4.1.1 Factors determining energy security
4.1.2 Energy security trends
Ensuring Australia's short-, medium- and long-term energy security is a high priority for the Australian Government.
The government defines energy security as the adequate, reliable and competitive supply of energy and energy services to support the nations economic and social development, where:
- adequacy is the provision of sufficient energy to support economic and social activity
- reliability is the provision of energy with minimal disruptions to supply
- competitiveness is the provision of energy at an affordable price that does not adversely affect the competitiveness of the economy and that supports continued investment in the energy sector (RET 2011a).
These three dimensions are interrelated and can involve trade-offs. For example, if energy supplies are not adequate, energy prices will need to rise or intervention in the market may be required to allocate scarce resources.
Energy security should not only be viewed from a supply-side perspective. Improved energy productivity through demand management and end-use energy efficiency also has an important role in ensuring that Australia's energy needs continue to be met.
Given their importance in determining our day-to-day access to energy, the Energy White Paper considers energy security and associated risk factors largely in terms of market development, access and supply issues. However, it recognises a range of important non-market factors that can influence our energy security, including national security developments. The 2008 National Security Statement identified energy security as an emerging influence on national security decision-making.
4.1.1 Factors determining energy security
Almost every aspect of energy policy contributes to energy security. It is supported by ready access to energy resources and fuels, infrastructure that transforms and transports energy products, and markets and policies that provide frameworks for the efficient delivery of energy to consumers.
Australia's natural resource endowment, open access to international markets and high-performing economy with the capacity to attract investment in the energy system all contribute to our energy security.
A range of interacting drivers play a critical role in determining Australia's short-, medium- and long-term energy security:
- the ability to bring our energy resources to market efficiently and sustainably
- domestic and global geopolitical and economic conditions that influence energy supply and demand, as well as key inputs for system development such as investment capital
- the efficiency, robustness and resilience of our energy infrastructure, markets, and market participants
- the degree of integration with international energy markets and supply chains
- changes in domestic and global energy prices.
Other important factors include the broader policy and economic framework (such as sound macro-economic and regulatory settings), the supply of skilled labour, and the interconnected nature of our principal domestic electricity and natural gas markets.
Energy market reforms over the past decade and a half, coupled with improved regulation and the development of stronger and more nationally based market institutions, have improved our energy security, economic productivity and market efficiency (ERIG 2007). Energy outcomes are increasingly a product of well-regulated market forces rather than government direction, allowing Australia to benefit from the greater efficiencies and flexibilities that markets can provide.
A range of non-market factors also have the ability to cause signficant short-term disruption to energy production and distribution, and thereby affect Australia's energy security. These factors include damage to physical infrastructure, critical dependencies and control systems as a result of threats and hazards ranging from terrorism and cyberattacks through to natural disasters and industrial incidents. These threats have the ability to disrupt the operation of the commercial market, which Australia relies on to maintain our energy security.
Non-market threats to energy security are largely addressed through a range of government policies and frameworks, including the National Energy Security Assessment (NESA) and associated processes, as well as the Australian Government's Critical Infrastructure Resilience Strategy, which considers all hazards that have the potential to disrupt the continuity of essential service delivery, including services delivered by energy infrastructure. The NESA, in particular, has informed the White Paper on the role of energy security in the broader national security context.
While the main focus of the Energy White Paper is on the market factors outlined above, it is important to acknowledge the potential linkages and flow-on impacts between non-market and market factors determining energy security.
4.1.2 Energy security trends
The 2011 NESA assessed Australia's short-, medium- and long-term energy security for the liquid fuels, natural gas and electricity markets for the period to 2035 (RET 2011a).
The report found that Australia's energy security situation is meeting our economic and social needs, albeit with some emerging market and policy uncertainties that could have implications for maintaining our current level of energy security. The detailed NESA findings have been incorporated into much of the discussion throughout this White Paper. Summary findings for each of the three markets are outlined in this section.
Liquid fuel energy security is assessed as high, trending to moderate1 in the long term, as Australia has continued access to adequate and reliable supplies of liquid fuels at prices that are manageable within the broader economy. The long-term moderate assessment recognises that our rising imports of petroleum products will lead to greater reliance on international supply chains and a consequent need for investment in import and storage infrastructure. The assessment also recognises a likely trend of high crude oil prices driven by increasing global demand and greater reliance on more expensive sources of supply, the significant global investment challenge in meeting rising demand, and continued risks of geopolitical uncertainty in key oil-producing countries.
The NESA also found that diversifying fuel types and sources is increasingly important in improving Australia's liquid fuel security. However, because of the small contribution made by alternatives such as biofuels (around 5% of the current market), and the technical and commercial challenges they face over the assessment period (see Chapter 7: Energy markets: liquid fuels), they were seen as likely to remain as niche products. Moves to mandate the take-up of alternative fuels may reduce energy security where there is lack of adequate supply sources.
The decline in Australia's domestic refining capacity (following announcements of the Clyde and Kurnell refinery closures) is not considered to impair Australia's liquid fuel security. The closures will occur over 18 months, and will be complemented by an expansion of import terminal capacity to ensure that market supply is maintained. Substituting imports of crude oil for imports of refined fuel at this scale does not pose any additional risk to market security.
Overall gas energy security will remain moderate over the 2011–35 period, reflecting a rapidly developing market with distinct regional differences and challenges. This assessment recognises the mixed influences on gas security of the development of the coal-seam gas and LNG export industries on Australia's east coast, which are due to begin in 2014–15. While the entry of these fuels to the market has increased Australia's gas reserve levels, it has the potential to introduce competitive tension between the domestic and LNG export markets, which could lead to higher domestic gas prices (discussed further in Chapter 9: Energy markets: gas).
The gas supply–demand balance in Western Australia is changing. While recent increases in demand have placed upward pressure on prices, the market is responding with increased supply in the short to medium term. However, there is a risk that some downstream projects may find it difficult to source gas at prices that maintain their viability.
Electricity energy security is rated as moderate over the period to 2035. While some factors (such as drought2) have eased since 2009, the sector faces significant challenges most notably reliability, price pressures, the implementation of climate change and renewable energy policies, and the need to provide market certainty about future climate and clean energy policy. Some investment in new and ageing infrastructure is also needed. However, further market reforms and the assistance and energy security mechanisms announced in the Clean Energy Future Plan should allow the market to respond to these challenges.
Market shock scenarios
The NESA also modelled a limited set of hypothetical physical infrastructure supply chain 'shocks' in the liquid fuel, natural gas and electricity sectors to test the resilience of the energy system (RET 2011a). The modelling highlighted the continuing importance of resilient infrastructure and the diversification of supply arrangements and transmission infrastructure to avoid or respond to economically damaging supply disruptions. The report also included a cybersecurity case study to explore the emerging risks to energy security from this evolving threat.
The Liquid Fuels Vulnerability Assessment 2011 (ACIL Tasman 2011) found that collective action by the International Energy Agency (IEA) effectively muted the impacts of the 2005 Hurricane Katrina supply disruption. While the assessment found that prices would rise in the event of supply disruptions, the market would respond and readjust supply lines to replace supplies lost. Additionally, IEA collective actions were found to reduce the size and duration of the impacts.
1 'High energy security' is defined as meeting Australia's economic and social needs. 'Moderate energy security' means that needs are being met but that there could be a number of emerging issues that will need to be addressed to maintain that level of security. 'Low energy security' means that needs are not being, or might not be, met.
2 See Chapter 12: Sustainability, workforce and Indigenous opportunities for a discussion of electricity generation in relation to water resources.