Australia passes a ‘tipping point’ in energy crisis

Australia passes a ‘tipping point’ in energy crisis, by Matthew Stevens.

Glencore has warned that Australia has drifted past a “tipping point” of industrial energy “demand destruction” and that the nation has 12 months to re-establish reliability and affordability of its base load power capacity or risk permanent and unpredictable shifts in the shape of the economy.

The commentary by the most senior Glencore executive based in Australia, global coal boss Peter Freyberg, comes as the future of the Swiss-based miner’s Queensland copper mining and processing estate is being undermined by a concert of uncertainties over the availability and price of gas and electricity supplies. …

“Unless we make decisions really quickly, and I mean in the next 12 months, that re-establish base load capacity then we have no chance of sustaining the economy in the shape that it is in now.

“In the end the market will work its way to balance,” Freyberg continued. “It will stabilise – but the wrong way and for the wrong reason. The inability to secure affordable base load supply means that the problem will be fixed by demand destruction.

“We are beyond the tipping point in terms of industrial demand destruction. And when capacity is closed and plants are shut down, they don’t come back.

“As an aside,” Freyberg added, “nationalising gas production is not the solution. …

For the record, the average price of power in Queensland through the March quarter more than doubled against the same period last year. To put firm numbers around that price increase, the average spot price of electricity in Queensland through the March quarter was $173.98 a megawatt hour [17c a kWh]. The March quarter average in 2016 was $80/MWh [8c a kWh]. …

In March, Rio shut 14 per cent of its production at the Boyne Island smelter for want of an acceptable electricity supply contract. Rio generates 86 per cent of its own power for the Gladstone-based smelter but had been acquiring the balance of its needs from the spot market. A two-year effort to replace that spot exposure with contracted supply proved unsuccessful and, as a result, an equivalent quantum of Boyne production was closed. …

[Rio Tinto’s new boss, Jean-Sebastien Jacques] said the power price Boyne was paying “was so high that it didn’t make any sense any more for us to produce. As a result, 100 of our colleagues lost their jobs …” and Rio surrendered 80,000 tonnes a year of aluminium exports.

Untrendy, white, male, business executives — what would they know?

hat-tip Scott of the Pacific