Wrong plan, wrong time

Last month the Victorian Government released a plan to encourage the mining and export of brown coal from the Latrobe Valley. This plan should be compared with a report that the Federal Government did not release.

It was commissioned by the Federal Department of Transport and it was entitled “Transport Energy Futures: long-term oil supply trends and projections”. It can be summarised in this one sentence:

The modelling is forecasting what can be termed the 2017 drop-off. The outlook under a base case scenario is for a long decline in oil production to begin in 2017, which will stretch to the end of the century and beyond. 

This report was buried by the Minister, Anthony Albanese, and the reason he buried it is that the report shows that in a world totally dependent on liquid fuels for transport, Australia will soon be only 25 per cent self-sufficient in oil. The world oil price is rising on a trend that will take it to $200 per barrel by 2014, which will translate to a petrol price at the pump of more than $3 per litre. Paying for these oil imports will change the balance of trade against us, bring down the Australian dollar and greatly reduce our standard of living. That is one future, a future which unless major reforms are undertaken, now seems inevitable. 

But we have other options. We can be self-sufficient in oil by exploiting the Latrobe Valley brown coal deposits. This brown coal resource is much, much larger than the energy reserves of the North West Shelf, and the technology enabling conversion from brown coal to distillate has been in use since before WWII, a technology known as the Fischer-Tropf or Fischer-Tropsch process. 

This technology has been much improved since the 1940s, and there has been continuing interest in using the huge energy resources of the Latrobe Valley for the production of distillate and other liquid duels. The most recent investigation was carried out by a consortium of Shell and Anglo who created a company “Monash Energy”, a fitting tribute to the great Australian soldier who, after the Great War, built the brown coal based electricity supply industry at Yallourn. 

After much research and considerable investment in pilot plant technology, this consortium came to the conclusion that under current conditions it was simply uneconomic to build such a plant in the Latrobe Valley. There were two reasons. The first was the demand of the Brumby government that all of the carbon dioxide generated by the process, instead of being harmlessly and economically emitted into the atmosphere, had to be piped to the Bass Strait and stored underground in Esso-BHP’s wells. This demand imposed huge and completely unnecessary costs on the project. 

The second reason was the highly uncompetitive nature of Australia’s construction industry – manifest most recently in the de-salination plant commissioned by the Victorian Government to provide fresh water at Wonthaggi, on the grounds that global warming would bring prolonged drought to the State. The costs of this de-sal plant have, because of union control of the project, ballooned to more than double the original estimates – a cost which will be borne by water consumers in Melbourne for generations to come. 

What has happened at Wonthaggi means that no private investor will commit to large projects in Victoria, unless and until the unions are stripped of their currently privileged legal status. Following the Queensland election result, such a prospect, previously regarded as a fantasy, now seems possible. Much will depend on Tony Abbott’s resolve to make Australia internationally competitive again. His decision to establish the Cole Royal Commission into illegal activities in the construction industry, and the establishment, after the Royal Commissioner’s report was tabled, of the Australian Building and Construction Commission tells us that he can, when necessary, act decisively and swiftly to correct abuses of power. 

So if we give up on the fantasy that we can control the world’s climate by regulating our emissions of carbon dioxide, and if Australia’s construction costs can be brought into line with international costs, then the situation changes dramatically. The Latrobe Valley brown coal deposits can be transformed into liquid fuels such as diesel and jet fuel at competitive prices. Each billion tonnes of brown coal will yield six hundred million tonnes of liquid fuels. At that rate we need to consume about seven billion tonnes of coal to equal the oil that the Bass Strait oilfields have yielded. 

Emissions of carbon dioxide from this process will have no impact on global temperatures. Carbon dioxide is tuckered out as a greenhouse gas. From its current atmospheric concentration, its effect is lost in the noise of the climate system, and the world’s climate system is cooling down. My own work on the effect of solar cycle length is showing we will experience a rapid and severe cooling over the next twenty years, taking us back to temperatures last experienced in the 17^th Century. In that environment, our crops will need all the CO2 fertiliser they can get. 

Our political leaders have not always been living in a fool’s paradise on with respect to oil security. In 2005, Kim Beazley, then Leader of the Federal Labor Party, asked in an address to the Australian Institute of Company Directors,” As Australians queue for petrol at around $4.00, $5.00 potentially up to $10.00 a litre further down the track, the questions will be: how had our Governments not seen the writing on the wall?” The missing report shows that they have seen the writing on the wall but see it as someone else’s problem. 

Recently, the carbon tax and the mining tax were passed by the Gillard Government. The carbon tax and the mining tax are a particularly horrific combination for Australia. The carbon tax penalises our biggest resource endowment. The message from the mining tax is that risk capital is not welcome here. The coal-to-liquids plants which we could have will be built in Canada and Chile instead.