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Key QLD, NSW, SA, Vic electricity contracts support base load gas generation in Eastern Australia; new CCGT contracts logic explained

Posted by gasweek on 10 October, 2007

A report prepared for the Owen Inquiry showed that some of the key contracts supporting base load gas generation projects in Eastern Australia in recent years included:

• International Power with BHP Billiton for gas supply to the Pelican Point 490MW combined cycle gas turbine (CCGT) in Adelaide. This gas agreement was believed to have a term of at least 10 years with a total supply volume of 279PJ. The gas was supplied from the Minerva Gas Project in Victoria.

• Enertrade with CH4 (now Arrow Energy and AGL) for gas supply to Townsville. Enertrade supplied gas to three major users including Transfield, the operator of the Yabulu gas-fired power station. The gas contract was for 15 years and had a maximum contract volume of 290PJ.

• TRUenergy – TRUenergy used a portfolio of long term gas contracts to supply their gas-fired generation needs, which included the Torrens Island Power station in Adelaide (recently sold to AGL). TRUenergy were currently building the Tallawarra 420MW CCGT in NSW and this would also be supplied from their portfolio of supply.

• Origin Energy – Origin recently announced the go-ahead for their Darling Downs CCGT in Queensland. Gas would be supplied directly from Origin’s Coal Seam Gas (CSG) upstream gas portfolio although they may also buy some gas from joint venture partners.

10 to 20 year contracts: In Eastern Australia, large gas contracts were for terms of 10 to 20 years. Origin Energy recently announced a new gas contract with Rio Tinto Aluminium for a 20PJ per annum contract over 20 years (from Origin’s CSG projects). These long term contracts helped underpin the producers’ investments in developing the gas production (as well as provide the security of supply for the buyers’ projects).

New CCGT contracts logic: Therefore it was likely that producers would be willing to sign long term contracts to support a CCGT power station development in NSW in the future.

Load factor of 75per cent: With a load factor of 75per cent, the variability in annual and daily swing in volumes for a CCGT could be managed with a standard 80 per cent load factor and an 80 per cent take-or-pay gas contract.

Load factor of 50 per cent: However with a lower load factor of 50 per cent, this type of gas contract would be much more difficult to manage and would incur additional cost such as storage, pipeline flexibility and/or offloading of excess gas supply. The gas-on-gas competition in recent years had ensured that gas was competitive with coal for intermediate and baseload generation in most states. However, the higher transportation cost of gas to NSW did create a disadvantage for gas versus coal in that state.

Carbon price needed to make coal win over gas: NGACs ( NSW greenhouse credits) had assisted gas to become more competitive with coal in NSW. Longer term, gas would need the support of a carbon price to remain competitive with coal.

Reference: Owen Inquiry into Electricity Supply in NSW, Availabiltiy and Cost of Gas for NSW Baseload Generation, 31st July 2007
This report has been prepared for the Owen Inquiry by Wood Mackenzie, Sydney, Suite 108, Level 1, 16-20 Barrack Street, Sydney, NSW 2000, Australia. Phone: +61 2 9299 0989. Fax: +61 2 9299 0669. Consultants: Ian Angell, Phone: +65 6518 0862; Andrew McManus, Phone: +61 2 9299 0989; Richard Quin, Phone: +44 131 243 4378; David Bradley,Phone: +61 8 9430 9599; Graham Tyler, Phone: +65 6518 0823 Valery Chow, Phone: +65 6518 0854; Karthikeyan Sathyamoorthy, Phone: +65 6518 0853; Facsimile: +61 (0) 2 9299 0669, e-mail: Andrew.McManus@woodmac.com

Erisk Net, 31/7/2007

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