2008 May at rosetta moon

Archive for May, 2008

The Real Cost of Petrol

As the ‘Fuelwatch Affair’ continues to blind discussion on Transport Energy issues, it could be time to simply look at the real cost of fuel, in particular petrol which is causing all the fuss…remember the Fuelwatch scheme is focused on the retailers at the end of the chain haggling over the last margins, the few cents they have to play with in the energy game.

Here is a recent petrol price breakdown (2000) the government prepared earlier:

Current Issues Brief 11 1999-2000

Note the retailing wedge is not very fat in comparison to the biggest slice of the pie…excise. The real issue is the government is a very big stakeholder in the petroleum industry and therefore the government needs to look ‘academically’ at the revenue substitution effects of declining excise revenue from petroleum. This is the point where the rubber meets the road in the current challenge of the Rudd government to continue business as usual while at the same time deliver in reality, promises that hinge on the governments ability to transform the economy of the country.

Martin Ferguson is in the hot seat presiding over energy and resources and must be aware of the current imbalance. As the Australian energy sector continues to benefit from the roaring trade in natural gas in all its products, the Australian market place and transport sector is ranked second place. The symptoms of the dilemma are high fuel prices, distractionary policy (boring everyone) and a country lacking a Fuel Policy let alone a Transport Energy Policy to drive us into the future.

The challenge for the government is to steer our energy future into a logical direction by directing industry, commerce and consumers. Energy and Fuel will become messy if it continues to be a party politics issue. Successful management will meet requirements economically, socially and environmentally as demonstrated in Europe, Asia and for a long while in South America. Irrespective of how the above pie is sliced after the delivery of the next energy ‘white paper’, it would help if it showed signs of strategy and looked well beyond 2020 in answering some simple questions about our use of energy.

Further Information

Australia Pumping Empty: New Movie Now Available

Fuel tax on big trucks scrapped (clues to fixing mistakes from the past)

Written by nigel

May 29th, 2008 at 10:30 pm

Posted in Energy

FuelWatch – Another Excise Policy Distraction?

with one comment

The Rudd government is being tested by the Opposition and Industry on its strategy to focus attention at the ‘margins’ of the fuel price issue.

Fuelwatch as a strategy is very much at the margins if we look at the most basic cause and effect. A fuel pricing situation in any country does not arise overnight…the supply constraints upon any form of energy for transport must be under deep consideration by the government. It would appear that the FuelWatch strategy per se does not work but more importantly its not focusing policy strategy or public awareness in a positive direction.

Martin Ferguson raised one of the long term issues on the 7.30 Report, the Future of Oil. The issue he raised was the allocation of our finite resources between major export projects and proposals including the North West Shelf and other exploration projects. The question on everyones lips is why are we exporting a large percentage of our natural gas resources but failing to consider the full extent of natural transport opportunities available here. The strategy underlying current trends must be acknowledged by the current government as not only high risk but debilitating to ambitions for a sound economy not shaken by uncertainty in the fulfilment of local requirements for energy for industrial, commercial and domestic use.

The management of the money pot comes under the responsibility of Treasury and its big ticket item to play with is the levy of excise in accordance with policy settings and budgetary requirements which determine the viability and availability of different fuels on the street. As well as shaping the current and future fuel mix Treasury is also playing a key role in other key areas of the government including Energy, Resources, Climate change, Transport and Health. Every aspect of government has an interest in Australia getting its national energy and transport strategy right. The current shape of the policy must be seen in terms of current revenue collection from excise and revenue forgone in the application of discounts and rebates used as policy measures to channel the direction of the fuel mix, hopefully in a manner which makes economic and environmental sense.

Following is the proposed excise strategy in relation to alternative fuels, effectively tax free until 1 July 2011 when fuel tax will be applied. The rates will increase annually until the final rates are reached on 1 July 2015 as shown in the following table.

The table tells a story about the treatment of various fuels as proposed into the future. How the government interprets this proposal in the drafting will have the most profound effect on fuel availability and pricing into the future. Discounting of LPG and ethanol and methanol more favourably than CNG reveals a glitch in current supply reality. The economic lesson being learned is the need to apply an energy use strategy based upon an independant appraisal of the current supply and acknowledge the long term needs of the future. Science and experience needs to be applied to decision making to ensure that the outcome is desirable beyond the boardrooms of the energy interests and the retail supply market that has sprung up around it.

So then the excise proposal outlined above needs to be measured in terms of the current excise application of conventional fuels and their corresponding treatment as described in the chart above. The following table from Research Note no. 9 2006–07 is more useful in showing the comparative position and then further price changes that result from the discount:

The tables above suggest that each fuel is being treated in a certain way based on current excise taxation policy, but there is ample room here to project a target for alternative fuels, based upon their calorific energy value and the net costs and benefits to the economy, the environment and human health. As for the compromising of revenue there is need for an adjustment strategy that meets the budgetary obligations of government while at the same time providing a simple message to companies or individuals that wish to manage their investment to minimise risk.

There is no simple answer to Australia’s transport fuel situation as it has emerged out of taxation and transport policy which has been geared primarily to the petroleum and related sectors. As the requirements of the country change in response to energy scarcity and environment, its an opportune time for the government to provide the direction and the policy initiatives to get the entire transport sector back on its feet.

Therefore, what they are embracing, as we are seeking … here is a series of long-term responses which deal with supply factors, demand factors, alternatives fuel, fuel-efficient cars, public transport and also specific ways to help the family budget…That was the advice upon which the Government acted, but, of itself, this competition policy measure doesn’t add up to the total response to the challenges of fuel…

Kevin Rudd – 2008 Rudd: Liberals are against motorists – Herald Sun – May 30 2008:

It is questionable whether FuelWatch meets the criteria of ‘policy’ in relation to transport fuel management and it raises the question of when the real policy measures will be announced.

Image sourced: Vintage Petrol Pumps

Further Reading:

A Crude Diet Might Lead to Gas – Noel Child – Centre For Policy Development -21st September, 2005:

… In 1970, when our largest indigenous oil fields came on stream, the benchmark international crude oil price was US$2 per barrel. It now sits at US$70 per barrel. The key question now is where that price will go in the future. Let’s assume for a moment that US$70 per barrel is not in fact an aberrant peak in an otherwise benign supply/price cycle, but a warning sign of ominous things to come…

Noel Child – 2001

ABC Stateline Canberra – Gordon Taylor – Action Buses, asks a pertinent question:

So why is there little up take of a fuel source that is both cheap and clean? For LPG conversions, car owners get a $2,000 Federal Government rebate, a rebate not available for CNG conversions….Canberra’s buses prove the fuel’s credentials. Action has 54 natural gas powered buses with a further 16 soon to arrive.

New Law in El Salvador Promotes Vehicle Conversions To Natural Gas

A new law, passed by the Legislative Assembly of El Salvador, will expand energy sources enabling a reduction of costs in energy production, promotion of vehicle conversion to natural gas, and support domestic supply. The legislation, which consists of 76 articles, aims to “regulate and govern the receipt, storage, regasification, transportation and marketing” of the fluid. The law is reported to include the application of techniques through international codes and standards published by international organizations like the American Petroleum Institute (API ) and the National Association of Fire Protection (NFPA), and opens the way for international investment.

Fuel price debate ignores real issue – Kenneth Davidson- the Age – May 30, 2008

Getup has some fun at Fuelwatch’s expense – see short video clip

Written by nigel

May 28th, 2008 at 3:38 am

Posted in Energy

CNG Refueling – The Story of Natural Gas in Australia.

with 22 comments

Compressed Natural Gas (CNG) is again presenting as a logical and long overdue transport fuel solution in Australia. The Industry is ready to utilise the extensive gas distribution infrastructure in place and there is a considerable resource of gas yet to be managed.

The Industry has not been well supported by government though several state transport agencies are well placed to expand existing fleets, beyond the buses currently running smoothly on natural gas. CNG as a reliable and clean transport fuel does not require more study, the world is already embracing natural gas vehicles on both an economic and environmental basis. CNG Station gas pricing at or below 50% of current petroleum would make sense now for the economy, sustainable transport and cleaner air in city streets.

Will pricing alone bring Australia into the modern age of transport or should the government show leadership and direction to ensure that such progress is so? CNG and other emerging ‘alternative’ fuels need only be seen as one part of the overall transport solution . There is no quick fix and the media fixation with view points to cut petrol excise suggests the country is distracted temporarily from basic economic and energy management.

All interests in the fuel lobby need to be openly identified and considered in managing any thing resembling a sustainable approach to the consumption of energy. Transport demand and supply can be managed to plan for a better outcome than we are currently experiencing. Old fashioned policy measures: excise and exemptions is as one can determine and shape the transport fuel mix, pricing and the quality of the transport system we envisage.

Look at most Australian cities and you will find various forms of transport chaos. Sole occupant cars driving manically to no place in particular fast, queues of people stranded at stations while the auto-mobile move past. Large masse RUVs guzzling safely through the streets in convoy…looking out for the next petrol station maybe? Public transport often working well and at other times overcrowded or running late. Trains, planes, buses and automobiles roaming randomly and competing for a safe on the streets…stress, pollution, out of equilibrium with most people and their lives. Something better can surely be envisaged which at the same time is a sustainable investment in our cities? Less traffic at the right time and sensible options starting from walking to riding or to just considering the impact of the next trip.

The petrol car and diesel truck have been long term allies of big oil and gas and governments and excise revenue go hand in hand…freedom to govern without excess external influence throwing the transport fuel strategy debate into boardrooms instead of public office which should always be the domain of long term public policy related to national resources and desired outcomes. This is the context in which the ‘alternative fuel’ situation can be properly assessed. Irrespective of the emerging path of transport fuel alternatives the current day reality of supply and demand and desired social objectives needs to steer the desirable fuel mix.

Martin Ferguson highlighted this in relation to the vast reserves of North West shelf natural gas. LNG tankers are contracted to deliver the vast majority of this offshore to China, North Korea and North America. Whats missing in this equation? Transport fuel and energy security is whats missing. Australia has a vast natural gas distribution network representing a massive (public and private) investment and heads up in providing CNG refueling stations along the entire eastern seaborde from Adelaide to Brisbane. While this was made actual policy and funded under the National Heritage Grant funds post the first sale of Telstra, the Australian Greenhouse Office (AGO) did not deliver, leaving the industry baffled and shaking its head. Why did not the obvious occur which was reflected in that directive and why did the wind of history change, leaving Australia floundering while being an key resource and infrastructure holder in this field? The easy answer to this is clearly seen in the post Rudd election period and the movement away from the economic sense stance of Martin Ferguson, which changed within a few months to the same one of the previous government which stitched up the WA LNG Deals. This alone, though never commented upon by the media, validates the Greenhouse Mafia theory of government oil lobby stand over tactics so clearly explained by Guy Pearce, speech writer for the key player of global energy politics in Australia, Robert Hill – ( in this character of global energy politics would there exist such a great book – maybe I will write it myself!)

Otherwise, and prior to the privatisation of the energy sector in Australia the basics of economic sense and necessity saw several successful CNG Stations establish in Australian capital cities (buses) and depots running private fleets. Australian engineering experience from this period ( pre Australian Greenhouse Office ironically) abounds with all forms of natural gas and LPG currently viable and sharing an ever changing market space with CNG ( see the references below of OZ success but OVERSEAS, not HERE – reinforce the CNG Story in Australia theory?)

A historian or economic analyst of CNG in Australia would ask why basic steps and industry encouragements are not in place when they are so easy here, but then when one ponders the sudden turnabout of the Energy Minister- Martin Ferguson, one must conclude a global strategy which dictates Australia be a nett supplier of the raw material of said industry, but not an a nett enjoyer (itself) of the benefits irrespective of the infrastructure in place and at hand. Even the most cynical knockers of conspiracy theorists in Australia would be knocked out of class in not concluding that some larger global interest of resource ownership and influence/ concern are stopping the gift horse from drinking the good oil from its own trough

And the proof in the pudding has been provided post the 2007 election of the new climate change saviour, Kevin Rudd ( sorry Copenhagen failed Kevin) who loves espousing Climate Change rhetoric but is strangely silent in promoting the basic fundamentals of said theory in terms of micro-economics in home base country from which said earth saving rhetoric originates and in true John Howard spirit and against local economics or embodied energy logic and common sense, frozen CNG (LNG) goes holiday all over the world ( fair enough) but then again home economics scores a dismal E! This is a very easy blueprint which changed colour post the establishment of the Australian Greenhouse Office, confirming in historic and economic terms that any government policy flagged with such terms is most likely to have planned and deliberate negative impacts for us earthlings and in this regard we must and should congratulate the cunning and precision of the fossil fuel ( lets live like dinosaurs for a few more years) lobby that does not just control but get this straight IS the Australian government, thankfully a mute point that people are…phew..finally waking up to…its not government for the people ( I think it was prior up until 1973 – Gough Whitlam) but since then we all know ( Robert Newmans the History of Oil) its government for the global energy cartels…hoorah!!! – now we understand!

Anyway, before we all get lost in doom and gloom, last figures show Kevin Rudd to be a total mug and his counterpart to be about the same, so in the meanwhile, intelligent consumers and business people can take advantage of the chaos of the political distraction…and guess what…do their own thing and tell their local MP same…and resume sanity before we all dissappear in a puff of Kevin Rudd’s highly explosive and over inflated Greenhouse smoke…or otherwise stated..plain common sense.

8 Steps or less to Recovery – A fresh addition to the transport fuel mix.

1/ Acknowledge the policy perversity that currently exists courtesy of kowtowing to the petroleum/motor vehicle lobbies. Richard Dennis of the Australia Institute came up with a cost estimate of $9 billion per year – thats right…policy costs accruing as a result of taxes and incentives supporting the motor vehicle industry. So there is no shortage of spare change for any government pursuing a strategic transport agenda, its more than self funding.

2/ Legislate where required to ensure that privatised transport sectors are mandated to follow a course of action which is in alignment with a clean and green agenda.

3/ Manage Fuel Excise strategy in a way which promotes stated policy measures and apply subsidies, rebates and mandates to stimulate the onset on new technology and changed buyer behaviour to drive the success of all introduced measures. The CNG transport sector does not necessarily require government funding if the government provides favourable policy settings. Public station CNG currently sits well under 50 percent of current fuel prices and does not present air quality issues which exist with LPG (mix of propane and butane – streamed from natural gas as well as a by-product of petroleum refining process) . Likewise with diesel and petrol fuels long appreciated and reliable but in short supply and more polluting. Excise management is one of the special keys to implementing CNG Refueling or any other strategic energy direction initiative. An interesting read on transport modelling and the impact of policy measures including excise is the Gain Report (Canada). Point the taxes and subsidies in the right direction and the market will take care of itself and the long long awaited transformation will occur painlessly. When fuel prices are not making front page news the strategy will be showing signs of success.

4/ Introduce a National Transport Strategy based on the nature of the Australian Transport Task…that is, apply assistance and re-build infrastructure to support the most efficient transport modes and fuels and apply taxes and penalties to modes and fuels that are not consistent with a national strategy. Re-instatement of train transport lines (the most efficient) will over time correct the current imbalance in freight road vehicles. The additional road toll witnessed in recent decades in relation to road freight vehicles could arguably be attributed to the decline of the rail transport systems. The bullet would have to bitten in relation to price discounting situation that led to the perversity mentioned above. That is, tax corrections to prevent hoards of people flying between cities on the basis of $50 or $60 dollar fares…not only are the nature of most of these trips questionable but the shifting of modes which results is certainly not moving Australia ahead in the so called ‘Greenhouse Challenge’.

5/ Apply Policy Support and Incentives where its needed most and will be most cost effective. While road haulage use may be currently skewed on account of reduced rail freight, this situation will not rectify overnight. Heavy road vehicles and buses represent a cost effective and sensible path for diesel substitution and health benefits from reduced air and noise pollution can be factored in as well.

6/ Learn from developments abroad. Public CNG refueling stations provide the incentive and means for smaller private fleets to become part of the conversion. Private stations or ‘depot’ stations may well be the perogative of companies which can justify them but public access stations enable the NGV sector to grow. Be realistic and also scientific about the costs of providing infrastructure and refueling. The 7.30 report mentioned Phil CNG home refueler but look at the costs and benefits of this in terms of energy in the totality of that equation. A home refueler may well be ahead of the bowser on price but consider the electricity consumption in energy provision . There may well be benefits of home refueling but if they slow the onset of public refueling stations the question of driving energy efficiency across the sectors needs to be considered.

7/ Be realistic about the costs and benefits of providing vehicle ‘conversion’ assistance or providing clear paths for the import of factory ready OEM vehicles. There is room for both but nothing succeeds like success and there is nothing more frustrating than poor conversions or a poor conversion program. One risk of government sponsored conversion programs is the inflationary effect on something which no longer has a real market price…keep the conversion profitable and competitive but not artificially inflated. In summary, look at how subsidies have worked effectively and benchmark the reasonable cost of a conversion and equipment to prevent such outcomes re-occuring if conversions are assisted with government subsidies.

8/ Leadership and Vision. Federal, State and Local Governments can use their purchasing power and purchasing criteria to provide early support for CNG setup and NGVs. Government fleets can dedicate to CNG vehicles where applicable: buses, light commercials and garbage trucks…

There are directions which can be followed by consumers, business and government which will promote clear and clever strategy in whatever area of transport they relate: whatever mechanisms available (at the stroke of a pen) to spending, investing and tax fairly in the interests of the transport users which is pretty much every individual in the country. Health and environmental concerns addressed cost effectively while at the same time delivering a common sense economic model for the management of our national energy resource. Its been a good story all over the world and although no single pathway is perfect or permanent it makes sense today is available and affordable.

Natural Gas Background:

The big picture of gas and oil is well covered in Research Paper no. 25 2007–08 Australia’s natural gas: issues and trends Science, Technology, Environment and Resources Section, 1 April 2008, Mike Roarty. Quote from conclusion :

The use of natural gas is less polluting than the use of coal and oil. A major benefit is that natural gas is some 65 to 70 per cent less greenhouse gas intensive than either brown or black coal. Another decided advantage of gas is that it contains far fewer particulates and other elemental contaminants than either coal or oil. As a consequence natural gas can be used as an alternative fuel for transportation in the form of either compressed natural gas or liquefied natural gas especially in heavy transport such as public buses or road freight carriers that can use centralised refueling points.

Recent National Media:

The transcript from the ABC’s 7.30 Report ‘Natural Gas – The Fuel of the Future’ sums up the situation with regard Australia’s transport fuel situation. Ollie Clark of the Natural Gas Vehicle Association comments on the current state of affairs:

The thing that strikes me as being rather quaint, to put it mildly, is that we pay anywhere from about $8 billion to $25 billion to import the oil and we get a paltry $4 billion for the gas that we sell to overseas countries. It seems odd to me, especially given gas is a superior fuel for many, many purposes including the use in motor vehicles.

LNG plant faces impact test (The Australian July 5, 2008)

LNG cryogenically supercooled for liquification and then shipped in tankers running on crude oil. It will be interesting to see if these proposals go forward and how the energy waste in production and delivery would be assessed in terms of carbon offset credit.

Gas price under pressure from exports – The Australian July 1, 2008

Orbital secures $2.8m in govt funding