NSW needs energy security and this Norwegian outfit Hoegh is offering it

Why is NSW like Lithuania?

Well, according to a bunch of clever Norwegians, it is because the Baltic nation and Australian state share similar sources and solutions to their individual energy challenges.

The Norwegians in question work for Hoegh, the world’s leading provider of floating liquid natural gas storage and regasification terminals (FSRU) – it is the newest technology partner to the Andrew Forrest-backed Australian Industrial Energy.

Hoegh is a century-old shipping company that invited itself to the emerging floating regas game back in 2004 – 15 years later it owns 30 per cent of the world’s FSRUs, operating eight projects in energy-short constituencies across the globe.

“We can do for NSW what we did for Lithuania,” Hoegh’s Ragnar Wisloff told The Australian Financial Review near the end of a flying visit to Australia last week.

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“Lithuania is tied to a Russian gas pipeline and they didn’t like that much being left exposed to a monopolistic supplier that was exercising the political leverage of energy. So they came to see us to get themselves some level of independence. We have given them energy security through an FSRU (floating storage and regasification unit) called Independence. That is very similar to what NSW can do. It can get itself some security through diversifying the source of gas supply that gives it some level of independence from the pipeline.”

AIE has plans to resolve the separate but related gas and power supply issues in NSW by importing more than 50 per cent of the state’s gas needs through an FSRU that will be parked at Port Kembla. This time last week Hoegh was confirmed as the supplier to AIE of the special $US100 million-plus vessels that receive, store and convert LNG.

Interestingly, the modern vessel that Hoegh would deliver to AIE will be flexible enough to offer marine bunkering services to the whole family of ocean freighters that now use heavy oil fuels to steam their way to and from our regional export markets.

As Woodside Petroleum’s Peter Coleman keeps telling us, LNG could emerge the preferred fuel of the world’s shipping fleet as a result of a revolution in marine bunkering that will see the end of traditional high sulphur, heavy particulate fuels.

“We have been doing this in Norway for some time,” Wisloff said. “We have offshore support vessels, ferries, regional vessels, all running on LNG and they are refuelled from an existing FSRU depot,” he said.

AIE managing director James Baulderstone has subsequently confirmed that marine bunkering is rated one of the future opportunities for his Port Kembla project, noting that Forrest’s iron ore business, Fortescue, is working with Woodside and others on an investigation of the potential of LNG to fuel trucks and iron ore freighters.

“In Japan and China, they are already using LNG in trucks. This is another reason why we are so passionate about Port Kembla as the site of our FSRU. We couldn’t get a better location and we haven’t had a negative response so far,” he said.

Needless to say, as much as Coleman and his peers are excited about their future in fuelling ships, the main game for AIE is commercial gas customers and for power generation that might yet be done in-house by Forrest’s consortium.

With that potential in mind, there was appropriate coincidence between Team Hoegh’s visit last Thursday and the publication on the same day of the Australian Energy Market Operator’s latest appraisal of the state of Australian power, the Electricity Statement of Opportunities report.

The report identified a phenomenon made obvious by the South Australian blackouts of 2016: the rise of renewable generation is containing demand on the national energy market but increasing the level of systemic risk as the patterns of peak demand, in particular, change.

The latest study, for example, identifies that residential rooftop solar installations have increased by 20 per cent this year and the commercial rollout has surged by 60 per cent. AEMO now believes this behind-the-meter solar capacity will grow at a rate 30 per cent faster than it had previously predicted.

At the same time though, AEMO has lowered its projections on the uptake over the next decade of new technologies that mitigate the risk of the embrace of solar, such as energy management systems and battery storage.

The market operator reports this revision follows advice from the CSIRO in the payback periods, technology cost reductions and likely linkages to uptake of solar systems.

The result of this disconcert of investment patterns is a potential market instability that has AEMO wondering whether it is appropriately measuring “the full gamut of risks that come with operating our energy systems”.

So AEMO is to run a full review of the way it models its market “to avoid the imposition of higher risk of load shedding than is acceptable or in the public interest”.

In other words, recent history has repeated itself. By encouraging the installation of residential and commercial behind-the-meter solar without forcing a matching bank of storage, federal and state governments have embrace a risk of peak-demand blackouts that the market operator is struggling to measure effectively.

One of the key measures the operator uses to assess the stability of the system is unserved energy (USE). It is an estimation of the amount of electricity demand that might be left unserved at any particular moment and it is usually mitigated by forcing heavy power users to reduce their consumption.

AEMO reported on Thursday that the growth of “variable renewable generation is contributing to a broadening gulf between estimates of unserved demand that are informed by statistics and the real potential of supply shortfalls during times of peak demand.

“The installation of high levels of embedded rooftop PV (photovoltaic) generation across the NEM is leading to a later and shorter peak in operational demand. Concurrently, the USE measure is becoming more sensitive to weather-driven variations in input assumptions.

“With increasing growth in variable renewable energy resources, both demand and supply are now exposed to the vagaries of weather, such as wind and solar availability, impacting the ability of the system to meet demand on extreme peak days.”

AEMO offered Victoria as an example of the additional summer-time risk that is fathered by solar’s expanding residential and commercial market penetration.

It assessed that a 40C day in the upcoming Victoria summer “could be the catalyst for extreme, one-in-ten-year electricity demand conditions, particularly when these temperatures are experienced towards the end of the day when business demand is still relatively high, residential demand is increasing, and rooftop PV’s contribution is declining”.

AEMO assessed that if that happens this coming summer then Victoria and South Australia will need to find 380 megawatts of “balancing and firming” power either in the form of additional supply or reduced demand.

The operator foreshadowed the potential for supply interruptions in Victoria and South Australia over the next two years and said that beyond that NSW would also be at greater risk than it should be.

And, in a projection that was too soon proved worthy, AEMO also warned that “transmission congestion” was increasingly reducing its ability to share reserves across regions at times of tight supply and demand balance.  

“An increase in the transfer capability of key flow paths would reduce the need for additional generation capacity to be built by taking advantage of diversity in supply and demand between regions, and by better leveraging regions with a surplus of supply, such as Queensland and Tasmania,” it said.

Now I know I keep saying this, but the current political focus on residential power bills is utterly missing the point. There is a big structural job to be done here and we need to get our energy policy setting to a point of clarity and certainty that investments can be made in the technologies that will best secure the power and gas markets through the great climate disruption.

Miners’ McCain debt

John S. McCain reserved a special place in his public heart for Australia. And McCain, who died with typical enviable dignity on Sunday, was also a pretty good friend to Australian mining.

Rio Tinto and BHP owe a debt of gratitude to the American patriot. As the senior senator for Arizona, McCain was a long-standing admirer and political sponsor of a copper project in his state that is jointly owned by the Anglo-Australia pairing.

The project, fittingly enough, is called Resolution, and McCain was one of the sponsors of a critical 2015 federal land-swap bill that secured the potential development of what is described as the best undeveloped copper prospect in the US.

In October 2014, ahead of a critical vote in the US House of Representatives, McCain told local media that Resolution “probably ranks in the top three or four” of the most frustrating issues he had dealt with in Washington.

The bill was passed and at some point over the coming decade, the rest will be history.

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