Trump’s inauguration and impact on energy

Donald Trump will officially become the 47th President of the United States at noon on Monday, January 20. With Trump’s inauguration, several decisions could have a global ripple effect on energy policy. Edge2020 highlights key changes that may shape the landscape heading into 2025.

Withdrawal from the Paris Agreement

There is anticipation that Trump could direct the U.S. to withdraw again from the 2015 Paris Agreement, as he did during his first term.

The Paris Agreement is a global pact to combat climate change by reducing fossil fuel emissions and limiting forecasted temperature increases.

The U.S., as the largest historical emitter of greenhouse gases, is a key player in driving global climate efforts. Therefore, its withdrawal could be significant.

Increase in Gas and Oil

Trump plans to lift the moratorium on new LNG export permits imposed by Joe Biden’s administration in early 2024. The moratorium was introduced to allow a study on the environmental and economic impacts of rising U.S. gas exports, which surged as the Russia-Ukraine war prompted many countries to cut imports of Russian gas.

In addition to this, Trump is anticipated to increase oil and gas drilling within the U.S., reversing Biden’s attempt to reduce fossil fuel development on U.S. acreage.

This will be subject to the discretion of his administration to determine which acreage will be offered for auction to drillers. Biden’s recent use of the Lands Act to protect areas various areas in the Atlantic and Pacific will pose challenges in expanding offshore drilling.

Offshore Wind

Trump has expressed his intention to stop new offshore wind developments, citing concerns in regards to cost, its potential impact on whale populations, and the waste generated by decommissioned turbines.

The offshore wind industry in the U.S. is already facing significant challenges with rising costs and supply chain issues.

Tariffs

Trump has promised to impose tariffs on various U.S. imports, including Canadian crude oil, as well as parts for solar and electric vehicle batteries. The impact of these tariffs will depend on the specific details of their implementation.

National Emergency for Energy

Trump may declare a national energy emergency upon taking office, following statements made during his campaign last August, where he pledged to reduce electricity and gas prices. This would allow him to fast-track permits for new infrastructure and other energy projects. This includes projects within industries such as natural gas, renewables, pipeline operators, and nuclear.

This move aligns with his broader agenda to expand energy production in preparation for the anticipated increase in demand from data centres.

Donald Trump’s inauguration as the 47th U.S. President marks a major shift in energy policy. Plans to boost oil, gas, and LNG production, withdraw from the Paris Agreement, halt offshore wind projects, and impose tariffs could reshape global energy dynamics.

How might these policy changes, if implemented, shape the future of energy?

December 2024 Gas Inquiry Report Recap

The December 2024 Gas inquiry report by the ACCC was released on Friday, with its focus on the operation of the east coast gas market.

Natural gas is vital to Australia’s transition to lower emissions, supporting energy security, reliability, and affordability as renewables dominate electricity generation. It remains essential for all users including residential, commercial, and industrial users, particularly for manufacturing and chemical processes where alternatives are not viable such as electricity.

However, east coast gas supply is declining as traditional sources like the Gippsland Basin begin to deplete and new investment lags behind. In the short term, southern states are forecasted to rely upon gas transported from Queensland, facing constraints in pipeline capacity and potential dependence on imported LNG. This will increasingly tie domestic gas prices to international markets and transportation costs, driving up prices locally.

The 2022 energy crisis underscored the risks of inadequate gas supply and the market’s susceptibility to global volatility. To ensure reliability and a smooth transition to lower emissions, the east coast gas market must remain well-supplied as demand for gas is expected to remain high for at least two decades. While residential and commercial demand may decline with electrification, industrial demand will persist due to the lack of alternatives.

AEMO has forecasted that gas-powered generation will grow, requiring additional infrastructure to fill the gap created by intermittent generation from sources like solar and wind until sufficient storage is developed. The ACCC also mentioned that declining residential demand may also impact gas distribution networks, raising concerns about stranded assets and potential costs for end users.

The report highlights the critical role of natural gas in Australia’s energy transition and warns of the challenges ahead. Declining east coast supply, rising reliance on imports, and links to volatile international markets risk driving up prices. This price increase would likely flow through to energy prices, impacting the southern states in particular. With gas-powered generation needed to fill the gaps of solar and wind, action is required to secure supply and invest in new infrastructure. Will the necessary steps be taken in time?

AEMO’s Draft 2024 Integrated System Plan

Electricity substation at sunrise, representing the transition in Australia's National Electricity Market as per AEMO's 2024 ISP.

AEMO recently released its Draft 2024 Integrated System Plan (ISP), which serves as a roadmap for the energy transition in the National Electricity Market (NEM) over the next 20-plus years in line with government policies aimed at achieving net zero by the year 2050.

The plan outlines a cost-effective strategy for essential energy infrastructure to meet consumer needs, ensure reliability and affordability, and achieve net zero. AEMO highlights the urgency for action as the NEM shifts from coal-fired generation dependency. With the closure of coal-fired power stations, the draft proposes using renewable energy supported by storage and gas as the most economical solution for Australia’s energy transition.

The policy set by the Federal Government aims for a 43% reduction in emissions compared to 2005 levels by the year 2030. Additionally, the policy targets 82% of electricity supplied in the NEM to come from renewable sources.

Previous ISPs established ambitious trajectories for investment, and it is imperative that projects are now executed according to the plans. AEMO’s most probable future scenario predicts about 90% of NEM’s coal fleet will retire before 2025, and the entire fleet will retire before 2040.

The energy transition is already well underway, with coal retiring faster than initially announced. The ISP continues to stress the need for urgent investments in generation, firming, and transmission to maintain a secure, reliable, and affordable electricity supply. The retirement of coal-fired generators necessitates a transition to low-cost renewable energy, supported by firming technologies like storage and gas-powered generation.

AEMO has stated that the NEM must almost triple its capacity to supply energy by 2050 to replace retiring coal capacity and meet increasing electricity demand. Every government within the NEM is actively endorsing the transition. The Federal Government has broadened the Capacity Investment Scheme, while various states have their initiatives supporting the transition to net zero.

The 2024 ISP outlined three future scenarios for 2050, which included Step Change, Progressive Change, and Green Energy Exports. All these scenarios involve the retirement of coal, aligning with government net-zero commitments. AEMO has assigned likelihoods of 43% for Step Change, 42% for Progressive Change, and 15% for Green Energy Exports.

Under AEMO’s optimal development path (ODP) for the Step Change scenario, there is a call for investment that would triple grid-scale variable renewable energy by 2030 and increase it sevenfold by 2050. The plan emphasises grid-scale generation within Renewable Energy Zones, quadrupling firming capacity, supporting a four-fold increase in rooftop solar capacity, and leveraging system security services to ensure reliability.

In terms of transmission, nearly 10,000 km of transmission is needed by 2050 for the Step Change and Progressive Change scenarios, with over twice that to support the Green Energy Exports scenario. The annualised capital cost for all infrastructure in the ODP until 2050 is $121 billion, with transmission projects constituting 13.5% of the annualised cost.

The NEM faces several risks in transitioning from coal to renewable energy. Key challenges that AEMO has identified include uncertainty in infrastructure investment, early coal retirements, markets and power system operations that are not yet ready for 100% renewables. Additionally, consumer energy resources are not adequately integrated into grid operations, the social license for the energy transition is not being earned, and critical energy assets and skilled workforces are not being secured.

In summary, AEMO’s Draft 2024 Integrated System Plan charts a crucial path for Australia’s energy transition, aligning with net-zero goals. With an urgent focus on retiring coal-fired stations, the plan advocates a swift move to renewables backed by storage and gas solutions. The plan also outlines the significant challenges faced by the industry that are required to be overcome in order to reach net zero by 2050 while ensuring a reliable and affordable energy supply.

COP28 More of a Fizz Rather than a Bang

Logo for COP 28 UAE event featuring a circular design with intricate yellow patterns on a green background, symbolizing sustainability and environmental themes, displayed over a dark brick wall texture.

With just 2 days of negotiations left at the COP28 summit, it is clear that world leaders are not entering into the summit with the same sweeping mandated as seen in Paris in 2015. In fact, it is becoming increasingly clearer that the Paris 1.5-degree target is unlikely, never mind strengthening the resolve on these targets.

Despite this year, 2023, already being declared the warmest on record by November, and having six record breaking months and two record breaking seasons, world leaders as squabbling over texts which will have little to no impact on emissions or targets.

With the head of this year’s COP, Sultan Al Jaber, the head of the Abu Dhabi National Oil Company (ADNOC) in the position many thought would create a conflict of interest, he is indeed between a rock and a hard place. With over 80 countries, many at the forefront of climate change pushing for an end to the use of fossil fuels, a topic every previous COP has been careful to avoid, the Sultan is now being lobbied from both sides, with OPEC now pressuring members and the chair to reject any deal which targets fossil fuels directly.

Reuters, who broke the news shared a letter from December 6th sent by OPEC Secretary-General Haitham al-Ghais “It seems that the undue and disproportionate pressure against fossil fuels may reach a tipping point with irreversible consequences, as the draft decision still contains options on fossil fuels phase out … I avail of this opportunity to respectfully urge all esteemed OPEC Member Countries and Non-OPEC Countries participating in the CoC and their distinguished delegations in the COP 28 negotiations to proactively reject any text or formula that targets energy i.e. fossil fuels rather than emissions”.

The Sultan is therefore walking a very fine line, as evident by his calling of the majlis, elders conference, on Sunday. In there, the main focus was two pronged, one the aforementioned fossil fuels phase out or abatement, and the second on financing.

Climate adaptation funds is not a new concept, it was raised pre-the-Paris agreement, and every year since. However, despite UN reports released in November, Adaptation Gap Report 2023, showing 2021 funding fell 15% year on year to a cumulative $24.6bn, but more than $200 – 350bn is needed, and 2023 is likely to only be around the $100bn mark. The idea of now increasing the burden on fossil fuels emissions to be phased out and not abated will leave many countries, especially in the African continent behind. As emerging and expensive technologies, which will allow other countries to continue producing, will not be available to them.

I once again argue, with politicians and special interests lobbying, the value of the COP is diminishing. Energy policy should not be in the hands of those who are worrying about re-election in 1, 2 or 4 years but those who understand the science, industries and financing of the projects required to make the change. We cannot just turn off coal, the Eraring “closure” has shown us that in bright bold lights (or blackouts), so there has to be balance. But that cannot be done by those who are not in that world or influenced by only one side of an argument.

However, with Azerbaijan the COP29 hosts, a country with at least 7bn barrels of commercial oil, and 1.3 trillion cubic meters of natural gas and one of the world’s largest gas fields I am sure will fly the flag for phase out of fossil fuels and strong targets for all nations attending.

With Statements due in the next 48 hours, I may be proven incorrect, and the Sultan is absolutely making the right noises, “I want everyone to come prepared with solutions … I want everyone to come ready to be flexible and to accept compromise. I told everyone not to come with any prepared statements, and no prescribed positions. I really want everyone to rise above self-interests and to start thinking of the common good.” But as always, the proof is in the packages which come out of the talks and with only two days to go and no consensus the clock is absolutely counting down.

Threats to Gas Supply Deal

Aerial view of an LNG tanker docked at a coastal industrial facility with distinctive spherical storage tanks and infrastructure for natural gas.

Chris Bowen, the Energy and Climate Change minister, announced a plan to address looming supply issues for east coast homes and businesses by securing commitment from two big gas exporters (APLNG and Senex) to divert 300 petajoules of gas into the east coast domestic market by 2023. This amount is equivalent to about half of the annual East Coast domestic market demand or two years’ worth of industrial usage.

However, this new deal is already under threat from the Greens, who plan to challenge the government’s industry code of conduct in parliament. Should the coalition support the Greens’ motion, the deal could fall through, increasing the risk of gas supply shortages in the future.

The deal gives exemptions to APLNG and Senex from the $12/GJ price cap under the code of conduct. Chris Bowen stated that “This supply is critical for households, industry and gas power generation as the Bass Strait fields deplete”.

The gas price cap was introduced by the government last year, which triggered a freeze in new supply investments. After negotiations, the government revised the code of conduct, allowing exemptions for gas developers who committed to selling into the domestic market. Bowen has criticised the Greens for potentially disrupting the deal, highlighting the critical role gas will play in the energy transition and for grid reliability.

In related news, Australia’s annual climate change statement projects emissions to be 42% below 2005 levels by 2030, slightly below Labor’s election commitment of 43%.

Additionally, Chris Bowen has declined to specify the potential financial impact on taxpayers from the newly expanded Capacity Investment Scheme. The scheme involves the Australian government underwriting 32GW of new power generation through two auctions per year.

While industry experts anticipate this could cost billions annually, Bowen stated, “It is quite standard budget treatment to say we will not indicate our pricing expectations as we’re about to enter an auction”. He assured that the government’s strategy aims to maximise taxpayer benefits and maintain competitive bidding.

The scheme does not intend to “subsidising negative pricing”. Instead, it requires project proponents to state their minimum required profit and a maximum price point for sharing profits with the government. The government will retain control over bid acceptance and the total amount of gigawatts allocated.

Egypt’s Gas Woes: Blackouts, Regional Tensions, and Global Market Challenges

Offshore gas drilling platform at sea, visible against the horizon under a hazy sky.

Egypt’s increasing reliance on gas has led to struggles with blackouts as domestic gas consumption soared, particularly during summer when high demand for cooling drained domestic reserves. Despite a strong start earlier in the year due to surging pipelined gas imports from Israel, the recent war between Israel and Hamas has impacted regional gas supplies adversely. The tensions led to a redirection of Israeli gas supplies through Jordan, instead of the direct subsea pipeline to Egypt, causing a temporary halt in gas imports. However, as of early November, gas imports from Israel have resumed, albeit in smaller volumes.

The disruption to supplies came at a time where Egypt had already ceased exports of LNG due to high domestic demand, with abandoned plans to resume exports in early October. Egyptian PM Mostafa Madbouly’s announcement of zero gas imports from Israel was reflective of the harsh reality, as Egypt’s cabinet confirmed a drop in gas imports from 800 million cubic feet per day, contributing to a power generation deficit and prolonged blackouts.

According to Reuters, the attacks by Hamas towards central Israel have caused US owned Chevron to cease operating their Tamar field, which resides close to the Gaza strip. This field produces in the region of 40% of all Israeli gas.

Egypt’s status as an LNG exporter is likely in jeopardy, with its only other gas rich neighbour, Cyprus, without a pipeline to directly supply Egypt. These LNG exports are a crucial supply of foreign currency earnings for Egypt, as their debt to GDP ratio was expected to peak at 97% over the Q2/Q3 period.

With the EU cutting ties to Russian gas, there are few suppliers left outside of the United States to provide crucial energy fuel supplies to the EU. The EU will be forced to reassess its energy diversification strategy should it have shortfalls over winter.

This shortage is likely to drive up LNG prices globally, with the Asian market also having fewer options to choose from. The question remains as to whether Australian LNG suppliers will be able to take advantage of a market with fewer competing sources.

AER’s State of the Energy Market in 2023

The AER released their annual ‘State of the Energy Market’ report last Thursday for 2023 for Australia’s electricity and gas markets. This included some relatively good news as the energy system in 2023 has “experienced fewer shocks and better outcomes than in 2022”. The 2023 wholesale electricity market prices have declined from the record prices in 2022, largely due to the government interventions in the coal and gas markets. Despite the decline, prices remain high by historical standards.

A media release by the AER accompanying the report stated, “Increases in wholesale energy prices were evident in retail prices, with estimated electricity bills rising between 9% and 20% in all NEM jurisdictions in 2022-23, impacting households already experiencing broader cost-of-living pressures. “

The report highlighted the pressures for investment in renewables to permit the retirement of coal generation. The report also commented on Liddell’s retirement in April 2023 going smoothly due to the new renewable generation and recent favourable market conditions.

The transition to new energy infrastructure faces several challenges:

  • The vast scale and required coordination of investments.
  • Rising costs in the infrastructure sector.
  • The need for community engagement in infrastructure planning and development.

The report highlighted the government involvement and support in investments including joint initiatives between Australia Government and state and territory governments.

The dynamic between electricity and gas markets is increasingly interconnected. As regions shift from gas demand to electricity demand (like replacing gas heating with electric air conditioning), it’s anticipated that pressure on gas markets will decrease, while electricity demand will surge. Factors like electric vehicle adoption will further influence electricity demand and the necessity for new infrastructure.

Furthermore, planning will now also factor in emissions reduction to serve the long-term interests of energy consumers, integrating it with other goals such as price, reliability, and supply security.

An interesting comment was made in the report executive summary highlighting concerns in the industry surrounding issues of competition in the market and market power outlined below.

“Our concerns are around the reduced liquidity of exchange-traded hedging products, the declining number of clearing service providers for electricity derivatives, and the levels of concentration of ownership of flexible generation capacity, particularly in NSW and Victoria. The AER’s anticipated new powers in relation to contract market monitoring will allow us to better monitor participant behaviour and gain sharper insights on issues of competition and market power.”

Victoria’s Gas Ban: Gas is gone so how to stay warm in Victoria

With the UK announcing this week that they are opening up 20 new Oil and Gas fields to assist in meeting at least three weeks of supply for the country, the UK is pinning its decarbonisation and supply hopes on the Gas market. Being a country which is heavily reliant on imports of gas, and the reliance being costly and not certain in the Russian dominance era, this seems like from a business, not climate, perspective a smart move.

This therefore makes the contrast a stark one in comparison to the Victoria announcement also this week to ban all new Gas connections in homes and government buildings. With this being under the premise of cost savings I am not sure everyone is buying what the States Energy Minister, Lily D’Ambrosio, is selling.

Without diving into that political black hole, there must be a thought going through many Victorians heads though, with Gas gone how do we replace the gas boilers with something equally as effective without blowing out our electricity consumption.

Well, this is something which has been looked at in depth within the wider market at the moment, and the most effective solution is a heat pump. Sales of heat pumps, according to the IEA, have increased globally 11% in the past year alone and 49% in Europe.

So what is a Heat Pump? The traditional Heat Pump is an air source heat pump. Similar to your air con unit, the unit is fitted to the outside of the house and will pull the air into its refrigerant system. This turns the refrigerant into vapour which is compressed and creates – yes you guessed it – heat. This process can work in all temperatures, even below zero and therefore could be an effective solution for Victoria.

This all sounds great but ultimately is it costly and how effective is it? Well, a gas boiler is around 90-95% efficient, whereas the heat pump is 350% efficient. They actually produce 3.5 times more energy to use as heat than the electricity to run them. This could be the solution as even if the electricity is more expensive than the gas, sorry to the Vic government but you can’t spin that any other way, the amount required is less and therefore it could reduce those bills, you may get your wish after all!

This concept hasn’t been completely lost on the Victorian government as after the initial announcement they followed with a $10m grant to electrify new homes, with developers able to apply for rebates for solar panels, solar hot water systems and … heat pumps. However, with electricity prices rising, the new Victorian Government Owner corporation stalling, and electrification legislation being pushed through, at what point does the equation not add up in time for the grid to be able to take all this new load?

The ESOO and next years ISP will no doubt make interesting reading as all state’s electrification, degasification and net zero plans start being incorporated into the final view of our grid and its requirements.

Federal Budget 2023 – A shock to the Gas Industry

Australian Parliament House

Under a tightly embargoed budget speculators and hedgers alike could be forgiven for worrying the 2023 Federal budget hid an unknown shock, on top of a Liddell closure, Bayswater trip and extended outages. Last week’s market uncertainty was definitely not dampened by the little information coming out of Hon Dr Jim Chalmers MP’ office.

However, there was good news to be had, in contrast to the October 2022 budget which forecast a deficit of $36.9bn for this financial year the Hon Dr Jim Chalmers MP was almost giddy to announce a surplus of $4bn, it is the first in 15 years, yet is everything that glimmers actually gold?

Little was made of the fact 20 per cent of the surplus came from increased commodity prices, a nod was made to the Ukraine crisis but little to the other drivers and opportunist behaviour which has been within our market for the past 12 months. There was certainly no mention of the huge windfalls the treasury gained from the commodity industry.

The Gas and Coal caps were mentioned but there has been no discussion of the Coal Cap either being extended or removed in December 2024 when it expires. In contrast, the Gas cap has been confirmed to remain until 2025 and as such the potential for a market move in the summer months is still possible.

Overall, the budget was light on Energy for large business, the most focus was on infrastructure for Electric Cars and cost of living relief for residential and small businesses. The creation of a National Net Zero Authority was predicted under the Chubb review and therefore no shocks were seen.

There was a slight nod to a new Hydrogen head start program, giving $2bn to the scheme and more investment in green industry, which was unsurprising. A curious section was on a Capacity Investment Scheme “unlocking over $10 billion of investment in firmed-up renewable energy projects up and down the east coast” as a throw away comment and I am sure a few more details will emerge over the next few days – this one did pique my curiosity.

Undoubtably in the commodity space the biggest losers this evening were the Gas companies, between the extension of the Gas cap at $12/GJ into 2025, increased taxes due to the extraordinary market conditions would follow, but a second stab at the inflated pie has come in the form of the Petroleum Rent Resource Tax. I think its mention was all of 3 seconds of the budget, yet this piece of legislation will increase the government coffers to the tune of $2.4bn over the forward estimates. On top of the Safeguard mechanism changes and power the greens had in ensuring many new gas projects do not get off the ground easily if at all, this is yet another cost to the industry. Yet in comparison to those enforced overseas, and especially in the UK, this was light touch, and it will be interesting to see if it is strengthened at all by the Greens, whom Labor will need to pass this through the house.

Overall, not a great deal of shock waves this evening, a budget which I am sure will be picked apart and a barrage of “inflationary pressures” will be dissected, yet overall, no real change to the status quo. Looking down the barrel of economic growth slowing to one and a half per cent in the next financial year, coupled with increasing wages it’s not the time to be throwing about cash, however hitting industry for half baked wins for those at the other end of the scale may not be enough to make any new friends and certainly could lose this government more.

Possible extension to the gas caps

Image of Gas Stove

It is likely today that the Climate change and Energy Minister Chris Bowen will announce an extension to the $12/GJ cap on wholesale gas. Currently the gas caps will expire at the end of the year. Following the release of the draft mandatory code of conduct the market will have several weeks of consultation.

Energy producers are likely to be concerned over an extension or possibly permanent changes to the wholesale gas. Energy producers will also be concerned that changes will impact the pricing of long-term deals as it is likely a reasonable pricing clause will be included.

Under the reasonable price provision, gas companies could only charge a price based on the cost of production plus a reasonable margin. The reasonable price does not consider the capital invested during exploration and development of projects. Gas buyers will be able to challenge the price of contracts via a formal dispute process. The dispute process is designed to determine what the ‘reasonable’ price should be.

While the extension to the cap mechanism will provide certainty for energy users, energy producers remain in a holding pattern.

Gas producers are not finalising new gas supply contracts for 2024 until the government confirms what the impact of the code will have on pricing.

The federal government have also set the expectation that the federal budget will include a Petroleum Rent Tax. The Australian Petroleum Production & Exploration Association (APPEA) have shared with its members concerns that changes to the taxing of gas producers will add $100B of tax receipts to the government.

To appease the gas production sector, it is expected the new code will allow for exemptions. New projects that add supply for domestic use may qualify for exemptions from any specific pricing provision.

APPEA said the code “must recognise the importance of gas in a cleaner energy future, and the need to ensure settings which enable investment in new supply to avoid forecast shortfalls and put downward pressure on prices”.

Gas industry developers continues to warn the broader industry that deterring investment in new gas supply will harm the supply to manufacturers and reduce the secure of supplies of electricity across the NEM.

Beach Energy’s chief executive has said that getting the terms of the code wrong could imperil Australia’s transition to low-carbon energy given the role gas plays to support renewable energy.

At the end of the day changes to the industry need to benefit producers, end users and ensure gas and electricity security is achieved. While international cost pressures are impacting the gas and electricity industry. The continued development of gas resources are required to provide gas the opportunity to be the transitional fuel as Australia strives to its Net zero emission targets.