Clyde Russell is a Reuters market analyst. The views expressed are his own.
LAUNCESTON, Australia, Feb 10 (Reuters) – The decision by an Australian power company to mothball a natural-gas plant and restart two coal-fired units seems wrong on many levels, but strangely, it has implications for U.S. liquefied gas exports.
Stanwell Power Corp, an electricity producer owned by Queensland state, said last week it would shut for three years its 385-megawatt (MW) Swanbank E power station, west of the state capital Brisbane, while restarting two coal units with a combined 350-MW capacity at its Tarong plant.
The decision was framed in terms of economics, with the company saying it made more sense to sell the gas to other users than to use it to generate power, and that returning to coal would improve its competitiveness.
This switch back to coal power in Queensland brings together several issues that show the difficulty of implementing policies designed to combat climate change, while keeping industry competitive and encouraging lucrative energy exports in the form of liquefied natural gas (LNG).
Australia and the United States took different paths with their natural gas bonanzas, and both have reaped benefits, but not without complications.
Australia used large discoveries of conventional and coal-seam gas to embark on projects costing more than $200 billion that will make it the world’s biggest exporter of LNG by 2018.
The boom in construction helped fuel economic growth and allowed Australia to sail through the 2008 global recession relatively unscathed. But the LNG push has also had some nasty side effects for Australia.
Domestic gas prices are roughly double those in the United States, leading to complaints from industrial users such as chemical producers about a lack of competitiveness.
Manufacturing in Australia has been stymied not only by high natural gas costs, but also by rising power bills and a stronger currency.
And while not all of the blame can be laid at the door of the LNG projects, some can.
The three LNG projects under construction in Queensland are based on coal-seam gas as a feedstock.
However, there have been issues in securing sufficient reserves and there is mounting opposition to producing the gas, which requires multiple wells and small pipelines across large areas, much of which is prime agricultural land.
This has led to an unlikely coalition of farmers and environmentalists, making it harder for energy companies to explore for new resources.
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