Australian Energy Projections Report

Australian energy projections to 203435
December 2011
Arif Syed and Kate Penney
bree.gov.au
Commonwealth of Australia 2011
This work is copyright, the copyright being owned by the Commonwealth of Australia. The Commonwealth of Australia has, however, decided that, consistent with the need for free and open re-use and adaptation, public sector information should be licensed by agencies under the Creative Commons BY standard as the default position. The material in this publication is available for use according to the Creative Commons BY licensing protocol whereby when a work is copied or redistributed, the Commonwealth of Australia (and any other nominated parties) must be credited and the source linked to by the user. It is recommended that users wishing to make copies from BREE publications contact the Chief Economist, Bureau of Resources and Energy Economics (BREE). This is especially important where a publication contains material in respect of which the copyright is held by a party other than the Commonwealth of Australia as the Creative Commons licence may not be acceptable to those copyright owners. The Australian Government acting through BREE has exercised due care and skill in the preparation and compilation of the information and data set out in this publication. Notwithstanding, BREE, its employees and advisers disclaim all liability, including liability for negligence, for any loss, damage, injury, expense or cost incurred by any person as a result of accessing, using or relying upon any of the information or data set out in this publication to the maximum extent permitted by law. BREE 2011, Australian energy projections to 203435, BREE report prepared for the Department of Resources, Energy and Tourism, Canberra, December.
ISBN 978-1-921812-79-8 (Print) ISBN 978-1-921812-78-1 (Online)
Postal address: Bureau of Resources and Energy Economics GPO Box 1564 Canberra ACT 2601 Phone: Email: Web: +61 2 6276 1000 info@bree.gov.au www.bree.gov.au
From 1 July 2011, responsibility for resources and energy data and research was transferred from the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) to the Bureau of Resources and Energy Economics (BREE).
Acknowledgements
This report was undertaken with the support of the Australian Government Department of Resources, Energy and Tourism. The valuable contribution of BREE colleagues; Trish Gleeson and Sally Thorpe of ABARES; Bruce Wilson, Shane Bush and Sarah Hill from the Department of Resources, Energy and Tourism; Brendan Mckenna and Sebastian Wende of the Australian Treasury; and colleagues at the Department of Climate Change and Energy Efficiency is appreciated.
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Foreword
In this report the Bureau of Resources and Energy Economics (BREE) presents its inaugural set of long-term projections of Australian energy consumption, production and trade. The analysis covers the period from 200809 to 203435 and is prepared using BREEs E4cast model. It is intended that this information will support decision-making by industry, government and the broader community. The results suggest that the Australian energy sector is at an important crossroads as it adjusts to a carbon-constrained economy. The dynamics of energy markets and uncertainties with respect to future energy costs make long-term energy projections difficult. Nevertheless, projections are needed to guide decision makers about investments and the impacts of energy policies and energy outcomes. BREEs projections provide this guidance and will assist decision-makers to deliver an efficient, secure and sustainable energy future for Australia.
Quentin Grafton Executive Director / Chief Economist December 2011
Australian energy projections 203435
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Contents
Summary 1 Introduction 2 The Australian energy context Energy resources and markets Energy policy Clean Energy Future Plan Other initiatives 3 Methodology and key assumptions The E4cast model E4cast base year data Key assumptions 4 Energy Consumption Total primary energy consumption Primary energy consumption, by energy type Primary energy consumption, by state and territory Primary energy consumption, by sector Electricity generation Final energy consumption, by energy type Final energy consumption, by sector 5 Energy production and trade Black coal production and exports Natural gas production and LNG exports Crude oil production and net imports 6 Conclusions References 1 4 6 6 10 12 14 16 16 20 21 29 29 30 31 32 34 42 43 48 50 52 54 57 58
Boxes
Box 1: Other Clean Energy Future initiatives Box 2: Key features of E4cast Box 3: Australian energy statistics Box 4: Carbon capture and storage Box 5: Uncertainty surrounding gas prices for electricity generation Box 6: Energy use in the Australian transport sector Box 7: Australian uranium outlook 13 17 21 37 41 45 49
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Figures
Figure A: Australian energy production Figure B: Energy intensity trends Figure C: Australian energy exports Figure D: Energy forecasting model Figure E: Index of world real energy prices, 200809 dollars Figure F: Index of real levelised cost of electricity generation technologies excluding carbon costs Figure G: Australian uranium production Figure H: Australian energy balance Figure I: Australian black coal balance Figure J: Australian gas balance Figure K: Australian oil and LPG balance 7 8 10 16 23 26 49 50 52 54 55
Tables
Table 1: Fuel coverage in E4cast Table 2: Industry coverage of E4cast Table 3: Australian population assumptions Table 4: Australian economic growth, by region Table 5: Carbon price assumptions, real, 200910 dollars Table 6: LRET renewable electricity generation target (excluding existing renewable generation) Table 7: Primary energy consumption, by energy type Table 8: Primary energy consumption, by state and territory Table 9: Primary energy consumption, by sector Table 10: Electricity generation, by state and territory Table 11: Electricity generation, by energy typea Table 12: Electricity generation, with alternative gas price assumptions, by energy source Table 13: Final energy consumption, by energy type Table 14: Final energy consumption, by sector Table 15: Final energy consumption, by manufacturing subsector Table 16: Energy production, by source Table 17: Net trade in energy Table 18: Australian gas production 18 19 22 22 27 27 30 32 33 35 36 42 43 44 46 48 51 53
Maps
Map 1: Distribution of Australias energy resources Map 2: Advanced electricity generation projects, October 2011 6 38
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Glossary
Bagasse Biogas Brown coal Coal by-products The fibrous residue of the sugar cane milling process that is used as a fuel (to raise steam) in sugar mills. Landfill (garbage tips) gas and sewage gas. See lignite. By-products such as coke oven gas, blast furnace gas (collected from steelworks blast furnaces), coal tar and benzene/toluene/xylene (BTX) feedstock. Coal tar and BTX are both collected from the coke making process. The process of transforming one form of energy into another before use. Conversion consumes energy. For example, some gas and liquefied petroleum gas is consumed during gas manufacturing, some petroleum products are consumed during petroleum refining, and various fuels, including electricity, are consumed when electricity is generated. The energy consumed during conversion is calculated as the difference between the energy content of the fuels consumed and that of the fuels produced. Naturally occurring mixture of liquid hydrocarbons under normal temperature and pressure. Hydrocarbons recovered from the natural gas stream that are liquid under normal temperature and pressure. The maximum technically possible electricity output of generators at a given hour. The maximum annual output from generators is equal to generation capacity multiplied by the number of hours in a year. Gases including commercial quality sales gas, liquefied natural gas, ethane, methane (including coal seam and mine mouth gas and gas from garbage tips and sewage plants) and plant and field use of non-commercial quality gas. In this report, gas also includes town gas (including synthetic gas, reformed gas, tempered liquid petroleum gas and tempered natural gas). Gas used in pipeline compressors and losses and operation and leakage during transmission. The total levelised cost of production represents the revenue per unit of electricity generated that must be met to breakeven over the lifetime of a plant.
Conversion
Crude oil Condensate Electricity generation capacity
Gas
Gas pipeline operation Levelised cost
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Lignite
Non-agglomerating coals with a gross calorific value less than 17435 kilojoules a kilogram, including brown coal which is generally less than 11 000 kilojoules a kilogram. All liquid hydrocarbons, including crude oil, condensate, liquefied petroleum gas and other refined petroleum products, and liquid biofuels. Methane that has been processed to remove impurities to a required standard for consumer use. It may contain small amounts of ethane, propane, carbon dioxide and inert gases such as nitrogen. Landfill and sewage gas are some other potential sources (also referred to as sales gas in some sectors of the gas industry). The joule is the standard unit of energy in electronics and general scientific applications. One joule is the equivalent of one watt of power radiated or dissipated for one second. One petajoule, or 278 gigawatt hours, is the heat energy content of about 43 000 tonnes of black coal or 29 million litres of petrol. Crude oil and natural gas condensate used directly as fuel, liquefied petroleum gas, refined products used as fuels (aviation gasoline, automotive gasoline, power kerosene, aviation turbine fuel, lighting kerosene, heating oil, automotive diesel oil, industrial diesel fuel, fuel oil, refinery fuel and naphtha) and refined products used in nonfuel applications (solvents, lubricants, bitumen, waxes, petroleum coke for anode production and specialised feedstocks). In this report, all petroleum products are defined as primary fuels even though most petroleum products are transformed (refined). The distinction between the consumption of petroleum at the primary and final end use stages relates only to where the petroleum is consumed, not to the mix of different petroleum products consumed. The consumption of petroleum at the primary energy use stage is referred to collectively as oil, while the consumption of petroleum at the final end use stage is referred to as petroleum products. The one exception to this is liquefied petroleum gas (LPG). LPG is not included in the definition of end use consumption of petroleum because it is modelled separately.
Liquid fuels
Natural gas
Petajoule
Petroleum
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Primary fuels
The forms of energy obtained directly from nature. They include non-renewable fuels such as black coal, brown coal, uranium, crude oil and condensate, naturally occurring liquid petroleum gas, ethane and gas, and renewable fuels such as wood, bagasse, hydroelectricity, wind and solar energy. Fuels produced from primary or other secondary (or derived) fuels by conversion processes to provide the energy forms commonly consumed. They include refined petroleum products, thermal electricity, coke, coke oven gas, blast furnace gas and briquettes. The total amount of energy consumed in the final or end use sectors. It is equal to total primary energy consumption less energy consumed or lost in conversion, transmission and distribution. The total of the consumption of each primary fuel (in energy units) in both the conversion and end use sectors. It includes the use of primary fuels in conversion activities notably the consumption of fuels used to produce petroleum products and electricity. It also includes own use and losses in the conversion sector.
Secondary fuels
Total final energy consumption
Total primary energy
Units
Metric units J L t g Wh b joule litre tonne gram watt-hours billion (1000 million) Standard metric prefixes k M G T P E kilo mega giga tera peta exa 103 (thousand) 106 (million) 109 (1000 million) 1012 1015 1018
Standard conversions
1 barrel = 158.987 L 1 mtoe (million tonnes of oil equivalent) = 41.868 PJ 1 kWh = 3600 kJ 1 MBTU (million British thermal units) = 1055 MJ 1 m3 (cubic metre) = 35.515 f 3 (cubic feet) 1 L LPG (liquefied petroleum gas) = 0.254 m3 natural gas Conversion factors are at a temperature of 15C and pressure of 1 atmosphere.
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Indicative energy content conversion factors

Black coal production Brown coal Crude oil production Naturally occurring LPG LNG exports Natural gas (gaseous production equivalent) Biomass Hydroelectricity, wind and solar energy 30 GJ/t 9.8 GJ/t 37 MJ/L 26.5 MJ/L 54.4 GJ/t 40 MJ/kL 11.9 GJ/t 3.6 TJ/GWh
Conventions used in tables

Small discrepancies in totals are generally the result of the rounding of components.
Abbreviations
ABARES AEMO BREE CCS COAG CSG GHG IEA LNG LRET NFEE NGER NSEE OECD ORER PV RET SRES Australian Bureau of Agricultural and Resource Economics and Sciences Australian Energy Market Operator Bureau of Resources and Energy Economics Carbon Capture and Storage/Sequestration Council of Australian Governments Coal Seam Gas Greenhouse Gas International Energy Agency Liquefied Natural Gas Large-scale Renewable Energy Target National Framework for Energy Efficiency National Greenhouse and Energy Reporting National Strategy on Energy Efficiency Organisation for Economic Cooperation and Development Office of the Renewable Energy Regulator Photovoltaic Renewable Energy Target Small-scale Renewable Energy Scheme
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BREE contacts
Executive Director/ Chief Economist BREE Quentin Grafton quentin.grafton@bree.gov.au 02 6276 7483
General Manager
Jane Melanie
jane.melanie@bree.gov.au 02 6243 7502
Micro & Industry Performance Analysis Theme Leader
Arif Syed
arif.syed@bree.gov.au 02 6243 7504
Macro & Markets Analysis Theme Leader
Jin Liu
jin.liu@bree.gov.au 02 6243 7513
Resources Program Program Leader
Alan Copeland
alan.copeland@bree.gov.au 02 6243 7501
Quantitative Economic Analysis Theme Leader
Nhu Che
nhu.che@bree.gov.au 02 6243 7539
Energy Program Program Leader
Allison Ball
allison.ball@bree.gov.au 02 6243 7500
Data & Statistics Program Program Leader
Geoff Armitage
geoff.armitage@bree.gov.au 02 6243 7510
x Australian energy projections 203435
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Summary
This report delivers BREEs inaugural long-term projections of Australian energy consumption, production and trade over the period to 203435. These projections are not intended as predictions or forecasts, but as indicators of potential changes in Australian energy consumption, production and trade patterns given the assumptions used in the report. Relevant government policies that have been introduced or enacted have been incorporated into BREEs assumptions. This includes the Renewable Energy Target (RET) and the introduction of carbon pricing in 2012. The assumptions around carbon emission reduction policies included in the E4cast model are based on the Australian Treasurys publication, Strong growth, low pollution: modelling a carbon price, released in 2011. The transitional arrangements and targeted investment programs included in the Clean Energy Future plan have not been included specifically in the modelling assumptions. Given the uncertainty surrounding future domestic gas prices, a sensitivity analysis was undertaken to assess the effect of higher gas prices on the electricity generation mix.
Energy consumption
Total primary energy consumption is projected to grow by around 29 per cent (1 per cent a year) over the projection period (200809 to 203435). This moderate growth reflects a long-term decline in the energy intensity of the Australian economy which has been accelerated by a number of policy drivers. The share of coal in total primary energy consumption is projected to decline, with oil and gas projected to be the dominant energy sources used. Gas is expected to exhibit the fastest growth among non-renewable energy sources, increasing by an average 3 per cent a year to 2611 petajoules in 203435. The share of renewable energy is projected to increase from 5 per cent of total primary energy consumption in 200809 to 9 per cent of total primary energy consumption in 203435. This implies an average annual growth rate of 3.4 per cent, with the most significant growth occurring in wind energy. Western Australia, the Northern Territory and Queensland are expected to exhibit the highest growth in primary energy consumption. These regions are expected to achieve higher economic growth relative to other states, based on the large contribution of the mining sector and the high degree of export orientation. The electricity generation and transport sectors will remain the two main users of primary energy, together accounting for 63 per cent of projected primary energy consumption in 203435. The share of primary energy consumed by the electricity generation sector is expected to decline over the projection period as the effects of the RET and the implementation of carbon pricing are expected to encourage a change in the energy mix.
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The transport sector accounts for around one quarter of primary energy consumption, and this share is projected to remain relatively constant out to 203435. Growth in transport is coupled with improving end-use efficiency, which is expected to have a moderating effect on energy consumption. The fastest growing consumer of primary energy will be the mining sector, with average growth of 5.2 per cent a year expected over the projection period.
Electricity generation
Gross electricity generation is projected to grow by around 42 per cent (1.4 per cent a year) from 245 terawatt hours in 200809 to 348 terawatt hours in 203435. This growth is expected to come from expansion of gas-fired electricity generation and renewable sources. A key change over the projection period is the expected shift from coal-fired to gas-fired generation. As the proportion of coal-fired generation declines from 74 per cent to 38 per cent of electricity generation over the projection period, the share of gas-fired generation is expected to more than double from 16 per cent to 36 per cent. The use of renewable energy resources in electricity generation is expected to grow considerably at 6 per cent a year over the projection period. Wind energy is projected to account for the majority of this growth, representing 14 per cent of total electricity generation in 203435. Strong growth is also expected in other renewable energy sources, including solar energy, geothermal energy and bioenergy, although from a lower base. Under assumed higher gas prices, total electricity generation is projected to grow at a slower rate of 1.3 per cent a year to 340 terawatt hours in 203435. The share of gas in the generation mix is projected to be lower under this scenario (22 per cent), accompanied by a relatively smaller fall in the share of coal, and a slightly increased share for renewables (25 per cent).
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Energy production and trade

Australian energy production (excluding uranium) is projected to grow at an average annual rate of 3 per cent over the projection period. At this rate, total production of energy is projected to more than double to 28 401 petajoules in 203435. Coal and gas are projected to account for 96 per cent of Australias energy production in 203435. Coal production is projected to increase by 96 per cent to 18 956 petajoules (632 million tonnes), while gas is projected to increase fourfold to 8274 petajoules (330 960 gigalitres). Production of black coal, which includes thermal and metallurgical coal, is projected to grow at 2.8 per cent a year to 18 676 petajoules (623 million tonnes) in 203435. Despite this growth, the share of black and brown coal in total energy production is projected to decline from 74 per cent in 200809 to 67 per cent in 203435. Strong growth in domestic and global demand for gas has been driving the development of new gas fields and LNG capacity in Australia. Gas production in the western market is projected to grow at an average annual rate of 5.5 per cent to 4771 petajoules in 203435. In the eastern market, production is projected to grow at 5.0 per cent a year to 2492 petajoules. Production of coal seam gas (CSG) is expected to maintain its strong growth trajectory over the projection period, supported by the development of new projects and demand for CSG-fired electricity generation. The exportable surplus of Australias energy production is expected to increase over the projection period, rising by approximately 4.1 per cent a year. The fastest growth is expected in LNG exports, growing at 7.6 per cent a year. Projections of declining oil production and constraints around petroleum refining suggest Australias net trade position for crude oil and refined petroleum products will weaken over the projection period, with net imports projected to increase at an average rate of 3.1 per cent a year.
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1 Introduction
This report presents the results of BREEs inaugural energy projections for Australia. The release of these results will be part of an ongoing commitment by BREE to publish regular long-range projections of Australian energy consumption, production and trade, with the support of the Australian Government Department of Resources, Energy and Tourism. The current set of results provides an update to the projections published by ABARE in March 2010, with the following amendments: Updated base year to 200809; Extension of the projection period to 203435; Revisions to economic growth assumptions; Revisions to carbon price assumptions; Revisions to long term energy price assumptions; Changes to the Renewable Energy Target policy; An analysis of the effect of different gas prices on the electricity generation mix; and Inclusion of recently announced changes to Australian steel making and petroleum refining capacity.
The report aims to encapsulate these recent developments by providing an assessment of long-term projections of Australian energy consumption, production and trade for the period 200809 to 203435. These projections are derived using BREEs E4cast model, which is a dynamic partial equilibrium model of the Australian energy sector. In undertaking these projections, BREE has included policies that have already been enacted. As such, these projections incorporate the Renewable Energy Target and the introduction of carbon pricing in 2012. This scenario does not pre-empt any Australian Government decisions that may affect the final target and policy design, or any specific outcomes that may be achieved by a global commitment to reduce emissions. Given the uncertainty surrounding future gas prices, a sensitivity analysis was conducted to assess the effect of gas prices on growth in energy use.
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The evolving dynamics of energy markets over the past few years have increased the complexity of long-term energy projections. There is significant uncertainty about technology, investment and government policies in the current environment. The current projections should only be considered as indications of what the future could be given the assumptions used, and not a forecast and what energy use will be into the future. In this report, measures of energy consumption, production and net trade are expressed in energy content terms (typically petajoules or gigawatt hours for electricity) to allow for comparison across the energy commodities. The significance of a commodity in energy content terms may differ to physical production units (such as tonnes, litres and barrels) and value. The report is structured as follows. In chapter 2 the changing energy policy context in Australia is described, with a focus on key policies that are likely to affect long-term energy trends. Chapter 3 presents the modelling framework used, as well as the key underlying assumptions. Chapter 4 provides the outlook for Australian energy consumption and electricity generation covering the period 200809 to 203435, and chapter 5 provides the long-term outlook for Australian energy production and trade. Chapter 6 offers concluding remarks.
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2 The Australian energy context

Energy resources and markets
Australia is endowed with abundant, high quality and diverse energy resources (Map 1). Australia holds an estimated 47 per cent of world uranium resources, 10 per cent of world coal resources, and almost 2 per cent of world natural gas resources. In addition, Australia has large, widely distributed wind, solar, geothermal, hydroelectricity, ocean energy and bioenergy resources. Map 1: Distribution of Australias energy resources
120 130 140 150
Bonaparte Basin
DARWIN 10
Browse Basin
Carnarvon Basin
Galilee Basin
Bowen Basin
20
Cooper-Eromanga Basin
Callide Basin Tarong Basin
Arckaringa Basin Perth Basin

PERTH
Surat Basin
BRISBANE
Collie Basin
ADELAIDE
Murray Basin
Ipswich Basin Clarence-Moreton Basin 30 Gunnedah Basin

SYDNEY
Sydney Basin
MELBOURNE
Resource type
Uranium Black Coal Brown Coal Conventional Gas Coal Seam Gas Oil (crude, condensate, LPG) Tidal energy (total annual tide kinetic energy 1 GJ/m 2 ) Wave energy (total annual wave energy 0.5 TJ/m) Wind energy (average wind speed > 7 m/s) Solar energy (> 14 MJ/m per day)
2
Demonstrated resources (PJ)

2000 - 10 000 10 001- 25 000 25 001 - 50 000 50 001 - 100 000 100 001 - 250 000 250 001 - 500 000 >500 000
Gippsland Basin
HOBART
40
Basin type
Major energy basin
50
750 km
Geothermal energy (> 3 km of sediment and/or hotter than 200 oC at 5 km)

AERA 1.1
Source: Geoscience Australia and ABARE (2010)
The development of these resources has contributed to low-cost energy, underpinned the competitiveness of energy-intensive industries and provided considerable export income. Australia is one of the few OECD economies that is a significant exporter of energy commodities, with the major exports being coal, liquefied natural gas (LNG), uranium and petroleum.
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Australian energy production

Australia is the worlds ninth largest energy producer, accounting for around 2.5 per cent of the worlds energy production (IEA 2011). Energy production in Australia has been increasing over the past decade, growing at an average annual rate of 3.2 per cent since 199900. The main fuels produced in Australia are coal, uranium and gas (Figure A). Of these, coal accounted for around 57 per cent of total energy production in energy content terms in 200910, followed by uranium (20 per cent) and gas (12 per cent). Crude oil and LPG represented 6 per cent of total production, and renewable energy 2 per cent. Figure A: Australian energy production 20000
16000
12000
8000
4000
PJ 1973-74 1979-80 1985-86 1991-92 1997-98 2003-04 Renewables 2009-10
Gas Black coal Uranium Crude oil and natural gas liquids Brown coal
Sources: BREE calculations, and ABARES (2011)
Australian production of renewable energy has been dominated by bagasse, wood and wood waste, and hydroelectricity, which together accounted for 83 per cent of renewable energy production in 200910. Wind energy, solar energy and biofuels accounted for the remainder of Australias renewable energy production. Although energy production has been increasing over the past 10 years, reserves to production ratios have followed a rising trend. This reflects the addition of new discoveries and the upgrading of resources meeting economic criteria. At current rates of production, Australias energy resources are expected to last for many more decades.
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Australian energy consumption

Australia is the worlds nineteenth largest primary energy consumer, and ranks fourteenth on a per person energy use basis (IEA 2011). Since 2000, growth in energy consumption has averaged 1.6 per cent a year. Although Australias energy consumption is growing, the rate of growth has been declining over the past 50 years. Following annual growth of around 5 per cent during the 1960s, growth in energy consumption fell during the 1970s to an average of around 4 per cent a year, largely as a result of the two major oil price shocks. During the 1980s, economic recession and sharply rising energy prices resulted in the annual growth in energy consumption falling to an average of 2.3 per cent. In the early 1990s, falling real energy prices and robust economic growth contributed to rising energy consumption. Despite this, growth in energy consumption for the decade as a whole also averaged around 2.3 per cent. Figure B shows the long term decline in energy intensity of the Australian economy. This can be attributed to two main factors. First, greater efficiency has been achieved through technological improvement and fuel switching. Second, rapid growth has occurred in less energy-intensive sectors, such as the commercial and services sector, relative to the more moderate growth of the energy-intensive manufacturing and processing sectors. Figure B: Energy intensity trends
110 105 100 95 90 85 80 75 70 index 1989-90 =100
1989-90 1991-92 1993-94 1995-96 1997-98 1999-00 2001-02 2003-04 2005-06 2007-08 2008-09
Australia Western Australia

Sources: ABARE-BRS (2010), ABS (2010a)
Victoria New South Wales
Queensland
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Australian primary energy consumption consists mainly of coal, petroleum and gas. In 200809 black and brown coal accounted for around 39 per cent of the primary energy mix, followed by petroleum products (35 per cent), gas (22 per cent) and renewable energy sources (5 per cent). The main users of energy in Australia are the electricity generation, transport and manufacturing sectors. Together, these sectors accounted for more than 80 per cent of energy consumed in 200809. The mining, residential and commercial and services sectors were the next largest energy consuming sectors. The electricity industry is one of Australias largest industries, contributing 1.1 per cent to Australian industry value added in 200809 and generated 245 terawatt hours of electricity. Most of Australias electricity is produced using coal, reflecting its abundance along the eastern seaboard where the majority of electricity is generated and consumed. In 200809, coal-fired electricity generation accounted for 74 per cent of total electricity generation and gas 16 per cent. Over the past 20 years, domestic energy consumption has increased at a slower rate than energy production. Rapid growth in global demand for Australian energy resources has driven this growth in energy production. Consequently, the share of Australian energy production that is exported has continued to increase.
Australias energy exports

Australia is a net energy exporter, with domestic energy consumption representing only one-third of total energy production, including uranium. Since 199091, the value of Australias energy exports (in 201112 Australian dollars) has increased at an average rate of 9.3 per cent a year. In 201011, energy export earnings increased by 16 per cent to $71 billion (in 201112 dollars), reflecting increased export volumes and higher export prices (Figure C). Energy exports accounted for 32 per cent of Australias total commodity exports in 201011. Australias largest energy export earners are coal, crude oil and LNG. These exports are significant contributors to the economy, and in 201011 export values (in 201112 Australian dollars) were estimated at $44 billion for coal, $12 billion for crude oil and condensate and $11 billion for LNG, respectively.
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Figure C: Australian energy exports

80 70 60 50 40 30 20 10 2011-12 A$b 1981-82 1985-86 Coal
Source: BREE (2011)
1989-90
1993-94
1997-98
2001-02
2005-06 LPG
2009-10
Crude and ORF
Petroleum products
Uranium
While Australia is a net energy exporter, it is a net importer of crude oil and refined petroleum. In 201011, Australias imports of crude oil and refined products were valued at $33 billion (in 201112 Australian dollars). Any future expansion of Australias energy market, including access to new energy resources, will require investment in energy infrastructure. Additional investment will be required to replace ageing energy assets and also to allow for the integration of renewable energy into existing energy supply chains.
Energy policy
Australias energy policy aims to balance the growing demand for energy with the promotion of a lower carbon economy, incorporating international commitments regarding climate change. The policy also seeks the provision of a stable economic environment to encourage investment in the energy sector, particularly renewable energy.
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Australian Government policies that will shape the energy market over the next 25 years are the Renewable Energy Target (RET) and the introduction of carbon pricing. The RET and carbon pricing are aimed at creating a fundamental shift in consumption, in addition to investment incentives in the energy sector, to induce Australian companies and households to internalise the costs of climate change. These strategies are complemented by targeted initiatives, such as the Energy Efficiency Initiative.
Renewable Energy Target

Introduced in 2010, the RET requires 45 000 gigawatt hours of electricity to be supplied from renewable energy sources by 2020. This target corresponds to around 20 per cent of total electricity generation and is a substantial increase from the previous Mandatory Renewable Energy Target (MRET) of 9500 gigawatt hours by 2020. The RET brought existing state based RETs, such as the Victorian Renewable Energy Target, into a single national scheme. Initially, retailers and large users of electricity were legally required to earn or obtain Renewable Energy Certificates (RECs) equivalent to a set proportion of their electricity purchases. Additionally, households and small businesses could earn RECs on a voluntary basis through solar credits for small-scale renewable energy installations. RECs could then be traded to ensure companies reached their legislated quota and to provide incentives for the adoption of renewable energy sources. From January 2011, the RET has been split into the voluntary Small-scale Renewable Energy Scheme (SRES) and the mandatory Large-scale Renewable Energy Target (LRET) to improve certainty for all involved and to provide incentives targeted at each group. The LRET consists of legislated annual targets for the amount of electricity to be sourced from renewable energy to ensure that 41 000 gigawatt hours is achieved by 2020. Because of the large number of RECs generated by the end of 2010, the annual LRET targets for 2012 and 2013 were increased to support advances in the adoption of renewable energy sources (ORER 2011). Households and small businesses are anticipated to provide, and potentially exceed, the additional 4000 gigawatt hours required to meet the RET through the SRES. Accordingly, RECs have been separated into Large-scale Generation Certificates (LGCs) and Small-scale Technology Certificates (STCs). The Office of the Renewable Energy Regulator oversees the implementation of the RET and the registration of subsequent LGCs and STCs (ORER 2011). The objective of the RET is to advance the development and employment of renewable energy resources over the medium term and to assist in moving Australia to a lower carbon economy (Combet 2009).
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Clean Energy Future Plan

The Australian Government passed its Clean Energy Future plan through the Senate on 8 November 2011. The plan reflects the considerations of the Multi-Party Climate Change Committee (MPCCC) that determined that a carbon price and a package of complementary measures would be the most cost-effective and economically responsible way of reducing Australias carbon emissions. The emissions reduction targets that have been previously agreed to and were extended under the Clean Energy Future plan are: To reduce emissions to 5 per cent below 2000 levels by 2020, which will require cutting net expected emissions by at least 23 per cent in 2020 A long-term reduction in emissions to 80 per cent below 2000 levels by 2050.
The carbon price is to be introduced on 1 July 2012. It will be fixed for the first three years before transitioning to an emissions trading scheme. From 1 July 2012, the carbon price will be a nominal $23 a tonne of carbon dioxide equivalent (CO2-e), increasing at a rate of 5 per cent a year until 30 June 2015. From 2015, the carbon price will transition to a cap and trade emissions trading scheme, open to the international market. Introducing carbon pricing makes large emitters of carbon financially liable for their carbon emissions. During the fixed price period, an unlimited number of permits will be available at a fixed price, and these must be purchased and surrendered for each tonne of reported emissions. The carbon price will transition to an emissions trading scheme in 2015, where the number of available permits will be capped and the permit price will be determined in the marketplace. However, there will be a price cap set at $20 above the expected international price for an equivalent tonne of CO2-e, and a price floor of $15 a tonne CO2-e. At this point the carbon market may also be opened up to international carbon trading. The Governments Clean Energy Future plan, comprises of a number of institutional arrangements. These include household and industry assistance, innovation and investment programs and transitional measures. Some of the arrangements relevant to the Australian energy projections are discussed in Box 1.
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Box 1: Other Clean Energy Future initiatives

A range of government initiatives and support programs are included in the Clean Energy Future plan: Energy Security and Transformation An Energy Security Council that will collaborate with the Australian Energy Market Operator will be established. Significant work occurring in this area will include the: Negotiation and potential payment for closure of up to 2000 megawatts of emissions-intensive generation capacity before 2020; Free permit allocations and cash payments to emissions-intensive coal-fired electricity generators, in return for adopting clean energy investment plans; and Short-term loans to generators to help finance the purchase of carbon permits.
Clean Energy Finance Corporation The Government intends to encourage investment in renewable energy, energy efficiency and low emissions technologies by providing financial support. The Government will invest $10 billion over 5 years beginning 201314 through loans, loan guarantees and equity investments. Australian Renewable Energy Agency The Australian Renewable Energy Agency (ARENA) will provide grant funding to support research, development and demonstration of new renewable technologies, investing $3.2 billion over 9 years beginning 201112. It will also oversee existing government renewable energy programs. The Jobs and Competitiveness Program The Jobs and Competitiveness Program will assist emissions-intensive trade-exposed industries with $9.2 billion transitional assistance between 201112 and 201415. These industries will receive assistance to cover 94.5 per cent of industry average carbon costs in the first year of the carbon price. Less emission-intensive trade-exposed industries will receive assistance to cover 66 per cent of average industry carbon costs. Assistance will be reduced by 1.3 per cent each year. Other programs The Clean Technology Program will target energy efficiency in manufacturing industries and support research and development in low emissions technologies. It will provide $1.2 billion over 7 years from 201112. There will also be funding to support jobs in food processing, metal forging and foundry industries ($200 million) and funding for the Steel Transformation Plan ($300 million). There will be $1.3 billion directed to the Coal Sector Jobs Package over 6 years from 201112, which will provide transitional assistance to the coal industry to assist in the implementation of carbon abatement technologies.
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Other initiatives
A wide range of policies exist at both the Australian and State Government levels that will assist with creating a lower carbon economy. These include the National Strategy on Energy Efficiency and other related energy efficiency initiatives, the New South Wales Greenhouse Gas Reduction Scheme, and the Queensland Gas Scheme.
Energy Efficiency
The National Framework for Energy Efficiency (NFEE) is a multi-level government policy announced by the Ministerial Council on Energy in 2004. The NFEE promotes improvements in energy efficiency through encouraging a shift in households and companies consumption behaviour by improving public information, providing financial incentives, and enforcing standards for the energy efficiency of goods such as light bulbs and air conditioners. To reinforce this desired behavioural shift or step change, the Prime Ministers Task Group on Energy Efficiency has recommended establishing a national energy efficiency target of improving energy intensity by 30 per cent by 2020 (PMTGEE 2010). In 2009, the Council of Australian Governments (COAG) agreed on the 10 year National Strategy on Energy Efficiency (NSEE). The NSEE seeks to support the NFEE in providing information regarding methods of reducing energy use and improving efficiency, generating public awareness, and facilitating innovations in energy efficient technologies and practices (COAG 2009). The NSEE also strives to remove regulatory obstacles which may prevent improvements in energy efficiency, such as duplication of processes and inconsistent standards. A number of NFEE and NSEE programs are already in place or currently in the process of development in order to address energy efficiency opportunities (DCC 2010).
New South Wales Greenhouse Gas Reduction Scheme

The New South Wales (NSW) Greenhouse Gas Reduction Scheme (GGAS) commenced in NSW on 1 January 2003. On 1 January 2005, the Australian Capital Territory Government introduced a corresponding scheme utilising the same regulatory bodies and structures. GGAS aims to reduce the emissions associated with the production and use of electricity through imposing mandatory emission reduction targets. The GGAS targets maintaining greenhouse gas emissions (from 2007 until the scheme concludes) at a benchmark of 7.27 tonnes of carbon dioxide equivalent (CO2-e) per person, which is equivalent to 5 per cent below the Kyoto-Protocol baseline year of 198990. The NSW government has committed to maintaining the program until the introduction of carbon pricing. The proportion of the greenhouse gas reduction benchmark imposed on each participant is equivalent to their share of electricity sales in NSW (Greenhouse Gas Reduction Scheme Administrator 2007).
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On 1 July 2009, the NSW Government introduced the Energy Savings Scheme (ESS) to replace the demand side abatement component of GGAS. Companies that supply electricity in NSW are required to meet energy savings targets equivalent to their share of electricity sales in NSW. Participants may trade the Energy Savings Certificates (ESCs) generated through their activities. This provides an incentive for companies to increase their energy savings and rewards companies that exceed their benchmark.
Queensland Gas Scheme

The Queensland Gas Scheme was implemented on 1 January 2005. The scheme requires electricity retailers and other liable parties to source a minimum percentage of their electricity from eligible gas-fired generation. The initial requirement was set at 13 per cent and increased to 15 per cent in 2010. There is the potential to increase the required percentage to 18 per cent by 2020 (DME 2011). The objective is to diversify the energy mix, provide support for the states gas industry and reduce greenhouse gas emissions. The Queensland Gas Scheme will conclude when carbon pricing is introduced.
Data Collection
Recently, emphasis has been placed on the role that quality data collection plays in ensuring effective development and evaluation of energy policy. Improving the accuracy of the data collected and distributed also helps governments and companies understand the effect of energy policies on supply and demand so that they can adapt their behaviour accordingly. In the NSEE, COAG includes measures for advancing the collection of energy efficiency data and identifying those measures as critical to the effective implementation of energy efficiency policy (COAG 2009). The development and distribution of data collection in Australia is supported by existing legislation such as the National Greenhouse and Energy Reporting Act, as well as organisations such as the Australian Bureau of Statistics (ABS) and the Bureau of Resources and Energy Economics (BREE).
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3 Methodology and key assumptions

The energy sector projections presented in this report were derived using the E4cast model. E4cast is a dynamic partial equilibrium model of the Australian energy sector that can project energy consumption by fuel type, by industry and by state or territory, on a financial year (JulyJune) basis. The model includes a large number of variables and parameters that are used to approximate the interdependencies between production, conversion and consumption of energy.
The E4cast model

The E4cast modelling framework employs an integrated analysis of the electricity generation and gas sectors within an Australian domestic energy use model. The model represents two sets of conditions: quantity and competitive price constraints. The competitive equilibrium is achieved when all the constraints are satisfied. A simple schematic of the E4cast model is provided in Figure D. Figure D: Energy forecasting model Endogenous supply Fuel prices Investment capacity ELECTRICITY DEMAND CURVES Electricity module Demand and supply balance and prices Investment in new capacity Constraints Technological advances Government policies Energy module Equilibrium supply and demand Macroeconomic assumptions Historical data DEMAND CURVES Exogenous supply
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E4cast incorporates long-term macroeconomic forecasts from the Australian Treasury and ABARES and current assumptions on the costs and characteristics of energy conversion technologies. A brief overview of the key features of the current version of E4cast is provided in Box 2. The model provides an outlook for the Australian energy sector that is feasible (where all quantity constraints are satisfied) and satisfies the economic competitive price conditions (a competitive equilibrium is achieved).
Box 2: Key features of E4cast

The first version of the model was documented in Dickson et al. (2001). Since then, the model has been enhanced and refined in a number of directions, providing a sound platform for the development and analysis of medium and long term energy projections. Key features of the 2011 version of E4cast are outlined below. E4cast is a dynamic partial equilibrium framework that provides a detailed treatment of the Australian energy sector focusing on domestic energy use and supply. The Australian energy system is divided into 24 conversion and end use sectors. Fuel coverage comprises 19 primary and secondary fuels. All states and territories (the Australian Capital Territory is included with New South Wales) are represented. Detailed representation of energy demand is provided. The demand for each fuel is modelled as a function of income or activity, fuel prices (own and cross) and efficiency improvements. Primary energy consumption is distinguished from final (or end use) energy consumption. This convention is consistent with the approach used by the International Energy Agency. The current version of E4cast covers the period from 200809 to 203435. Demand parameters are established econometrically using historical Australian energy data. Business activity is generally represented by gross state product (GSP). Energy intensive industries are modelled explicitly, taking into account large and lumpy capacity expansions. The industries modelled in this way are: Aluminium; Other basic nonferrous metals (mainly alumina); and Iron and steel. The electricity generation module includes 17 generation technologies. Investment plans in the power generation sector are forward looking, taking into account current and likely future conditions affecting prices and costs of production. Key policy measures modelled explicitly are: The introduction of carbon pricing; The Australian Governments Renewable Energy Target; The New South Wales Governments Greenhouse Gas Reduction Scheme; The Queensland Governments Gas Scheme; and The Victorian Government Renewable Energy Target. All fuel quantities are in petajoules. Supply of gas is modelled at the state level. All prices in the model are real, in constant dollars of the base year, and are expressed in dollars per gigajoule. The base year is 200809.
The coverage of energy types and industries is shown in Table 1 and Table 2, respectively.
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The model includes 19 energy sources, five conversion sectors, 19 end use sectors and seven regions (Table 1 and Table 2). The demand functions for each of the main types of fuel (such as electricity, gas, coal and petroleum products) have been estimated econometrically and incorporate own price, cross price, income or activity, and technical change effects. Table 1: Fuel coverage in E4cast
Black coal Brown coal Coal by-products - coke oven gas - blast furnace gas Coke Natural gas Coal seam gas Oil (crude oil and condensate) Liquefied petroleum gas (LPG) Other petroleum products Electricity Solar (solar hot water) Solar electricity (solar photovoltaic and solar thermal) Biomass (bagasse, wood and wood waste) Biogas (sewage and landfill gas) Hydroelectricity Wind energy Geothermal energy Ocean energy
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Table 2: Industry coverage of E4cast

Sectors/sub-sectors
Conversion Coke oven operations Blast furnace operations Petroleum refining Petrochemicals Electricity generation End use Agriculture Mining Manufacturing and construction Wood, paper and printing Basic chemicals Nonmetallic mineral products Iron and steel (excludes coke ovens and blast furnaces) Basic nonferrous metals Aluminium smelting Other basic nonferrous metals Other manufacturing and construction Transport Road transport Passenger motor vehicles Other road transport Railway transport Water transport Domestic water transport International water transport Air transport Domestic air transport International air transport Pipeline transport Commercial and services Residential Division A Division B Division C 23-24 2520-2599 26 2700-2713, 2716-2719 272-273 2722 2720-2721, 2723-2729 na Division I (excludes sectors 66 and 67) 61 na na 62 63 6301 6302 64 na na 6501 Sectors 37, 66 and 67; Divisions F, G, H, J, K, L, M, N, O, P and Q na 2714 2715 2510, 2512-2515 na 361
ANZSIC code
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In E4cast, prices for energy sources used in electricity generation are determined within the model based on demand and supply factors, with the exception of oil and coal where prices are determined on the world market. In some simulations, exogenous gas prices have been used. The direction of interstate trade in gas and electricity is determined endogenously in E4cast, accounting for variation in regional prices, transmission costs and capacities. In E4cast, upper limits on interstate flows of electricity and gas are imposed over the medium term to reflect existing constraints and known expansions that are at an advanced stage of development. Beyond the medium term, it is assumed that any interstate imbalances in gas supply and demand will be anticipated, resulting in infrastructure investment in gas pipelines and electricity interconnector capacity sufficient to meet trade requirements. For internationally traded energy commodities, crude oil, LNG and black coal of export quality, production is exogenous to the model and is drawn from BREEs (previously ABARES) commodity forecasting capability. Although Australia is a significant producer of uranium oxide, it is not included in the projections as it is not consumed in Australia and, therefore, does not affect the domestic energy balance. A detailed assessment of Australias uranium resources is provided in the Australian Energy Resource Assessment (Geoscience Australia and ABARE 2010).
E4cast base year data

The base year (200809) data in the model are drawn from ABARES Australian Energy Statistics (ABAREBRS 2010). These statistics are largely derived from ABARES former fuel and electricity survey (FES). The 200809 data, as reported in the projections report, and the published data (ABAREBRS 2010) may be classified differently. As a result, there may be differences in the figures published. A brief description of the survey and ABARES energy balance data is provided in Box 3. From 2010, National Greenhouse and Energy Reporting (NGER) data, sourced from the Australian Government Department of Climate Change and Energy Efficiency, has been adopted as the main energy consumption data source for the Australian Energy Statistics. With the introduction of NGER, survey year 200809 became the final year that the FES was conducted. Australian energy statistics using NGER data will be used in the next set of energy projections.
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Box 3: Australian energy statistics

The Australian energy statistics for 200809 are based on ABARES fuel and electricity survey (FES), which was a nationwide survey of around 1400 large energy users and producers. The energy users surveyed accounted for around 60 per cent of total Australian energy consumption. Each year, in around October/November, respondents were sent paper-based surveys, requesting information on the quantity of fuels they produced and consumed as well as the electricity they generated. These detailed energy statistics were integrated and reconciled with other databases and information sources. Supplementary data were also collected from various sources, including: Australian Bureau of Statistics international trade data; ABARES farm surveys database for the broadacre and dairy farm sectors; Department of Resources, Energy and Tourisms Australian Petroleum Statistics; Energy Supply Association of Australia; Geoscience Australia; state government departments; and Australian Customs and Border Protection Service.
The detailed FES data on energy consumption provides a platform for estimating energy consumption by region, industry and energy source. The consumption data are reconciled with readily available production statistics to provide a national energy balance.
Key assumptions
There are a number of economic drivers that will shape the Australian energy sector over the next two decades. These include: Population growth; Economic growth; Energy prices; Electricity generation technologies; End use energy technologies; and Government policies.
The assumptions relating to these key drivers are presented below.
Population growth
Population growth affects the size and pattern of energy demand. Projections for Australian population is drawn from the Australian Treasury carbon price modelling and presented in Table 3.
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Table 3: Australian population assumptions

year 2009 2020 2035
Source: Treasury (2011)
population million 21.97 25.83 31.19
Economic growth
The energy projections are highly sensitive to underlying assumptions about GDP growth the main driver of energy demand. Energy demand for each sector within E4cast is primarily determined by the value of the activity variable used and the price of fuel in each sectors fuel demand equation. The activity variable used for all non energy-intensive sectors is gross state product (GSP), which represents income or business activity at the state level. However, for energy intensive industries (aluminium, other basic nonferrous metals, and iron and steel manufacturing) projected industry output is considered as a more relevant indicator of activity than GSP because of the lumpy nature of investment. The GDP and GSP assumptions (Table 4) are drawn from the assumptions used by the Australian Treasury carbon price modelling (Treasury 2011). In 200809, Australias real GDP increased by 1.4 per cent, following growth of 3.8 per cent in 200708. Over the projection period, Australias real GDP is expected to grow at an average annual growth rate of 2.8 per cent. A moderation in Australias population and labour supply growth will contribute to a gradual reduction in GDP growth in the latter part of the projection period. Queensland and Western Australia are expected to have the highest GSP growth rates over the period to 203435, reflecting to a large extent their substantial minerals and energy resource base, relatively high degree of export orientation, and higher relative population growth rates. Table 4: Australian economic growth, by region
Average annual growth 200809 to 203435 % New South Wales (and ACT ) Victoria Queensland South Australia Western Australia Tasmania Northern Territory Australia
Sources: BREE assumptions based on Treasury (2011)
2.5 2.6 2.9 2.0 3.7 1.7 2.5 2.8
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Real energy prices

Energy prices affect the demand for, and supply of, energy. The long term energy price assumptions of BREE incorporated in E4cast are presented in Figure E. Long-term energy price profiles will hinge on a number of factors, including demand, investment in new supply capacity, costs of production, and technology. Although the long-run price paths follow smooth trends, in reality, prices are likely to fluctuate in response to short-term market developments. Figure E: Index of world real energy prices, 200809 dollars
160 140 120 100 80 60 40 20 2008-09 =100

2008-09 2011-12 2014-15 2017-18 2020-21 2023-24 2026-27 2029-30 2032-33
Oil
LNG
Coal
Sources: BREE assumptions
Coal
In early 2011, coal prices for both thermal and metallurgical coal increased significantly following heavy rain and flooding in Queensland. In the medium term, thermal coal prices are expected to remain significantly above the long term average of the past two decades, although decline in real terms relative to 201011. This reflects rising supply costs in China, the worlds largest producer of thermal coal, and also in Australia and Indonesia, the largest exporters, as they develop coal deposits that are deeper underground and/or further away from existing infrastructure.
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Beyond the medium term, global thermal coal prices are expected to stabilise above the long-term historical average. The higher costs associated with developing new mines and infrastructure is expected to be offset to some extent by the adoption of more advanced technology.
Oil
In 2010, oil prices in WTI terms averaged around US$79 a barrel. World oil prices are projected to remain around real US$9095 a barrel over the medium term, as oil demand increases in line with assumed stronger economic growth. The availability of spare production capacity and stocks in OPEC are expected to limit significant increases in oil prices over the medium term. The long-term prospect for oil prices is much less certain. Key factors that are expected to drive long-term oil prices are the cost of developing remaining oil reserves, the volume and timing of investment in production and refining capacity, and technological development in relation to alternative liquid fuels. The estimated capital and production costs for conventional oil sources have increased in recent years because of rising materials, equipment and labour costs. While a rise in the marginal cost of oil production is expected over time, technological developments associated with non-conventional liquids, such as gas-to-liquids and second generation biofuels, have the potential to play a major role in anchoring oil prices below what would have been the case without these new technologies. However, it is not expected that these technologies will be developed in Australia. The assumed development and entry of these technologies underpins the long-term price assumptions used in this report.
LNG
In the long term, international LNG prices are assumed to follow a similar trajectory to oil prices, reflecting an assumed continuation of the established relationship between oil prices and long-term gas supply contracts through indexation in the Asia Pacific market, and substitution possibilities in electricity generation and end use sectors. While in recent years gas prices have decoupled from oil prices in some markets (reflecting relatively abundant supplies of unconventional gas in North America and increased availability of spot supplies of cheaper LNG in Europe and the Asia Pacific), there is considerable uncertainty about whether this will also apply to the Asia Pacific market. Indexation is likely to remain the dominant pricing mechanism in the Asia Pacific region, unless there is a significant convergence of the Atlantic and Pacific markets through LNG exports from North America to the Asian region. Domestic prices for coal and gas are drawn from ABARES/BREEs assumptions.
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Electricity generation technologies

Australia has access to a range of electricity generation technologies. This is likely to increase over time as new technologies are developed and the costs of some technologies fall. While a range of factors will affect which technologies are used, the relative cost is the most important. The Electric Power Research Institute (EPRI 2009) assessed the status of different electricity technologies in 2015 and 2030. The EPRI technology status data enables the comparison of technologies at varying levels of maturity. However, market and system factors will have a significant impact on the technology mix and electricity prices in an energy system. For this reason, electricity market prices cannot be extrapolated from technology cost analysis. Market modelling is required to project potential electricity prices arising from market and investment outcomes. The levelised cost of technologies represents the revenue per unit of electricity generated that must be met to break even over the lifetime of a plant. While EPRI cost estimates were developed on the basis of generic plant configurations rather than on detailed plant designs or equipment and material costsand are subject to uncertainty in relation to a number of factorsthey provide valuable and comprehensive information on the relative costs of different electricity generation technologies in an Australian setting, and how these costs might change over time. Importantly, these costs do not include the effects of any carbon price. The relative costs of different technologies are more important than the absolute magnitude of these costs in determining their relative prospects in the electricity generation sector (merit order). The EPRI results show that, in the medium term, coal and gas without CCS will remain among the lowest technology cost options. Of the renewable energy technologies, wind is one of the lowest cost options. Despite a significant decline in the costs of solar technologies expected in the future, the costs of these technologies are expected to remain relatively high over the coming years. The costs of geothermal electricity are shown to be competitive with those of other baseload technologies, although this technology is still at a demonstration stage. For technologies that are not covered in detail by the EPRI data (ocean energy, bioenergy and the retrofitting of existing fossil-fuel plants with CCS technology), BREE has drawn on a range of other sources (IEA 2008; Specker, Phillips and Dillon 2009; National Energy Technology Laboratory 2009). There is considerable uncertainty regarding the absolute costs of these technologies. Further, not all units of existing power plants are amenable to be retrofitted with CCS technology. Key considerations include the units age and size, available space and access to geological storage. In 2011, the Australian Treasury modified EPRI technology costs to account for exchange rate movements since the 2009 EPRI report. In E4cast, the assumptions regarding the cost of electricity generation technologies in Australia are drawn from the modified EPRI technology costs, and are presented in Figure F. In addition, there are exogenous and endogenous factors that can contribute to changing electricity generation costs over time. These include carbon prices, and thermal efficiencies, including assumptions regarding future technological changes and learning rates.
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Figure F: Index of real levelised cost of electricity generation technologies excluding carbon costs 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 index 2008-09 2034-35
Sources: BREE calculations based on modified EPRI technology costs
End use energy technologies

End use energy technologies affect the efficiency of energy use. These technologies are assumed to become more energy efficient over time through technological improvements. Further, the NSEE can also be expected to address non-market barriers to the uptake of energy efficiency opportunities. The rate of end use energy efficiency improvement is assumed to be 0.5 per cent a year over the projection period for most fuels in non-energy intensive end-use sectors. For energy intensive industries, the low capital stock turnover relative to other sectors is assumed to result in a lower rate of energy efficiency improvement of 0.2 per cent a year.
Government policies
In this set of projections, the following key policies have been modelled explicitly in E4cast: The clean energy future carbon price; The Australian Government Renewable Energy Target (RET); The New South Wales Greenhouse Gas Reduction Scheme; The Queensland Gas Scheme; and The Victorian Government Renewable Energy Target.
en er gy bl ac kc o br ow al n co al ge ot ga he s rm al hs a w in d ga sc cs bi oe ne bl r ac k c gy oa br lc ow cs n co ge a ot he l cc rm s al eg a so lar so pv lar th er m al oc ea n
hy dr o
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Emissions Reduction Target

The carbon price assumptions are set in reference to the Treasury modelling, Strong growth, low pollution: modelling a carbon price released in 2011. In 201213, a nominal carbon price of $23 a tonne is used, growing at 5 per cent a year. From 2015, the carbon price will transition to an emissions trading scheme, open to the international market. The price trajectory for the scheme is estimated to start at $29 a tonne in 2016, in nominal terms, growing at a rate of 5 per cent a year. In practice, the carbon price path post 2015 will be determined by the worlds carbon market, within which Australia will trade permits. The projection path for the carbon price assumptions (in real terms) is shown in Table 5. Table 5: Carbon price assumptions, real, 200910 dollars
201213 201920 202930 203435
Source: BREE calculations based on Treasury (2011)
21.05 29.40 52.60 69.90
Renewable Energy Target (RET)

The Renewable Energy Target (RET) requires 45 000 gigawatt hours of electricity be sourced from renewable energy sources by 2020. Legislation to implement the Renewable Energy Target (RET) scheme was passed by the Parliament on 24 June 2010. In January 2011, the RET was split into the voluntary Small-scale Renewable Energy Scheme (SRES) and the mandatory Large-scale Renewable Energy Target (LRET). The LRET consists of legislated annual targets for the amount of electricity to be sourced from renewable sources to ensure 41 000 gigawatt hours is achieved by 2020. Small businesses and households are anticipated to provide more than the additional 4000 gigawatt hours through the SRES. The Office of the Renewable Energy Regulator (ORER) oversees the RET. The LRET targets are presented in Table 6 (ORER 2011). Table 6: LRET renewable electricity generation target (excluding existing renewable generation)
Year ending 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 and onwards
Source: ORER (2011)
TWh 10.4 16.3 18.2 16.1 18.0 20.6 25.2 29.8 34.4 41.0
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In E4cast, this policy intervention is modelled as a constraint on electricity generation renewable energy must be greater than or equal to the interim target in any given year. In the model, the LRET target is met by a subsidy to renewables that is funded by a tax on non-renewable generators. This is endogenously modelled so that total renewable generation meets the target.
New South Wales Greenhouse Gas Reduction Scheme

The New South Wales Greenhouse Gas Reduction Scheme requires electricity retailers and other liable parties to meet mandatory greenhouse gas reduction benchmarks. The scheme is implemented in the model by requiring total emissions from state electricity generation to be less than or equal to the product of targeted per person emissions and state population. In effect, the price of carbon is internalised in state electricity supply decisions. However, it is assumed that the scheme will cease in 201213 upon the implementation of carbon pricing.
Queensland Gas Scheme

The Queensland Gas Scheme requires electricity retailers and other liable parties to source at least 13 per cent of their electricity from natural gas-fired generation. On 1 July 2008, the requirement was increased to 15 per cent in 2010 and up to 18 per cent thereafter. The scheme has been approximated in the model by requiring the share of natural gas-fired electricity generation in Queensland to be greater than or equal to 13 per cent in 2009 and 15 per cent in 2010. In effect, producers of gas-fired electricity receive a subsidy which is funded by all other generators. In the model, this scheme is terminated from 201213 with the implementation of carbon pricing.
Victorian Renewable Energy Target

The Victorian Governments Renewable Energy Target (VRET), which requires that 10 per cent of total electricity generation be sourced from renewable energy sources by 2016, was implemented in the model from 200708 to 200910 before the legislated transition in 2010 into the RET. In the model, generators of renewable electricity under the RET receive a subsidy which is funded by all other non-renewable sources of power.
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4 Energy Consumption
This chapter presents the outlook for Australian energy consumption over the period to 203435 under the assumptions and policy settings outlined in chapter 3. The projections cover primary energy consumption by energy type and sector; final energy consumption by energy type and end-use activity; and electricity generation. While the discussion focuses on Australian trends, key trends at a state and territory level are also highlighted.
Total primary energy consumption

Growth in total primary energy consumption has demonstrated a downward trend since the 1960s as a result of changes to Australias economic structure, and the effect of technological developments and government policies on energy efficiency in energy conversion and end-use. Growth in Australias total primary energy consumption declined from 5 per cent a year in the 1960s to 2.3 per cent a year in the 1990s. This trend is expected to continue, with growth in energy consumption moderating over the projection period. Australias primary energy consumption is projected to increase at an average annual rate of 1 per cent from 5784 petajoules in 200809 to 7481 petajoules in 203435 (Table 7). The moderate growth in energy consumption is largely driven by the implementation of new policies. Between 200809 and 203435, the Australian Government will introduce a number of measures, including the RET and carbon pricing, that are expected to increase energy prices and dampen the demand for energy. This will be partly offset by assumed strong economic growth over the projection period. The largest decline in consumption growth is expected to occur in the last decade of the projection period. This reflects the assumption of increasing carbon prices.
Aggregate intensity trends

Australias aggregate energy intensity (measured as total domestic energy consumption per dollar of GDP) declined at an average rate of 1.2 per cent a year between 198990 and 200708 (Petchey 2010). Over the period to 203435, Australias aggregate energy intensity is projected to decline by around 1.7 per cent a year. This indicates a considerable shift in Australias economic structure over this period. The major driver of this trend is strong growth in less energy-intensive sectors, such as the commercial and services sector relative to energy-intensive sectors, such as manufacturing. Improved efficiency through technological development and fuel switching will also contribute to this trend.
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Primary energy consumption, by energy type

Over the projection period, the relative share of each energy type is expected to change significantly in response to the changing policy environment. Non-renewable energy accounted for around 95 per cent of the primary energy consumed in Australia in 200809. Of this, coal accounted for 39 per cent of the primary energy consumed; oil 35 per cent; and gas (including conventional and coal seam gas) 22 per cent. Over the projection period, the share of coal in total primary energy consumption is projected to decline to 21 per cent (Table 7). By contrast, the share of gas is projected to increase to 35 per cent. Gas is expected to exhibit the fastest growth among non-renewable energy sources over the projection period, increasing by around 3 per cent a year to 2611 petajoules in 203435 (Table 7). This growth is driven by increased use in electricity generation and in the mining sector, and reflects the shift to less carbon-intensive energy sources. The majority of this growth is at the expense of coal. The growth in gas consumption is expected to be greater in the period to 2020, after which the uptake of technologies that are less carbon-intensive is expected to accelerate. Table 7: Primary energy consumption, by energy type
Average annual growth 203435 % 95 39 28 11 35 22 5 1 <1 4 <1 0 100 91 21 17 4 36 35 9 1 2 5 <1 1 100 200809 to 203435 % 0.8 -1.4 -0.9 -3.2 1.1 2.9 3.4 0.2 10.1 2.1 4.1 1.0
Level 200809 Energy type Non-renewables Coal black coal brown coal Oil Gas Renewables Hydro Wind Bioenergy Solar Geothermal Total PJ 5505 2240 1593 647 2021 1244 279 45 14 211 9 0 5784 201920 PJ 6431 2106 1460 647 2441 1884 548 47 131 329 22 18 6979 203435 PJ 6822 1541 1260 281 2670 2611 660 47 175 365 26 48 7481
Share 200809 %
Numbers in the table may not add up to their totals due to rounding. The figures for 200809 presented in this table may not be identical to actual historical data published in ABARES Australian Energy Statistics. This is a reflection of the different classification systems.
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In 200809, around 5 per cent of Australias primary energy consumption was sourced from renewable energy. The share of renewable energy is projected to increase by 3.4 per cent a year following the introduction of the RET to account for around 9 per cent of primary energy consumption in 203435 (Table 7). The bulk of this increase is expected to come from bioenergy (mainly biomass) and wind energy. Growth is also expected to be strong in geothermal and solar energy, albeit from a lower base.
Primary energy consumption, by state and territory

Primary energy consumption is projected to increase in all states and the Northern Territory over the period to 203435. However, there is variation in the rates of growth reflecting economic growth assumptions, energy resource endowments, economic structure and state-specific policy settings (Table 8). The highest growth in primary energy consumption is projected to occur in Western Australia, the Northern Territory and Queensland. This is underpinned by higher assumed economic growth compared with the other states, the large contribution of the mining sector to economic output and the high degree of export orientation. The strongest growth in primary energy consumption is expected to occur in Western Australia, increasing at a rate of 2 per cent a year, with its share of total primary energy consumption increasing from 16 per cent in 200809 to 21 per cent in 203435 (Table 8). Growth in energy consumption is projected to be more moderate in South Australia and New South Wales driven by assumed lower economic growth. Despite the slower growth, New South Wales is projected to remain the largest consumer of energy. Its energy consumption is projected to increase at around 0.6 per cent a year and increase from 1569 petajoules in 200809 to 1851 petajoules in 203435 (Table 8).
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Table 8: Primary energy consumption, by state and territory

Average annual growth 200809 to 203435 % 25 20 24 6 21 2 3 100 0.6 0.3 1.2 0.8 2.0 0.7 1.9 1.0
Level 200809 State/territory New South Wales Victoria Queensland South Australia Western Australia Tasmania Northern Territory Australia
a
Share 203435 PJ 1851 1491 1770 420 1607 135 207 7481 200809 % 27 24 22 6 16 2 2 100 203435 %
201920 PJ 1758 1608 1626 394 1323 120 150 6979
PJ 1569 1388 1291 344 953 113 127 5784
a includes the Australian Capital Territory. Numbers in the table may not add up to their totals due to rounding. The figures for 200809 presented in this table may not be identical to actual historical data published in ABARES Australian Energy Statistics. This is a reflection of the different classification systems.
Victoria is projected to exhibit the lowest growth in primary energy consumption. The effect of government policies on brown coal-fired electricity generation and other emission-intensive industries such as petroleum refining and chemicals will contribute to the moderate growth. Energy consumption in Victoria is projected to increase by 0.3 per cent a year from 1388 petajoules in 200809 to 1491 petajoules in 203435 (Table 8).
Primary energy consumption, by sector

Electricity generation, transportation and manufacturing accounted for 89 per cent of Australias total primary energy consumption in 200809. These sectors are projected to account for 81 per cent of projected primary energy consumption in 203435 (Table 9). The electricity generation sector accounted for the largest share (44 per cent) of primary energy consumption in 200809. Total primary energy consumption in electricity generation is projected to increase from 2557 petajoules in 200809 to 2803 petajoules in 203435 (Table 9). The combined effect of the RET and the implementation of carbon pricing on the relative competitiveness of generation technologies is expected to encourage a change in the energy mix, with a gradual shift away from coal to gas and renewable energy.
December 2011
In 200809, the transport sector (excluding electricity used in rail transport) accounted for one-quarter of primary energy consumption, with a heavy reliance on oil and petroleum products. Consumption in the transportation sector is projected to grow steadily over the projection period, increasing at an average annual rate of 1.2 per cent. Growth in transport energy consumption will be offset by improved end-use efficiency in the sector and high fuel prices such that the share of primary energy consumption is estimated to remain relatively constant at around 26 per cent in 2035 (Table 9). Table 9: Primary energy consumption, by sector
Average annual growth 200809 to 203435 % 37 2 12 18 26 5 100 0.4 1.8 5.2 0.5 1.2 0.9 1.0
Level 200809 Sector Electricity generation Agriculture Mining Manufacturing Transport Commercial & residential Total PJ 2557 90 235 1164 1437 302 5784 201920 PJ 2827 124 633 1277 1769 349 6979 203435 PJ 2803 143 885 1312 1960 379 7481
Share 200809 % 44 2 4 20 25 5 100 203435 %
The manufacturing sector is the third largest user of primary energy in Australia, accounting for 20 per cent of the total in 200809. This sector includes a number of relatively energy-intensive sub-sectors such as petroleum refining, iron and steel, aluminium smelting and minerals processing. While primary energy consumption in the sector is projected to increase by 0.5 per cent a year over the projection period, the relative share of the sector is expected to decline to 18 per cent (Table 9). This reflects an ongoing structural shift away from energy-intensive manufacturing, encouraged further by the implementation of carbon pricing. Despite accounting for a relatively small proportion of total primary energy consumption (4 per cent in 200809), the mining sector is projected to exhibit the fastest energy consumption growth to 203435. This growth will be supported by a large number of energy and mineral projects scheduled for development over the projection period. The considerable volume of investment is a major driver of the expected expansion in the mining sector and the associated growth in primary energy consumption. In 203435, the sector is projected to account for 12 per cent of Australian primary energy consumption (Table 9).
December 2011 33
Electricity generation
Gross electricity generation in Australia is projected to increase at an average annual rate of 1.4 per cent from 245 terawatt hours (883 petajoules) in 200809 to 348 terawatt hours (1253 petajoules) in 203435 (Table 10). Reflecting differences in the availability of technologies and primary energy inputs, primary input prices, capital costs and interregional transmission capacity, the projected growth in electricity generation varies across the states and the Northern Territory. For states that are part of the integrated National Electricity Market (New South Wales and the Australian Capital Territory, Queensland, Victoria, South Australia and Tasmania), the figures in Table 10 reflect electricity consumed and market determined electricity flows across regions. New South Wales is likely to remain the largest producer of electricity, accounting for 31 per cent of total generation in 203435 and adding 35 terawatt hours to annual generation in 203435. South Australia is a small electricity generator in absolute terms. However, it is expected to exhibit the strongest growth in electricity generation, increasing at 2.5 per cent a year over the projection period (Table 10). This growth is being driven by the development of renewable energy generation in the state, which is projected to grow at an average annual rate of 7.4 per cent. Strong growth is also expected in gas-fired electricity generation, increasing at a projected rate of 2.5 per cent a year. In Western Australia, electricity generation is projected to increase by 64 per cent from 28 terawatt hours in 200809 to 46 terawatt hours in 203435 (Table 10). Much of this expansion will come from growth in gas-fired electricity generation, which is projected to increase at an annual average rate of 2.5 per cent. Gas will account for 72 per cent of the projected expansion in Western Australias electricity generation between 200809 and 203435. By contrast, electricity generation in Victoria is projected to grow at a rate much lower than the national average. Electricity generation in Victoria is largely based on brown coal. The competitiveness of this energy source relative to other technologies is expected to be diminished following the introduction of carbon pricing. Unless Victoria invests in the development of its own low emission electricity generation capacity, it is projected to become more dependent on the importation of electricity from other states.
December 2011
Table 10: Electricity generation, by state and territory

Average annual growth 200809 to 203435 % 31 20 22 8 13 4 2 100 1.5 0.6 1.2 2.5 1.9 1.9 1.6 1.4
Level 200809 State/territory New South Wales Victoria Queensland South Australia Western Australia Tasmania Northern Territory Australia
a
Share 203435 TWh 96 77 65 20 35 13 4 110 69 76 27 46 15 5 348 200809 % 30 24 23 6 12 4 1 100 203435 %
201920 TWh
TWh 75 59 56 14 28 9 4 245
310
a Includes the Australian Capital Territory. Numbers in the table may not add up to their totals due to rounding. The figures for 200809 presented in this table may not be identical to actual historical data published in ABARES Australian Energy Statistics. This is a reflection of the different classification systems.
Under a policy setting that includes the RET and the introduction of carbon pricing, the relative shares of non-renewable and renewable energy in total electricity generation are expected to change considerably over the projection period. In 200809, 93 per cent of electricity was generated from non-renewable sources (coal, oil and gas) with the balance coming from renewable energy sources (Table 11). The incentives provided to generators under the RET are expected to be the major driver of the accelerated uptake of renewable technologies in the period to 2020. After 201920, renewable electricity generation is projected to continue to increase, albeit at a slower rate. Within non-renewable energy, the key change over the projection period will be the expected shift from coal-fired generation to gas-fired generation. While coal is projected to continue to dominate the energy mix, the introduction of carbon pricing will encourage a switch toward lower-emission energy sources. Black coal-fired generation and brown coal-fired generation are projected to decline by 0.5 per cent a year and 3.7 per cent a year over the projection period, respectively. Reflecting this, the share of coal in the energy mix is projected to decline from 74 per cent in 200809 to 38 per cent in 203435. While these results imply the partial or full closure of coal-fired capacity over the projection period, there are a number of factors that may reduce the effect of the implementation of carbon pricing on these plants, at least over the medium term. For example, hedging contracts and other financial considerations can be expected to provide some degree of cost insulation to these plants. The longer term role of coal will be heavily dependent on technological
December 2011 35
developments related to carbon capture and storage (CCS). The timing for deployment of CCS technologies relies on the economic viability of this technology given carbon pricing (see Box 4 for further discussion). In the modelling, the deployment of CCS technologies for new plants will be limited in the short to medium term because of the current relatively high costs compared with other technologies. Nevertheless, some coal-fired electricity generation with CCS may emerge by the end of the projection period, supported the development of subsidised projects. Table 11: Electricity generation, by energy type a
Average annual growth 200809 to 203435 % 76 38 33 6 36 2 24 4 14 1 1 4 100 0.6 -1.2 -0.5 -3.7 4.5 0.0 6.0 0.2 10.1 3.5 13.6 1.4
Level 200809 Energy type Non-renewables Coal black coal brown coal Gas Oil Renewables Hydro Wind Bioenergy Solar Geothermal Total TWh 227 182 129 53 40 5 18 12 4 2 <1 0 245 201920 TWh 248 178 125 53 64 5 63 13 36 4 4 5 310 203435 TWh 265 134 114 20 126 5 84 13 49 4 5 13 348
Share 200809 % 93 74 53 21 16 2 7 5 2 <1 <1 0 100 203435 %
a These figures represent total gross electricity generation output, covering both on-grid and off-grid principal generators, small generators, and non-scheduled generators. Numbers in the table may not add up to their totals due to rounding. The figures for 200809 presented in this table may not be identical to actual historical data published in ABARES Australian Energy Statistics. This is a reflection of the different classification systems.
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Box 4: Carbon capture and storage

Carbon capture and storage (CCS) is one of the key technologies being developed to help reduce global greenhouse gas emissions (GHG) and the only technology available for mitigating carbon dioxide (CO2) emissions from large scale non-renewable energy usage. The underlying concept is for CO2 to be collected from point sources or industries with major CO2 emissions and stored in such a way that it does not enter the atmosphere. The three distinct stages comprising the CCS procedure consist of capture, transportation and long-term storage. Technologies already exist for each of these stages and have been in commercial use for many years. CO2 capture technologies have long been used for high-concentration, high-pressure CO2 sources such as natural gas extraction. CO2 transport has been used for decades as part of enhanced oil recovery techniques. Geologic CO2 storage is being employed at a growing number of sites worldwide. The issue is not whether technologies exist for CCS, but whether the incentives exist for developing them for use on the commercial scale. Many of the proposed CCS technologies are embryonic in nature and have not yet reached a level consistent with long-term, least cost stages of development. This has resulted in a financial gap existing between CCS technologies and current methods of accommodating CO2 emissions. As long as this gap exists, it will slow the widespread adoption of CCS technologies. The uptake of CCS is of particular relevance to Australia given the proportion of electricity generated from coal-fired power plants. Not only does the implementation of CCS require additional capital expenditure, it also imposes additional costs through a loss in thermal efficiency as a greater volume of fuel is used to generate each kilowatt hour of electricity. In order for CCS to be commercially viable it is necessary for the market price of carbon to rise significantly such that it exceeds the cost of the CO2 avoided. Recent estimates put the average cost of CCS to avoid CO2 emissions at around $75 a tonne at 2008 prices (Bukhteeva et al. 2009).
The bulk of the decline in coal-fired electricity generation is expected to be taken up by gas-fired generation, with the share of gas in electricity generation projected to increase from 16 per cent in 200809 to 36 per cent in 203435 (Table 11). This will be underpinned by the development of new gas-fired electricity generation capacity over the projection period (Map 2). As of October 2011, gas accounted for 37 per cent of advanced electricity generation projects in Australia (Stark et al. 2011).
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Map 2: Advanced electricity generation projects, October 2011
Channel Island Power Station (gas)
Darwin Weddell Stage 3 (gas)
Northern Territory Queensland
Owen Springs (natural gas)
Blackwater Power Project (gas)
Western Australia South Australia New South Wales

Mumbida Wind Farm (wind) Hallett 5 (wind) Perth Perth Snowtown Stage 2 (wind) Adelaide Collgar Wind Farm (wind) Muja Power Station (black coal) LEGEND 0100 MW 101300 MW 301500 MW >500 MW capital city Mortlake stage 1 (gas) Macarthur Wind Farm (wind) Tumut 3 upgrade (hydro)
Kogan Creek Solar Boost (solar) Brisbane
Wilga Park B (gas)
Eraring (black coal) Sydney Woodlawn Wind Farm (wind) Canberra Melbourne Oaklands Wind Farm (wind) Upper Tumut expansion (hydro)
Kwinana Power Station rebuild (gas)
Victoria
Tasmania
Hobart
Source: Stark et al. (2011)
Gas-fired generation is based on mature technologies that are more cost competitive compared with renewable energy technologies. Consequently, gas is expected to play a major role in the transition period until lower emission technologies become more cost viable. However, the cost competitiveness of gas-fired generation relies heavily on gas prices. The modelling of gas prices for this set of projections suggests that domestic gas prices are likely to moderately increase over the period to 203435. The uptake of gas-fired electricity generation is expected to be substantial in all states. Growth is expected to be particularly strong in New South Wales and Victoria. This will be underpinned by a number of gas-fired generation projects under development or planned. The largest project at an advanced stage of development is the first stage of the Mortlake Power Station Project in Victoria. This project has an announced capacity of 550 megawatts and is scheduled for completion in late 2011 at a capital cost of $735 million (Stark et al. 2011).
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Electricity generation from gas in Queensland is projected to more than double over the projection period, supported by the development of a number of coal seam gas-fired electricity generation projects. The commissioning of the QSN link and expansion of the South West Queensland Pipeline in 2009 have resulted in an interconnected pipeline linking Queensland, Victoria, South Australia, Tasmania and the Australian Capital Territory. This has been driven by the emerging coal seam gas industry in Queensland and is expected to support the uptake of gas-fired generation in the other interconnected regions. In parallel with the increasing share of gas in the energy mix, the use of non-hydro renewable energy is projected to increase significantly between 200809 and 203435. Wind energy is projected to account for the majority of the increase in generation from renewable energy sources over this period, growing at an average annual rate of 10.1 per cent to 203435 (Table 11). Wind energy is projected to account for 14 per cent of electricity generation in 203435. Wind energy is a proven and mature technology, and the output of both individual turbines and wind farms has increased considerably over the past five years. Wind energy is relatively cost competitive, notwithstanding site specific factors. The competitiveness of wind energy will be enhanced by a reduction in the cost of turbines and further efficiency gains through turbine technology development (Geoscience Australia and ABARE 2010). Australia has large bioenergy resource potential. Currently, Australias bioenergy resources are dominated by bagasse (sugar cane residue), wood waste, and capture of gas from landfill and sewage facilities for generating heat and electricity. In 200809, bioenergy accounted for less than 1 per cent of total electricity generation (Table 11). The combination of the RET and the potential commercialisation of second generation technologies using a range of non-edible biomass feedstocks indicate that bioenergy has the potential to make a growing contribution to renewable electricity generation in Australia. However, this growth is likely to be constrained to some extent by competition for inputs used in the production of bioenergy, such as water availability and logistical issues associated with handling, transport and storage. Nonetheless, the use of bioenergy for electricity generation is projected to increase by 3.5 per cent a year over the projection period, but will still account for only 1 per cent of total generation by 203435 (Table 11). Australia is a world leader in developing solar technologies; however the uptake has been low because of their relatively high investment cost (Geoscience Australia and ABARE 2010). Electricity generation from solar energy in Australia is largely sourced from photovoltaic (PV) installations. Electricity generation from solar thermal systems are currently limited to smallscale pilot projects. Solar energy is projected to grow at 13.6 per cent a year over the period to 203435, but from a very low base (Table 11). The cost of installing solar capacity has generally been declining over time and there is potential for the cost of solar technologies to continue to decline over the projection period given the substantial research and development funds allocated toward these technologies. This will contribute to its competitiveness over the period to 203435. In addition, the Australian Government has implemented a number of policies that are expected to increase the uptake of solar technologies, including the Solar Flagships Program and the establishment of the Australian Solar Institute. Australia has large geothermal energy potential. However, these resources are currently considered sub-economic because geothermal technologies for electricity generation
December 2011 39
have not been demonstrated to be commercially viable in Australia. Electricity generation from geothermal energy is currently limited to pilot projects that generate small volumes of electricity. It is important to note that the development of the geothermal industry in Australia is not dependent on a major technological breakthrough; all the technology required already exists. The challenge lies in adapting the technology to make it more commercially viable (Geoscience Australia and ABARE 2010). Given the time expected to achieve commercial viability and the long lead time to bring a new geothermal power plant into operation, geothermal energy is not expected to play a major role in electricity generation over the projection period, although it will grow to 4 per cent of total electricity generation by 2034-35 (Table 11). Hydroelectricity generation is projected to remain broadly unchanged in volume terms over the projection period because of the limited availability of suitable locations for the expansion of capacity and water supply constraints. Over the projection period, most of the expected expansion in capacity is assumed to be associated with the upgrading of existing equipment and small-scale schemes.
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Box 5: Uncertainty surrounding gas prices for electricity generation

There are a range of perspectives on future gas prices in Australia. The modelling undertaken in this report assumes that gas prices are likely to gradually increase over the next two decades as a result of interactions between demand and supply. However, there are a number of factors that could affect the projected price path, including the renegotiation of existing long-term contracts, timeframes for new projects, the pace of development of coal seam gas (CSG), the extent and pace of convergence in gas prices in the eastern gas market and global LNG markets and international developments. The dynamics of the western and eastern gas markets are quite different. As a result, there will be differences in the price paths in these markets over the projection period. In the western gas market, production directed to the domestic market is dominated by only a few suppliers. Other production capacity is limited by reserves or the timing of production is closely linked to LNG projects. Consequently, there can be times when there is a domestic supply shortage and domestic prices are higher than export prices (net of shipping and liquefaction costs) and vice versa. Domestic prices in the western market have increased considerably since early 2007 and are now close to export parity. Tight demandsupply conditions to 2017 are expected to contribute to relatively high domestic gas prices in the western market over this period. Beyond 2017, some production from large LNG projects is planned to be directed to the domestic market, such as Wheatstone and Pluto 2, which will place downward pressure on domestic prices. In the eastern gas market, there are a number of domestic suppliers from both conventional and unconventional sources. Four major LNG projects using CSG are planned to start production in Queensland from 2014. Once operational, these projects have the potential to divert gas from the domestic market, which will support prices increasing towards export parity over the longer term. However, there are a number of factors that may reduce the upward pressure on gas prices. In particular, the gas fields being developed in the eastern market are onshore and are expected to be developed rapidly over the medium to longer term. Relatively low barriers to entry in the eastern market and the large number of suppliers will ensure greater competition within the domestic market and exert some downward pressure on prices. In addition, the extensive gas transmission network linking basins and markets on the east coast should ensure the efficient transfer of supply from lower to higher demand segments of the eastern market, which is expected to further slow LNG demand driven price rises. Given the uncertainty surrounding future gas prices, extra analysis was conducted to assess the effect of a change to the assumptions used on the electricity generation mix. In this analysis, gas prices were increased by around 40 per cent (in the latter part of the projection period) relative to base case assumptions. Under higher assumed gas prices, total electricity generation is projected to grow at a slower rate of 1.3 per cent a year to 340 terawatt hours in 203435 (Table 12). The share of gas is projected to be lower under this scenario, at 22 percent, with a relatively smaller fall in the share of coal relative to the main scenario in Table 11. The share of renewables rises marginally to 25 per cent (Table 12).
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Table 12: Electricity generation, with alternative gas price assumptions, by energy source
Average annual growth 200809 to 203435 % 0.5 -0.1 0.2 -1.1 2.4 0.0 6.0 0.2 10.1 3.3 13.5 1.3
Level 200809 TWh 227 182 129 53 40 5 18 12 4 2 <1 0 245 201920 TWh 225 181 129 53 39 5 63 13 37 4 4 5 288 203435 TWh 256 176 137 40 74 5 84 13 49 4 4 14 340
Share 200809 % 93 74 53 21 16 2 7 5 2 1 <1 0 100 203435 % 75 52 40 12 22 2 25 4 14 1 1 4 100
Energy Source Non-renewables Coal black coal brown coal Gas Oil Renewables Hydro Wind Bioenergy Solar Geothermal Total
Final energy consumption, by energy type

Total final energy consumption, the amount of energy used in end-use applications, is projected to increase from 3645 petajoules in 200809 to 4978 petajoules in 203435, a rise of 37 per cent over the projection period and an average annual rate of increase of 1.2 per cent (Table 13). Electricity and renewable energy are projected to continue to grow strongly to meet energy demand in end-use sectors over the projection period. This will contribute to the declining relative share of petroleum products in final energy consumption by 203435. Nonetheless, in absolute terms, the consumption of petroleum products is projected to increase by 36 per cent between 200809 and 203435.
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Table 13: Final energy consumption, by energy type

Average annual growth 200809 to 203435 % 3 47 21 5 24 100 -0.4 1.2 1.2 1.7 1.4 1.2
Level 200809 Energy type Coal Petroleum products Gas Renewables Electricity Total PJ 162 1738 749 171 826 3645 201920 PJ 151 2143 909 232 1042 4478 203435 PJ 147 2359 1025 265 1182 4978
Share 200809 % 4 48 21 5 23 100 203435 %
Final energy consumption, by sector

The transport and manufacturing sectors are the major drivers of Australias final energy consumption, accounting for 40 per cent and 32 per cent of final energy consumption in 200809, respectively (Table 14). Growth in final energy consumption will tend to be greater in less energy intensive sectors such as the commercial and residential sectors. This is the continuation of a long term trend in the Australian economy that is expected to be accelerated by the introduction of carbon pricing.
Transport
Final energy consumption in the transportation sector is projected to grow at an average rate of 1.2 per cent a year between 200809 and 203435 (Table 14). While the sector is expected to account for 40 per cent of the increase in final energy consumption over the projection period, the relative share of transportation in total final energy consumption is projected to remain unchanged in 203435. These projections reinforce the downward trend in road transport fuel consumption over the past 30 years. Within the transport sector, the road transport segment is the largest contributor to final energy consumption. In 200809, road transport accounted for more than three-quarters of the energy used in the sector, with the bulk of this coming from passenger transport. Energy use in the road transport sector is projected to increase by 1.2 per cent a year to 203435, driven by passenger and rail transportation.
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Energy use in the air transport sector (domestic and international) is projected to grow at 2.2 per cent a year to 406 petajoules in 203435. This reflects rapid growth in passenger demand for air transport. As a result, the share of air transport in the transportation sector is projected to increase from 16 per cent in 200809 to 21 per cent in 203435. The transport sector is highly dependent on oil-based petroleum products and this trend is expected to continue over the projection period. There are a range of alternative low-carbon fuels that have the potential to complement or replace conventional oil in the longer term such as coal-to-liquids, gas-to-liquids, and second generation biofuels. However, significant further research, development and demonstration would be required to allow these fuels to make a substantial contribution to meeting transport energy needs. Similarly, electric vehicles and hybrid electric cars are not expected to make a significant contribution to the road transport fuel mix by 203435 (Box 6). Table 14: Final energy consumption, by sector
Average annual growth 200809 to 203435 % 1.7 2.9 0.6 1.2 1.4 1.2 % 3 10 27 40 21 100
Level 200809 Sector Agriculture Mining Manufacturing Transport Commercial & residential Total PJ 96 231 1153 1445 720 3645 201920 PJ 131 345 1304 1780 918 4478 203435 PJ 150 480 1333 1972 1043 4978
Share 200809 % 3 6 32 40 20 100 203435
The figures for 200809 presented in this table may not be identical to actual historical data published in ABARES Australian Energy Statistics. This is due to different classification systems.
December 2011
Box 6: Energy use in the Australian transport sector

The transport sector is the largest final energy consumer in Australia, accounting for 40 per cent of final energy consumption. Over the period to 203435, consumption in this sector is projected to grow at an average annual rate of 1.2 per cent reflecting assumed on-going economic and population growth that will stimulate demand for freight transport and increase rates of vehicle ownership. Given the demand for oil and petroleum products for transport fuels is relatively unresponsive to changes in prices, there is not expected to be a dramatic change from the transport modes, consumption patterns and fuels currently used. However, rising fuel costs and increasing discernment in the market may result in small changes to transport energy consumption, including improved energy efficiency, an increased uptake of alternative fuels and the development of alternative transport modes. In the short term, the major driver of changes in consumption is likely to be energy efficiency, which will be achieved through tightening fuel efficiency standards, tyre efficiency and eco driving. Commercial incentives faced by freight operators may encourage significantly more efficiency investment, although uncertainty about future oil prices and high investment costs could limit the uptake of available opportunities. Efficiency gains are likely to drive small changes within transport energy consumption, but an overall increase in consumption may absorb these changes. The environmental performance of the sector in the long term will be influenced by the small, but growing role of alternative fuels and other technological breakthroughs. As barriers to use are reduced and technology improvements continue, alternative fuels may have an increasing market presence in Australia. Currently, the most viable alternative fuels are biofuels and LPG, although the usage rates are low, with biofuels accounting for 0.5 per cent of the Australian transport fuel supply in 200708. With policy assistance, electric vehicles may become commercially viable within the projection period, although at low levels of market penetration. Future changes in the quantum and patterns of transport fuel consumption will be influenced by the policy environment. The introduction of carbon pricing, fuel excise arrangements, targeted alternative fuels strategies or other efficiency measures could all affect future demand.
Manufacturing
The manufacturing sector is the second largest energy end user in Australia, with minerals processingiron and steel making, alumina refining and aluminium smeltingcontributing to the relatively high energy intensity of the sector. The manufacturing sector has grown relatively slowly over the past decade so that the share of the sector as a proportion of total final energy consumption has remained around 32 per cent (Table 14). Over the period to 203435, the sector is projected to grow at 0.6 per cent a year, supported by growth in the economy and ongoing global demand for energy intensive, resource based output. However, the growth in the sector is well below the growth in final energy consumption projected across all sectors (1.2 per cent). This reflects the continuation of a long-term structural shift toward the commercial and services sector in the Australian economy. This is further reinforced
December 2011 45
by the introduction of carbon pricing as the rising cost of energy provides incentives to reduce the energy intensity of the economy. As a result, the share of manufacturing in final energy consumption is projected to decline to 27 per cent in 203435 (Table 14). Final energy consumption in non-ferrous metals is projected to grow at 0.5 per cent a year from 518 petajoules in 200809 to 586 petajoules in 203435 (Table 15). This growth will be supported by the planned expansion of alumina refining capacity over the projection period. BHP Billitons Worsley refinery Efficiency and Growth project in Western Australia will increase the refinerys annual production capacity by 1.1 million tonnes once completed in 2012 while the expansion at Rio Tinto Alcans Yarwun refinery in Queensland will increase capacity by 2 million tonnes from 2012. The implementation of carbon pricing will increase the cost of energy inputs for minerals processing. As a result, growth in energy-intensive minerals processing is expected to be relatively subdued over the projection period. In addition, Xstrata announced in May 2011 that it intends to phase out its copper smelting and refining activities in Australia by the end of 2016. In the iron and steel industry, final energy consumption is projected to decline at an average annual rate of 0.8 per cent over the projection period to 77 petajoules in 203435. This, in part, reflects BlueScope Steels closure of capacity in New South Wales. In August 2011, BlueScope announced that it would close its number six blast furnaces at Port Kembla and Western Port hot strip mill as part of a restructure aimed at returning it to a profitable generation level. Table 15: Final energy consumption, by manufacturing subsector
Average annual growth 200809 to 203435 % 7 13 6 44 31 100 1.1 0.1 -0.8 0.5 1.1 0.6
Level 200809 Subsector Wood, paper & printing Basic chemicals Iron & steel Non-ferrous metals Other manufacturing Total PJ 68 166 93 518 307 1153 201920 PJ 86 182 80 571 384 1304 203435 PJ 91 169 77 586 410 1333
Share 200809 % 6 14 8 45 27 100 203435 %
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Mining
While only accounting for a small proportion of final energy consumption, the mining sector is projected to exhibit the fastest growth among the manufacturing subsectors. This will be underpinned by the large number of energy and mineral projects assumed to be completed over the projection period. A major contributor to this growth will be the substantial increase in the relatively energy-intensive production of liquefied natural gas (LNG). As a result of these developments, the mining sectors share of final energy consumption is projected to increase from 6 per cent in 200809 to 10 per cent in 203435 (Table 14). The growth of 2.9 per cent a year is slower than in previous years, which is driven, in part, by an assumed 0.5 per cent a year reduction in the energy intensity of mining industries.
Commercial and residential

The commercial and residential sector consists of wholesale and retail trade, communications, finance, government, community services, recreational industries and households. The sector accounted for 20 per cent of total final energy consumption in 200809, and is projected to increase to 21 per cent in 203435. Energy use in the sector is projected to increase by 1.4 per cent a year to 1043 petajoules in 203435 (Table 14). The commercial and residential sector relies heavily on electricity and is expected to remain the major driver of growth in electricity consumption over the projection period. In the residential sector, energy consumption is influenced by population growth, household income, energy prices and lifestyle choices. Energy is a relatively small component of household expenditure (ABS 2010b). In addition, current pricing arrangements, particularly for electricity, do not provide strong price signals to residential energy consumers. As a result, households have not tended to be highly responsive to changes in prices. However, the Council of Australian Governments (COAG) is committed to a national rollout of smart meters (meters that allow energy users to observe the real time cost of their energy consumption) where benefits are considered to outweigh the costs. Such developments should drive an increased demand response to prices.
Agriculture
Agriculture accounts for a small proportion of final energy consumption, with a share of 3 per cent in 200809 that is projected to remain unchanged to 203435. Petroleum products are the major fuel used on farms. Energy use in the agriculture sector is projected to increase by 1.7 per cent a year to 203435 (Table 14).
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5 Energy production and trade

The major sources of energy produced in Australia on an energy content basis are coal and gas. In 200809, production of coal was 9651 petajoules (around 322 million tonnes) or 74 per cent of Australian energy production (excluding uranium). Gas accounted for 16 per cent of production, followed by crude oil and condensate and naturally occurring LPG (9 per cent) and renewable energy (hydroelectricity, wind energy, bioenergy and solar energy) at 2 per cent (Table 16). Although Australia is a major producer of uranium oxide, it is not accounted for in the projections as it is not consumed as a fuel domestically, and therefore, does not affect the energy balance. Details on the outlook for uranium are contained in Box 7. Table 16: Energy production, by source
Average annual growth 200809 to 203435 % 98 67 66 1 1 <1 29 2 <1 1 1 <1 <1 100 3.0 2.6 2.8 -3.2 -3.7 1.0 5.5 3.4 0.2 10.1 2.1 4.1 3.0
Level 200809 Energy type Non-renewables Coal black coal brown coal Oil LPG Gas Renewables Hydro Wind Bioenergy Solar Geothermal Total PJ 12834 9651 9004 647 997 104 2082 279 45 14 211 9 0 13113 201920 PJ 22649 15832 15185 647 811 116 5890 548 47 131 329 22 18 23197 203435 PJ 27741 18956 18676 281 376 135 8274 660 47 175 365 26 48 28401
Share 200809 % 98 74 69 5 8 1 16 2 <1 <1 2 <1 0 100 203435 %
Australian energy production (excluding uranium) is projected to grow at an average annual rate of 3 per cent over the projection period. At this rate, total production of energy in Australia is forecast to more than double to 28 401 petajoules in 203435 (Table 16). Coal and gas
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are projected to account for 96 per cent of Australias energy production in 203435. Coal production is projected to increase by 96 per cent to 18 956 petajoules (632 million tonnes), while gas is projected to increase almost four-fold to 8274 petajoules (330 960 gigalitres).
Box 7: Australian uranium outlook

As world uranium demand continues to grow, particularly in major consuming countries, new mines will be developed and existing production facilities expanded to increase Australias export capacity. According to BREE calculations (and outside the present modelling), Australias uranium production is projected to increase at an average annual rate of 4 per cent from 8700 tonnes uranium (U,4846 petajoules) in 200809 to around 26 200 tonnes U (14500 petajoules) in 203435. This growth will be supported by the development of a number of new projects from 201415.
Figure G: Australian uranium production

18000 16000 14000 12000 10000 8000 6000 4000 2000 PJ 2008-09 2011-12 2014-15 2017-18 2020-21 2023-24 2026-27 2029-30 2032-33
Sources: BREE calculations, outside the E4cast model
Currently, there are three mines producing uranium in Australia: Ranger (4500 tonnes U a year), Olympic Dam (3800 t U) and Beverley (900 t U). Growth in uranium production is expected to come from the Honeymoon and Mullaquana projects in South Australia; the Yeelirrie, Kintyre, Mulga Rock, Lake Maitland and Wiluna projects in Western Australia, and the Bigrlyi project in the Northern Territory. In addition, plans are underway to expand production at the Olympic Dam mine, which will be the largest uranium development in Australia. The proposed expansion will increase production to around 19 000 tonnes of U3O 8 (16 100 t U) a year. A number of these projects have not yet received final investment decisions. As a result, the eventual timing and output from these projects may differ from current plans.
December 2011 49
With the exception of crude oil and refined petroleum products, Australia is a net exporter of energy commodities. As the projected growth in energy production exceeds that of primary energy consumption, Australias exportable surplus of energy is expected to increase over the period to 203435. Demand for Australias energy resources is expected to remain robust over the projection period, particularly in China and other developing economies. This will be supported by growth in economic activity and industrial production which is expected to provide a solid platform for growth in energy consumption. In 200809, the ratio of Australias primary energy consumption to non-uranium energy production was 44 per cent. This is projected to decline to 26 per cent in 203435 (Figure H). Figure H: Australian energy balance
30000 25000 20000 15000 10000 5000 200809 201011 201213 201415 201617 201819 202021 202223 202425 202627 202829 203031 203233 203435 PJ
Energy production
Energy consumption
Net energy exports
Black coal production and exports

Production of black coal, which includes thermal and metallurgical coal, is projected to grow at 2.8 per cent a year to 18 676 petajoules (623 million tonnes) in 203435. Despite this growth, the share of black coal in total energy production is projected to decline from 69 per cent in 200809 to 66 per cent in 203435 (Table 16). Growth in black coal will be supported by the development of a number of new mines and expansions at existing mines in New South Wales and Queensland over the projection period. New thermal capacity will come from BHP Billitons RX1 thermal coal development in the Hunter Valley region of New South Wales (4 million tonnes a year) which is scheduled for completion in 2013 and Xstrata Coals Ravensworth North development, also in New South Wales, which is expected to have an annual capacity of 8 million tonnes when completed in 2012. New metallurgical coal production will be supported by the development of BHP Billiton
December 2011
Mitsubishi Alliances Daunia mine in Queensland (4.5 million tonnes a year) in 2013 and an expansion at Jellinbah Resources Lake Vermont mine (additional 4 million tonnes a year) in 2013. Black coal is an important energy export for Australia, with coal projected to account for almost three-quarters of the growth in exports over the period to 203435. The projected growth of 3.3 per cent a year is based on the expectation that global demand for coal will continue to increase over the projection period, particularly in emerging market economies in Asia, in line with growing demand for electricity and steel-making raw materials. Australia, with its abundant reserves of high-quality coal, is well positioned to make a substantial contribution to meeting this increased demand. The development of infrastructure in New South Wales and Queensland will support coal exports growing to 17 415 petajoules (581 million tonnes) in 203435 (Table 17, and Figure I). There are a number of port expansions at Newcastle, including the second stage of the Newcastle Coal Infrastructure Group (NCIG) terminal, which will lift capacity by 23 million tonnes annually, and two stages of expansion at Port Waratah Coal Services Kooragang Island Coal Terminal, which will collectively increase annual capacity by 32 million tonnes to a total of 145 million tonnes a year. In Queensland, BHP Billitons Hay Point coal terminal is scheduled for completion in 2014 and will increase the ports capacity by 11 million tonnes annually to 55 million tonnes a year. Table 17: Net trade in energy
Level 200809 Subsector Coal Liquid fuelsa LNG Total PJ 7411 -920 838 7329 201920 PJ 13725 -1513 4006 16218 203435 PJ 17415 -2159 5663 20919 Average annual growth % 200809 to 203435 3.3 3.1 7.6 4.1
a Includes crude oil, other refinery feedstock, petroleum products and LPG.
December 2011 51
Figure I: Australian black coal balance 20000 18000 16000 14000 12000 10000 8000 6000 4000 2000 PJ
200809
201011
201213
201415
201617
201819
202021
202223
202425
202627
202829
203031
203233
Net exports
Production
Consumption
Natural gas production and LNG exports

Australia has considerable resources of gas that are increasingly being developed for domestic use and export (Figure J). The significant gas resource base is capable of meeting domestic and export demand over the projection period. In 200809, Australian gas output was 2082 petajoules (around 38 million tonnes), including LNG (Table 18). The majority of Australias conventional gas resources are located off the north-west coast of Western Australia. Reflecting this, the western market is the largest producing region in Australia. Gas production in the western market was 1199 petajoules in 200809 or 58 per cent of total production. Gas production in the eastern and northern markets was 688 petajoules and 195 petajoules, respectively, in 200809 (Table 18). In the western market, gross gas production, including LNG, is projected to grow at an average annual rate of 5.5 per cent to 4771 petajoules in 203435 (Table 18). Strong growth in domestic and global demand for gas has been driving the development of new projects and LNG capacity. There are a number of LNG projects that are expected to be completed in the western market over the projection period. These include Chevron, Shell and ExxonMobils Gorgon LNG project (15 million tonnes a year) in 2015; and Chevron, Apache, KUFPEK and Tokyo Electrics Wheatstone (8.9 million tonnes a year initially) in 2016. Gas production in the eastern market is projected to grow at 5 per cent a year to 2492 petajoules in 203435. A prominent feature of the eastern gas market is the increasing contribution of CSG to total production. In 200809, CSG accounted for 8 per cent of Australian production and around 89 per cent of production in Queensland. Production of CSG in Queensland and New South Wales is expected to maintain its strong growth trajectory over the projection period supported by the development of a number of new projects.
December 2011
203435
A large proportion of this CSG will be consumed domestically, supporting growth in CSG-fired electricity generation, particularly in Queensland and New South Wales. The rapid growth in CSG production in Queensland suggests that there may also be some changes in gas flow patterns, with relatively less gas flowing from Victoria and more flowing from Queensland (AEMO 2010). Table 18: Australian gas production
Average Annual Growth 200809 to 203435 203435 % 32 62 6 100 30 58 12 100 % 5.0 5.5 6.5 5.5
Level 200809 PJ Eastern market Western market Northern market Total 688 1199 195 2082 201920 PJ 1893 3626 371 5890 203435 PJ 2492 4771 1011 8274 200809 % 33 58 9 100
Share 201920 %
It is expected that CSG will be also be converted to LNG over the projection period, with a number of projects being planned around Gladstone. BG Groups Queensland Curtis LNG project received approval in October 2010. The facility will have a capacity of 8.5 million tonnes of LNG a year once completed in 2014. It will be the first facility in the world to use CSG as a feedstock in the production of LNG. The Gladstone LNG development (7.8 million tonnes a year) was approved in early 2011 and is scheduled to be completed in 2015. There are a number of other LNG projects using CSG as a feedstock planned for development. However, some of these projects may not proceed for several years as they face changes in market conditions or are targeting the same market opportunities. The development of CSG-LNG is likely to have implications for gas prices on the east coast.
December 2011 53
Figure J: Australian gas balance
200809
201011
201213
201415
201617
201819
202021
202223
202425
202627
202829
203031
203233
Net exports
Consumption
Production
Production in the northern gas market (including imports from the Joint Petroleum Development Area in the Timor Sea for processing in Darwin) was 195 petajoules in 200809. Production is projected to be 1011 petajoules in 203435, growing at an average rate of 6.5 per cent a year. Gas production in the northern market is projected to be more than sufficient to meet domestic demand. Domestic gas consumption growth will be underpinned by the increased volumes of gas required for the conversion of gas to LNG at the Ichthys processing plant and the increased uptake of gas-fired electricity generation.
Crude oil production and net imports

Australias oil production is influenced by the geology of oil deposits, exploration activity and world prices. The latest available estimates of recoverable oil resources are around 8624 petajoules (1466 million barrels), largely located in the Gippsland and Carnarvon basins (Geoscience Australia 2011). A major proportion of Australias oil production is sourced from mature fields with declining oil reserves. However, there are many prospective offshore areas that have not been explored. In addition, Australia has substantial resources of condensate (16 295 petajoules) and LPG (6281 petajoules) associated with the major gas fields on the North West Shelf in the Browse and Bonaparte basins (Geoscience Australia 2011). Australias crude oil and natural gas liquids production is projected to decline by 2.9 per cent a year from 1101 petajoules in 200809 to 511 petajoules in 203435 (Table 16). It is assumed that producers will develop a small proportion of the resource base each year in response to price signals. However, the reserves in existing and subsequently developed oil fields are assumed to deplete as the oil is extracted that will result in lower production over the projection period. Production of naturally occurring LPG is projected to increase at an average annual rate of 1 per cent to 135 petajoules in 203435.
December 2011
203435
9000 8000 7000 6000 5000 4000 3000 2000 1000 PJ
In 200809, Australias crude oil production was equivalent to around 76 per cent of refinery feedstock. As a result, Australia was a net importer of crude oil. However, around 60 per cent of Australias crude oil and condensate production was exported, primarily to oil refineries in Asia. Figure K: Australian oil and LPG balance
2500 2000 1500 1000 500 PJ
200809
201011
201213
201415
201617
201819
202021
202223
202425
202627
202829
203031
203233
Consumption
Net imports
Production
Australian consumption of liquid fuels (excluding petroleum products) is projected to increase from 1784 petajoules in 200809 to 1991 petajoules in 203435 (Figure K). Over the projection period, the gap between supply and demand will be exacerbated by the significant proportion of growth in crude oil and naturally occurring LPG production being concentrated in the Carnarvon and Browse basins in north-western Australia, which are closer to Asian refineries than the east coast of Australia. As a result, it is reasonable to assume that the bulk of the supply of crude oil and naturally occurring LPG will be exported for further processing rather than directed to the domestic market. Reflecting this assumption, the ability to meet domestic demand with domestic production is likely to be lower than implied by the simple comparison of production and consumption. The demand for petroleum product imports is determined by domestic oil production, end use consumption of petroleum products, and domestic petroleum refining capacity. Australias refining capacity is not expected to expand considerably over the projection period given increasing competitive pressure, particularly from large South-East Asian refineries. For example, in April 2011, Shell announced plans to convert its Clyde refinery and Gore Bay Terminal in Sydney into a fuel import terminal. This would result in the end of its refining operations. The Clyde refinery supplies around 40 per cent of Sydneys and 50 per cent of New South Wales petroleum requirements, respectively (Shell 2011). For a given domestic consumption and production projection, petroleum refining constraints may result in lower crude oil imports and higher imports of refined products.
December 2011 55
203435
The refining industry also uses petroleum products as an input to convert oil feedstock into a range of petroleum products. Around 7 per cent of gross refinery output is used on-site in the conversion process, as well as small quantities of natural gas and electricity. With declining oil production, Australias net trade position for liquid fuels is set to decline, with net imports increasing by 3.1 per cent a year to 203435 (Table 17).
December 2011
6 Conclusions
Australian energy consumption will continue to grow over the next 26 years, albeit at a slower rate than witnessed over the past few decades. This represents an ongoing trend that has been accelerated by a number of policy drivers and market factors. The projections in this report point towards a major change in the Australian energy landscape. The change is most prominent in the energy mix. BREE modelling indicates a shift to low emission technologies, driven by policies that promote a less emission intensive economy. The Renewable Energy Target and the introduction of carbon pricing will drive the uptake of renewable technologies, which are projected to account for 9 per cent of primary energy consumption in 203435, up from 5 per cent in 200809. Within non-renewables, there is projected to be a strong increase in the use of gas, particularly in electricity generation, which is one of the largest components of primary energy consumption, and LNG production. Gas-fired electricity generation is based on mature technologies with competitive cost structures. As such, it is expected to play a transitional role in the Australian energy mix until lower emission technologies become more cost competitive. Renewable energy is projected to have the strongest growth prospects, driven largely by the RET and other policies promoting the uptake of these technologies. Within the renewables, the largest expansion is projected to occur in wind energy which is a more mature technology in Australia and has a lower cost-structure relative to other renewable technology options. In addition, solar energy and geothermal energy are expected to play a small, but growing role in the energy mix. The transition to a lower carbon economy will rely on long-term structural adjustment of the Australian energy sector. While Australia has diverse and abundant energy resources, the transformation will require considerable investment in energy supply chains to allow for the larger-scale integration of renewable energy sources and other emerging technologies. Changes to market settings within the energy market framework will further help to support this transition. A shift to a cleaner energy future will require a broad energy policy framework that supports investment in Australias energy future along with timely adjustments in response to emerging pressures and market developments.
December 2011 57
References
ABAREBRS 2010, Australian Energy Statistics, Canberra, July. ABARES 2011, Australian Energy Statistics, Canberra, June. Australian Bureau of Statistics (ABS) 2010a, Australian National Accounts: State Accounts, 200910, catalogue 5220.0, November. 2010b, Australian System of National Accounts, 200910, catalogue 5204.0, October. Australian Energy Market Operator (AEMO) 2010, Gas Statement of Opportunities for Eastern and South Eastern Australia, December, http://www.aemo.com.au/planning/1410-0001.pdf. BREE 2011, Resources and Energy Statistics Annual, Canberra, November. Bukhteeva, O., P. Neal and G. Allinson (2009), Optimisation economics for CO2 Capture and Storage in Central Queensland (Australia), Energy Procedia, Vol. 1, pp 3969-3976. Council of Australian Governments (COAG) 2009, National Strategy on Energy Efficiency, Department of the Prime Minister and Cabinet, Canberra. Combet, G. 2009, Renewable Energy (Electricity) Amendment Bill 2009 Second Reading Speech, http://www.climatechange.gov.au/~/media/Files/minister/combet/2009/Speeches/ June/RET_Billsecondreadingspeech.pdf Department of Climate Change (DCC) 2010, Australias Fifth National Communication on Climate Change, Canberra. Department of Mines and Energy (DME) 2011, Queenslands Gas Scheme, http://www.dme.qld.gov.au/Energy/gasscheme.cfm. Dickson, A., Thorpe, S., Harman, J., Donaldson, K. and Tedesco, L. 2001, Australian Energy: Projections to 2019-20, ABARE research report 01.11, Canberra. EPRI (Electric Power Research Institute) 2009, EPRI technology status data, September, http://www.ret.gov.au. Geoscience Australia 2011, Oil and Gas Resources of Australia 2009: Table 2 - McKelvey Classification Estimates by Basin, as at 1 January 2010, Canberra, February. Geoscience Australia and ABARE, 2010, Australian Energy Resource Assessment, Canberra. Greenhouse Gas Reduction Scheme Administrator 2007, GGAS Summary of the Scheme, Sydney, August, http://www.greenhousegas.nsw.gov.au/documents/FS-Sch-Summary-02.pdf.
December 2011
International Energy Agency (IEA) 2011, World Energy Balances, 2010 edition, IEA online data services, OECD, Paris. 2008, Energy Technology Perspectives: Scenarios & Strategies to 2050, OECD, Paris. National Energy Technology Laboratory 2009, Extending the CCS Retrofit Market by Refurbishing Coal Fired Power Plants, US Department of Energy. Office of the Renewable Energy Regulator (ORER), 2011, LRET/SRES the basics, Canberra, February, http://www.orer.gov.au/publications/pubs/LRET-SRES-the%20basics%200111.pdf. Petchey, R 2010, End use energy intensity in the Australian economy, ABAREBRS research report 10.08, Canberra, September. Prime Ministers Task Group on Energy Efficiency (PMTGEE) 2010, Report of the Prime Ministers Task Group on Energy Efficiency, DCCEE, Canberra, July. Shell 2011, Shell Clyde Refinery & Gore Bay Terminal, http://www.shell.com.au/home/content/aus/ aboutshell/who_we_are/shell_au/operations/downstream/manufacturing/clyde/. Specker, S, Phillips, J and Dillon, D 2009, The Potential Growing Role of Post-Combustion CO2 Capture Retrofits in Early Commercial Applications of CCS to Coal-Fired Power Plants, EPRI. Stark, C, Martin, K and Penney, K 2011, Major electricity generation projects November 2011, BREE, Canberra, November. Treasury 2011, Strong growth low pollution: modelling a carbon price, Canberra, http://www.treasury.gov.au/carbonpricemodelling/content/default.asp
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Australian Energy Projections Report

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Australian energy projections to 203435

Commonwealth of Australia 2011

ISBN 978-1-921812-79-8 (Print) ISBN 978-1-921812-78-1 (Online)

ii Australian energy projections 203435

Quentin Grafton Executive Director / Chief Economist December 2011

Australian energy projections 203435

December 2011 iii

iv Australian energy projections 203435

Australian energy projections 203435

Crude oil Condensate Electricity generation capacity

Gas pipeline operation Levelised cost

vi Australian energy projections 203435

Australian energy projections 203435

December 2011 vii

Total final energy consumption

Total primary energy

viii Australian energy projections 203435

Indicative energy content conversion factors

Conventions used in tables

Australian energy projections 203435

jane.melanie@bree.gov.au 02 6243 7502

Micro & Industry Performance Analysis Theme Leader

arif.syed@bree.gov.au 02 6243 7504

Macro & Markets Analysis Theme Leader

jin.liu@bree.gov.au 02 6243 7513

Resources Program Program Leader

alan.copeland@bree.gov.au 02 6243 7501

Quantitative Economic Analysis Theme Leader

nhu.che@bree.gov.au 02 6243 7539

Energy Program Program Leader

allison.ball@bree.gov.au 02 6243 7500

Data & Statistics Program Program Leader

geoff.armitage@bree.gov.au 02 6243 7510

x Australian energy projections 203435

Australian energy projections 203435

2 Australian energy projections 203435

Energy production and trade

Australian energy projections 203435

4 Australian energy projections 203435

Australian energy projections 203435

2 The Australian energy context

Callide Basin Tarong Basin

Arckaringa Basin Perth Basin

Ipswich Basin Clarence-Moreton Basin 30 Gunnedah Basin

Demonstrated resources (PJ)

Geothermal energy (> 3 km of sediment and/or hotter than 200 oC at 5 km)

Source: Geoscience Australia and ABARE (2010)

6 Australian energy projections 203435

Australian energy production

PJ 1973-74 1979-80 1985-86 1991-92 1997-98 2003-04 Renewables 2009-10

Australian energy projections 203435

Australian energy consumption

Australia Western Australia

Victoria New South Wales

8 Australian energy projections 203435

Australias energy exports

Australian energy projections 203435

Figure C: Australian energy exports

Crude and ORF

10 Australian energy projections 203435

Renewable Energy Target

Australian energy projections 203435

Clean Energy Future Plan