat. McKenzie District normally gets some rain in winter but this year it's been ark building weather everywhere except the in the Waitaki catchment. Now they don't have enough storage to keep the South Island powered up for more than a week if there is a catastrophic failure of the HVDC link. Unlikely but not impossible.