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It indicates that while natural gas is widely viewed as the logical replacement for coal in the Australian power sector, its future is far from secure.
The Standard & Poors/Reputex paper forecasts the impact of the Australian Carbon Price Mechanism on the shape of Australia’s National Electricity Market through to 2020.
It examines the question of which fuel sources are likely to benefit most in the move away from coal generation.
In the report Reputex models three gas and carbon price scenarios to show the likely effect on the fuel mix of Australia’s NEM.
The first scenario, under a static gas price and high carbon price, is the only one to predict a surge in gas generation, showing it rising rapidly from today’s 11% to about 31% by 2020.
The other two, which both forecast higher gas pricing, paint a more mixed picture.
Scenario Two shows black coal continuing its dominance, while a drop in brown coal generation is covered by gas.
Scenario three shows gas generation growing but at a slower rate.
Reputex executive director Hugh Grossman said the future of gas generation in Australia would largely be determined by the outcomes from both the gas and carbon prices beyond 2015.
“While gas seems to be the logical replacement, the winner under carbon pricing may not be so clear cut,” he said.
“We anticipate gas generation will increase from 11% of our total fuel mix, however, the extent of that win could be muted by the growth of export markets from 2014 and the expected increase in gas price levels.
“Any upturn in gas prices would see the operating costs of gas generators spike with it, making them less competitive relative to coal.
“Any gas price rise may therefore offset the effects of the carbon price, which would otherwise be favourable to the sector.”
One thing the study’s scenarios do not take into account is the possibility of a game changing event on the scale of the US shale gas industry. That has led to extremely low gas prices – the Henry Hub price on Friday was $US1.87 per million British thermal units.
Should something of that ilk happen in Australia, the generation equation could change considerably.
