Basslink failure has cost Tasmanian economy $560 million to date

The current failure of the subsea power link between the mainland and Tasmania has cost the island economy approximately $560 million to date since the outage started shortly before Christmas last year, according to renowned energy market analyst, EnergyQuest.

And while the Singaporean-based owners of the Basslink infrastructure have now targeted a revised restart for the end of this month, the new EnergyQuest report released today says the Basslink related economic losses to date are at best conservative.

Chief Executive Officer of EnergyQuest, Dr Graeme Bethune, said today that Tasmania’s average power price jumped quarter-on-quarter (qoq) by more than 350% in the March period to $176.92 per Megawatt hour (MWh).

During the three month period, the State’s peak power price soared more than 500% to $257.36/MWh.

“The estimates do not take into account the economic cost of lost production by the larger industrial gas users in Tasmania. We have also assumed that Tasmanian power prices would have increased anyway to some degree as in other east coast states,” Dr Bethune said.

The new estimates are based on the volume of electricity generated in Tasmania between December 2015 and April 2016, multiplied by the difference in power prices between the most recent period and the corresponding period 12 months previously.

Electricity prices on the east coast mainland in 2015-16 were 17.5% higher than in 2014-15 and the $560 million estimate assumes that there would have been a similar increase in Tasmania, even without the Basslink failure.

Victorian gas saviour  

“The Tasmanian situation would have been even worse without the back-up of Victorian gas supplies from Longford via the Tasmanian Gas Pipeline, the island State’s only remaining energy supply link to the mainland,” Dr Bethune said.

Production from the ExxonMobil/BHP Billiton plant at Longford in Gippsland “roared ahead”, increasing by 66% in Q1 to 64.2 petajoules (PJ) as it met increased demand not just from Melbourne and NSW but the stricken Tasmanian energy network. This was the Joint Venture’s highest Q1 production in at least a decade.

“During Q1, gas supplied 30% of Tasmania’s electricity, up from virtually zero in Q1 2015. Gas could have actually done a lot more but it took a month from the time of the Basslink failure to recommission the gas turbines that had been earmarked for sale at the Tamar Valley power station,” Dr Bethune said.

Former Howard government minister, Mr Warwick Smith and the Clean Energy Finance Corporation are now undertaking a study into a duplicate cable, Basslink 2, at an estimated cost of $1 billion.

“Any studies into improving Tasmania’s energy security should not be limited to one option costing one billion dollars,” Dr Bethune said.

“As the current crisis has shown, Tasmania already has a good energy security blanket in the Tasmanian Gas Pipeline (TGP), which was still only utilised an average 58% during the crisis”, he said. (TGP is the only pipeline supplying natural gas to Tasmania.  It transports natural gas from Longford in Victoria, under Bass Strait, to Bell Bay in Tasmania.)

“The main constraint on doing more was limited gas-fired generation in Tasmania. Keeping the Tamar Valley power station on standby could be a much more cost-effective option than a second Basslink ,” Dr Bethune said.

Queensland exports more LNG than Russia in March Quarter

Gross Australian LNG production increased by 53.2% qoq to 10.1 million tonnes (Mt) with the ramp-up of production from APLNG and GLNG projects in Queensland and the first cargo from the Gorgon project in Western Australia.

Of note over the period was Queensland’s March quarter performance – exporting 3.8 Mt of LNG – more than the whole of Russia’s 2.5 Mt of LNG exports.

“Queensland’s performance is extraordinary, from zero LNG exports as recently as 18 months ago to more than Russia already,” Dr Bethune said.

“Queensland’s LNG projects have all ramped-up more quickly than expected and are near or exceeding nameplate capacity. The whole process has been very well managed with little apparent market disruption.”

Shell’s QCLNG project shipped 31 cargoes in Q1 comprising 2.1 Mt, Santos’s GLNG project shipped 16 cargoes of nearly 1 Mt and the Origin Energy-Conoco Phillips project shipped 11 cargoes of 0.7 Mt.

LNG output is now Australia’s largest component of petroleum production.

Despite a 36% qoq fall in average Australian LNG export prices due to the fall in oil prices, Australian LNG export revenue in Q1 of $4,469 million was only down slightly from Q1 2015, supported by the growth of export volumes.

Other May report highlights

Australian petroleum production continued to grow over Q1 2016, increasing 26.4% qoq to 162.7 million barrels of oil equivalent (MMboe).

Australia’s domestic gas production fell marginally qoq in Q1 to 262.6 PJ. However domestic gas production grew by 3% qoq in Western Australia to a record 94.7 PJ.

Total Australian natural gas and ethane production was up 33% in the quarter compared to the March 2015 period at 774.1 PJ with increases in all basins except Bonaparte, Perth and Otway.

The report found that while east coast electricity demand has finally started to rise after years of flat or negative growth, coal and renewable energy sources are meeting that demand at the expense of gas, with gas-fired generation falling 14% qoq in Q1 2016. The big winner has been coal. Hydro was also important in Q1. Generation from solar and wind was virtually steady qoq.

Basslink background

Basslink is a high-voltage subsea power cable crossing Bass Strait, connecting the Loy Yang Power Station in northeastern Victoria to the George Town substation in north eastern Tasmania, allowing two way flows to service peak and base load electricity demand.

The cable had been a lifesaver for drought-gripped Tasmania as the majority of its electricity is from hydro generation.

The link had to be shut down on December 20 however, due to a cable fault about 100 kilometres off the Tasmanian coast.

Although severe weather over coming weeks could further delay Basslink’s repair and restoration, May’s rain and snow had allowed hydro generators to come back on line, the State had been able to shut down its emergency diesel generators and the cessation of generation from Tamar Valley had brought Tasmania back onto 100% renewables for the first time in more than a year.

EnergyQuest is an Australian-based energy consultancy specialising in market analysis and strategy.