Channel 9 reports that the WA governments policy of reserving a percentage of local production for domestic consumption is being retained - WA govt retains local gas supply policy.

The Western Australian government will keep in place a 15 per cent domestic gas reservation requirement for all major gas projects in the state.

The policy, established under the previous Labor government, requires producers to set aside 15 per cent of their gas reserves for domestic consumption, rather than for export to Asia at higher returns.

Premier Colin Barnett has tabled his government's response to recommendations of a parliamentary committee's inquiry into domestic gas prices, that were found to be double those in eastern states.

While interest (and progress) in wave power projects has lagged that of tidal power projects in recent years, ocean energy company Carnegie Wave Energy has continued plugging away in the field and recently announced that it has successfully activated its first commercial-scale CETO unit off Garden Island in Western Australia on the weekend - ahead of schedule.

The West Australian has a report on the launch - Carnegie makes waves with renewable energy

Carnegie's technology, developed by company founder and inventor Alan Burns, relies on buoys anchored on the ocean floor that use the motion of passing waves to drive pumps which then deliver pressurised water to shore.

The company will monitor power produced at the Garden Island site over the next month and if all goes to plan, will eventually install up to 30 units, enough to produce power for 3500 homes.

Carnegie managing director Michael Ottaviano said yesterday the unit was producing power "exactly as expected". "This is the most significant milestone in Carnegie's history," Dr Ottaviano said.

The State Government has invested $12.5 million in Carnegie's efforts to bring its CETO technology to market. But despite Australia's reliable wave source, the company has increasingly been forced to look overseas for development funds. In 2009, it scrapped plans to develop the world's biggest wave power project near Albany after it was overlooked for a major Federal Government grant. The $300 million pilot project had aimed to produce 50MW of power, enough electricity for 30,000 homes.

The Climate Spectator has more, noting the company is looking to make wave power as cheap as wind power - All set to catch the next energy wave.

Wave energy, in theory at least, could provide up to one third of Australia’s energy needs, according to Carnegie, although the CSIRO has predicted even greater potential. In a country rich with renewable sources such as wind, solar and geothermal, not to mention its fossil fuels, it will likely never meet that capacity. But it could play a key role in some areas, particularly if it delivers on its cost predictions, and may become critical to the energy needs of countries in Europe, Africa and South America, that have few other options. ...

Ottaviano says Carnegie will monitor the unit’s performance over the next 6-8 weeks, but within the next few months will make a decision on where to deploy its first full-scale demonstration plant, likely to be up to 20 units generating around 2MW of power.

Garden Island is the most likely option, because it can deliver the project in the quickest time, but the company is also being courted by Reunion Island, where its partner, the French energy giant EDF, is offering to pay half its costs and the French government offering to pay a generous feed in tariff.

Wherever the first demonstration plant is built, the future roll-out of multiple units is likely to take place overseas, where some countries such as Ireland and Scotland are battling to become the world centre for ocean energy.

“The countries pursuing wave energy are doing so because they see a competitive advantage,” Ottaviano says. “They want to own the space. It’s not just about generating kilowatt hours into the grid, it’s about industry development and IP generation. That sort of argument doesn’t penetrate in Australia. All we hear about is the costs in developing the technologies.”

Ottaviano notes that Ireland, where Carnegie has developed strong commercial relationships, is the only country in the world with a defined wave energy target – it wants to install 500MW of capacity by 2020.

Carnegie’s own goal is to have 40-50MW of installed capacity by 2015, and it is likely to happen either in western European countries that are offering generous tariffs, or on remote islands, where local authorities are seeking to displace expensive diesel.

Ottaviano says analysis by Parsons Brinckerhoff suggested that once economies of scale are achieved, costs could fall to as low as 12c per kilowatt hour. “We will start higher than that, so the best markets for us will be where we can get the best tariffs.”

In Bermuda, for instance, where the company has recently installed a wave-monitoring buoy, the proposed tariff is 42c/kWh. “The trick for us is in the next five years, deploy 50MW of projects in high tariff region and use them to generate economies of scale to get costs down to 12-13c/kWh,” Ottaviano says. “At that point we will be competitive with wind.”

The Climate Spectator has an article on concern in WA that it is missing out on federally funded solar power projects - Will solar rise in the west?.

The solar energy industry has virtually given up on the federal government providing a mechanism for the roll-out of utility-scale solar installations across the country, and is instead focusing its efforts on individual states.

Buoyed by the recent decisions of Victoria and the ACT to offer large-scale feed-in tariffs (FiT), a new coalition of solar technology companies, renewable energy groups, engineering companies, universities and regional councils, is calling for WA to do the same. Other states are likely to be similarly lobbied.

The WA coalition argues that the state with the best solar radiation in Australia should be leading the country in solar generation and argues that a 5 per cent solar target for 2020, underpinned by an FiT set by auction, would unlock more than $4 billion of investment to install some 1060MW of capacity.

This particular group has been frustrated that none of the 10 WA-based proposals – many of them around 200MW each – made the federal government’s Solar Flagships shortlist, and it fears now that Victoria and the ACT will steal the initiative and projects will be forced to migrate to less ideal conditions in the eastern states.

The group, which comes under the folksy banner of “the sunniest state, the solar state,” is going public this week after failing to gather much traction in their private lobbying efforts with the WA government.

“If you are looking at the renewable technology that works best in WA, it has to be solar,” says Richard Harris, the head of Midwest Energy. “The south-west grid is very, very peaky. We don’t have as much heavy industry, it’s very much a summer oriented, day time peak that's geared for solar power.”

Harris says a solar-gas hybrid could be particularly effective in the state, including in the Pilbara for mining projects. In any case, he says, it’s embarrassing that the state with one of the best solar radiation levels in the world has just 10MW of installed solar capacity, when countries such as Germany have more than 8000MW.

SunPower has announced it has completed a 505-kilowatt solar power installation for Horizon Power at two sites (Marble Bar and Nullagine) in the east Pilbara region of Western Australia. The system is the largest solar tracking system in Australia and powers the world's first hybrid solar-diesel power stations. The plant will generate around 1,048 megawatt hours of solar energy per year.

The T20 Tracker system used follows the sun's movement during the day, increasing sunlight capture by up to 30 percent over conventional systems and significantly reducing land use requirements.

According to The Climate Spectator, the plant employs flywheel technology developed by PowerCorp that is used to smooth the energy from the solar panels and stabilise power quality between the diesel power station and the solar farm.

Bloomberg reports that Alcoa's alumina refinery expansion remains stalled because of an inability to obtain cheap long term gas supplies (as a result of LNG exports forcing local prices towards global levels) - Alcoa Gets Energy Chill From Australia’s $130 Billion Gas Boom (via the FT). The Varanus Island incident a couple of years probably hasn't helped matters either. Alcoa has managed to obtain long term supply contracts for its refinery in Victoria - but using brown coal fired power - the dirtiest power source of all...

Australia is attracting more than $130 billion of investment in some of the world’s richest natural gas fields to supply buyers in Japan and China. Domestic customers, including Alcoa Inc., will have to wait.

Alcoa’s stalled alumina refinery expansion in Western Australia “will not be back on the agenda until we can secure long-term competitive gas supply,” Michaela Southby, a Perth- based spokeswoman for the biggest U.S. aluminum producer, said in an e-mailed response to questions. The project may cost $4 billion, according to a 2008 estimate by ABN Amro Holding NV.

Royal Dutch Shell Plc plans to deploy a production vessel larger than an aircraft carrier off the coast of Western Australia to feed the liquefied natural gas boom that may see annual exports hit almost A$40 billion ($37 billion) by mid- decade. The state’s gas shortage will last to at least 2020, hindering mine projects, according to the DomGas Alliance.

“You have all this energy and gas but most of it’s exported,” said Peter Arden, a Melbourne-based mining analyst at Ord Minnett Ltd., a JPMorgan Chase & Co. affiliate. “It’s going to be a really big cost input for the whole of Western Australia, especially the miners who rely on it for power.” ...

New York-based Alcoa suspended a plan to double capacity at the Wagerup refinery more than a year ago because of the financial crisis and gas supply constraints. Gas prices in the state, the source of half Australia’s commodity exports, rose almost fourfold in the past decade and may keep rising until supply becomes available, said consultant ACIL Tasman Pty.

“The prices that are being asked will certainly preclude the development of a lot of future projects,” Tony Petersen, chairman of DomGas, a user’s group that includes Newmont Mining Corp. and Fortescue Metals Group Ltd., said in an interview.

More than 1,000 mine sites operate in Western Australia, which generates 70 percent of the nation’s exports to China, the biggest buyer of raw materials. The nation is the largest shipper of iron ore, alumina, lead, zinc and coal. It ranked sixth among LNG exporters in 2008.

The ABC reports that exploration for geothermal energy in WA will get some government funding - Geothermal energy funding.

The Federal Government has awarded $7 million to a Western Australian company to conduct geothermal testing in Perth. Perth based company GRE Geothermal will aim to prove that geothermal energy is recoverable within the metropolitan area. ...

The Resources Minister Martin Ferguson says Geoscience Australia estimates that if just one per cent of Australia's geothermal energy was extracted, it could supply Australia's total energy requirements for 26,000 years.

Energy Business Review has a report on WA diversifying its gas supply (in the wake of last year's Varanus Island gas explosion) via the construction of the Devil's Creek gas plant - Apache Energy Starts Construction Of Its Devil Creek Gas Plant Near Karratha, Australia.

Apache Energy Limited (Apache Energy) has started construction of its Devil Creek domestic gas plant near Karratha. Australia Energy Minister, Peter Collier helped mark the start of construction of the gas plant during a groundbreaking ceremony. The plant is expected to be commissioned at the end of 2011, initially delivering an additional 10% into Western Australia’s (WA) domestic gas market.

It has been designed to process 220 terajoules per day, or 20% of current supply, to the domestic gas market. In addition, the plant will supply up to 500 barrels of condensate per day. Gas extracted from the Reindeer field would be processed at the plant and supplied into the Dampier to Bunbury natural gas pipeline.

An explosion at Apache's Varanus Island gas plant in Western Australia on June 3 cut off 30 per cent of the state's domestic gas supply. Supplies to mines and industry in the Pilbara region (the heartland of Australian iron ore mining) fell by 45 per cent.

The supply disruption was exacerbated by an inability to start alternative forms of power generation - the coal fired Collie power station, for example, had damaged turbine blades and could not immediately return to service.

This has had a large impact on the local economy (the WA Chamber of Commerce and Industry estimates the crisis will have cost the state $6.7 billion, assuming energy supplies are fully restored by December) and makes an interesting case study of the effects of a sudden reduction in energy supplies.

The explosion

The cause of the explosion is rumoured to be a corroded pipe that ruptured, though Apache is remaining coy about responding to this theory for the time being.

The National Offshore Petroleum Safety Authority, which is investigating the incident, said it would be "inappropriate to pre-empt the findings by releasing any investigation material beforehand". The WA opposition is calling for a Royal Commission to investigate the incident, similar to the one that examined the 1998 Longford plant explosion and fire, which cut household gas supplies in Victoria for two weeks.



The situation has been exacerbated by the lack of any contingency plans for a disaster, in spite of police warnings that these were needed and highlighting potential weaknesses at the facility. The company reportedly responded to one of the issues raised - the need to have spare parts available - by asking "How can we justify having a $8 million component sitting on the shelf ?".

A few years ago there was a minor bout of hysteria about the hospital in the nearby (by WA standards) town of Port Hedland serving halal meals to patients, so I've been (pleasantly) surprised that no one has tried to gain any political mileage by trying to wield the "power of nightmares" and invoke the terrorism bogeyman as a possible cause.

This might be because the whole issue has disappeared from the Australian political scene since the unceremonious departure of unloved ex-Prime Minister John Howard, but it could also be because there has been a long standing military operation protecting vital infrastructure in the area, thus making the possibility remote.

WA gas supply

WA holds the majority of Australia's natural gas reserves and is a fairly large producer of gas by global standards (much of the gas produced being exported to North Asia in the form of LNG from the North West Shelf gas project on the Burrup peninsula).

WA is much more reliant on gas for its energy needs than other states - the most recent figures from the Australian Bureau of Agriculture and Resource Economics (ABARE) show WA uses 385,000 terajoules of natural gas a year, compared to Victoria's 258,000 terajoules and NSW's 140,000 terajoules. The gas is mostly used to generate electricity - 60% of WA's power supply comes from gas.

Varanus Island produces 380 terajoules of gas, sourced from the Harriet and John Brookes joint ventures, with most of it distributed to the south west of the state via the 1600 km Dampier to Bunbury pipeline. Up to 60 terajoules of gas is transported to the Kalgoorlie region via the Goldfields gas pipeline, which services big mining customers.



Impact on the economy

Gas supplies to mines and industry in the Pilbara region have fallen 45 per cent, those to the Goldfields have fallen by 20 per cent and the state's southwest, where most of the population lives, has seen a 20 per cent reduction for large industries and commerce, and a further 25 per cent drop for mid-sized businesses.

As a large swathe of business has been affected, almost every industry sector has been vocally complaining about how much suffering it is enduring and how much special assistance or priority access to energy supplies it needs.

* The WA Food Industry Association has called for government support, claiming it will "lose market share" and businesses may have to stop production.

* The mining industry has decreased production. Examples of companies flagging decreased output include nickel producer Minara Resources, goldminer Newcrest Mining and mineral sands miner Iluka Resources.

* Alcoa (Australia) notified customers it was declaring force majeure on its supply contracts for alumina.

* BHP Billiton brought forward a four-month shutdown of its Kalgoorlie nickel smelter, freeing up gas supplies for its Worsley aluminium refinery (which caused a rise in global nickel prices due to the tight supply situation).

* Fertiliser manufacturer Burrup Holdings delayed its float on the stockmarket, after its gas suppliers issued it with a "force majeure" notice.

* Wesfarmers has also reported disruption to its fertiliser and LPG businesses.

* Midland Brick, the world's largest brickworks, has had to shut down its kilns on a number of occasions.

* Laundry services have shut down, with the hotel industry struggling to find supplies of clean linen.



Responses to the disruption

The Varanus Island incident has rekindled the security of energy supply debate first sparked by the January shutdown of the North-West Shelf project, which put two-thirds of the state's gas supply offline for a shorter period of time.

At one point WA premier Alan Carpenter was warning he might he might need to invoke emergency powers to seize control over all gas and electricity supplies in the state, though he seems to have calmed down since then - although he has announced that energy security will be a key issue in future.

The major supply side response for many larger gas customers has been to switch to diesel generation instead. This comes at a fairly large price, as diesel costs around 10 times as much as gas, according to the WA Office of Energy.

The cost of switching from gas to diesel to gas had meant that some large gas-fired power generation units with secure gas supply contracts with the (still online) north west shelf project have remained on gas instead of switching to diesel where possible, causing some controversy.

The other major supply response has been to restart 2 mothballed coal fired power stations - the 110 megawatt Kwinana Unit One (which Premier Carpenter says should free up about five terajoules of gas a day) and the 340 megawatt Muja AB power station at Collie (prompting some protests about reopening the dirtiest generation facility in the state). The state government has also asked local utility Verve Energy to consider building a new coal fired generator in Collie.

While the WA state government was happy to revive the local coal industry, it has remained firmly opposed to nuclear power, with Carpenter stating “There will be no nuclear power, no nuclear waste and uranium mining in WA while I am the Premier”.

Carpenter has also announced a (tiny) investment of $6 million into low carbon emissions technology, with the money being used for the construction of a 2 MW solar power station in Kalgoorlie and the development of an oil mallee harvesting machine. More usefully, he has also announced an expanded public transport network, including a link from the Perth city centre to the airport, light rail and tram routes, and the extension of existing railway lines.

Robert Amin, Curtin University's chair of Petroleum Engineering, criticised the state government's lack of contingency plans, recommending WA should have at least a month's worth of gas stored in underground reservoirs for use in such situations, noting that depleted gas reservoirs in Dongara were ideal.

The WA Liberal opposition proposed an assortment of measures to respond to the crisis, including:

* accelerating development of natural gas reserves
* duplication of the pipeline network from the north west to southern WA
* using LNG tankers to ship gas from the north
* interconnection the pipeline network to the eastern states

Some of these seem a bit random, given that duplicating the pipeline, for example, would have made no difference at all to the current situation.

A gas interconnection to the east coast would be an interesting (albeit expensive) project - it would have the benefit of increasing supply options for the east (mitigating the depletion of Cooper Basin and Bass Strait fields), but would also likely rapidly increase east coast gas prices to be in line with those of the international LNG market.

Summary

Overall, the reaction to the incident has been less than inspiring, with the response largely being to switch back to the dirty and depleting alternatives of coal and diesel. No real thought seems to have been given to ways of making the state's energy supplies more resilient in future, or to the fact that diesel is getting increasingly expensive and will likely to be much harder to obtain in future years.

A better response would have been to instead begin planning to embed more distributed generation, along with smarter demand management, into the grid from a variety of sources. Given that WA has high quality solar resources, particularly in the north west where they are world class, and a vast amount of space for wind and wave power generation, I would hope that efforts are undertaken to start substituting (or at least supplementing) both coal and gas fired generators with alternatives that don't depend on the continued extraction of finite resources.

The most useful action taking during the crisis I've seen so far was Alcoa (the largest single user of gas) deciding to push ahead with WA's first "tight gas" development - the Warro gas field in the state's mid-west. Managing Director Alan Cransberg said that if it proves to be commercially viable it could supply up to 10 per cent of domestic gas demand - but denied the Varanus Island prompted the decision, instead pointing to the tight gas supply situation that already existed beforehand.