CHAPTER 3 ENERGY



Australia has abundant, high quality and diverse energy resources, which include both renewable and non-renewable resources. This chapter assesses the physical (petajoules) supply and use of energy and its different sources in the Australian economy over time. The first part of the chapter describes the suppliers and users of energy in Australia and also encompasses international trade in energy products. This is followed by a look at Australia’s historical reliance on a carbon energy economy, through a comparison of fossil fuel and renewable energy sources over time. The final part of the chapter steps away from the direct supply and use of energy to investigate historical energy prices and efforts by households and business to conserve energy.


Introduction

Australia is the world’s ninth largest energy producer, accounting for around 2.5% of world energy production and 5% of world energy exports(footnote 1) . The energy industry is a significant contributor to the Australian economy, accounting for around 5% of total GVA in 2009-10(footnote 2) .

Demand for energy products has risen in recent years, driven by growing exports and domestic use, which can in turn affect the price and security of supply. Understanding developments and trends in the energy sector, therefore, helps policy makers to make better decisions about how the nation should invest for future energy demands.

The supply and use of energy in this chapter is defined by product. Energy supply comprises: black coal, brown coal, natural gas, liquefied petroleum gas, crude oil, refined products(footnote 3) , renewables and uranium. Energy use products comprise: black coal, coal by-products, natural gas, liquefied petroleum gas, crude oil, petrol, diesel, other refined products,(footnote 4) electricity and renewables.

The energy data contained in the first part are produced in accordance with the principles outlined within the System of Environmental-Economic Accounting for Energy (SEEA-Energy). Data on the physical supply and use of energy products data are primarily sourced from the Bureau of Resources and Energy Economics (BREE) Australian Energy Statistics (AES) - Energy Update publications. The ABS publication Energy Account, Australia 2010-11 (ABS cat. no. 4604.0) provides data on the physical supply and use of energy over time within Australia. The ABS is currently developing the methodology to produce data on the monetary supply and use of energy products.


Supply and use of energy products

Net supply refers to energy products as they enter the economy, either by domestic extraction (e.g. mining production) or as imports. In the context of this paper, ‘net’ indicates the removal of energy supplied from secondary sources to avoid double counting.

Australia's total net supply was 18,879 petajoules (PJ) over 2010-11, a decrease of 4.0% from 2008-09. Of this, 89% of domestic energy production was sourced domestically, down from 91% two years earlier. The imports share of total net supply rose from 9% (1,759 PJ) in 2008-09 to 11% (2,020 PJ) in 2010-11.

Net energy use consists of intermediate consumption by industry, final consumption by households, exports, inventory changes, conversions and losses. In the context of this paper, 'net' refers to energy consumed for final purposes.

In 2010-11, 13,392 PJ of Australia's total energy use was exported, down 4% from two years earlier. Despite this, exports remained by far the most significant portion of net energy use maintaining around a 70% share throughout the period. Elsewhere, industry marginally increased its share, up 1% to 16%, while households’ share of net energy use remained unchanged at approximately 5%.

Net losses and conversions remained largely constant between 2008-09 and 2010-11, at around 10% of net use. Losses occur in the use of any energy product as well as in conversion from one energy product to another. Such transformations include fossil fuels and organic waste into electricity, crude oil into petroleum products, and the production of coke and coal by-products during steel making.

Over the past 20 years, energy supply has continued to increase at a faster rate than domestic energy use, with rapid growth in global demand for Australia’s energy resources driving growth in domestic production. As a result, the share of domestic consumption in Australian energy production has declined, from an average of 49% in the 1980s to an average of 42% in the 1990s, and has continued to decline, to an average of 34% over the decade to 2009-10(footnote 5) .


Supply of energy

Black coal remains the largest product contributor(footnote 6) , accounting for almost half (49%) of Australia’s net energy supply at the end of the period, even after a fall in production due to the Queensland floods between 2009-10 and 2010-11. A strong support for black coal production has been from strong overseas demand, particularly from China. Production of uranium, the second largest component of the net domestic energy supply, has fallen sharply from 25% in 2009-10 to 18% in 2010-11. In contrast, both natural gas and crude oil increased their share, to 13% from 10%, and to 12% from 10% respectively.

While energy production from renewable sources rose 16% to 261 PJ in 2010-11, the rise came from a low base (234 PJ in 2008-09) and the contribution of renewable energy to the domestic energy supply remained at approximately 2%. While energy production from wind and solar sources has increased rapidly in recent years (increasing 50% between 2008-09 and 2010-11) the bulk of the domestic renewable energy supply continues to come from renewable fuel products and hydro-electricity (63% and 23% of renewable energy production respectively in 2010-11).

The mining industry remained by far the largest contributor in 2010-11, providing 15,872 PJ or 84% of supply, after a fall of 2% from 2008-09 to 2010-11. Imports of energy increased steadily over the period, from 1,759 PJ in 2008-09 to 2,020 PJ in 2010-11, largely due to rising imports of crude oil and refinery feedstock (60% of imports).

With the exception of the mining industry and imports, most energy supplied is from industries producing energy for their own use. The electricity supply industry extracts its own brown coal as well as hydro and wind energy for producing electricity; manufacturing businesses use their own bagasse(footnote 7) and organic waste for heat, electricity or biofuel production; and households extract solar energy for hot water and electricity, as well as self-extracting a portion of their own wood.


Use of energy

Australia's domestic energy consumption (i.e. industry and household energy use) was 4,120 PJ in 2010-11, an increase of 136 PJ (3%) from two years earlier. The economy grew 5% and the population grew 3% over the same period.

Natural gas and electricity were the two main fuels consumed throughout the period, representing 24% and 22% of net energy use respectively in 2010-11. The decline in petrol’s share of consumption from 15% in 2008-09 to 14% in 2010-11 was accompanied by an increase in diesel’s share from 16% to 18% over the same timeframe. Net use of crude oil declined due to lower production of non-energy petroleum products such as bitumen, solvents, lubricants and greases.

The respective shares of net energy use for industry and households remained steady at approximately 75% to 25% respectively between 2008-09 and 2010-11. Over this period both Australian industry and households increased their energy use; industry increased by 4% to 3,097 PJ, while households’ energy use increased 2% to 1,023 PJ.

Figure 3.8 presents the share of net energy used in Australia by all industries. While energy consumption by manufacturing has decreased in the three years to 2010-11 it has remained the largest net energy user at 34% of energy consumed by Australian industry.

In contrast, both the mining, and transport, postal and warehousing industries marginally increased their share of net energy used by industry between 2008-09 and 2010-11; mining rose from 17% to 19%, while transport rose from 19% to 20%.

The export market is the single largest user of Australian energy products, accounting for 13,392 PJ (79%) of domestic energy extraction in 2010-11.

Coal and uranium combined make up the bulk of energy materials exported during 2010-11 (60% and 26% respectively). Natural gas exports rose 30% to 1,086 PJ from 838 PJ between 2008-09 and 2010-11, while crude oil and refinery feedstock exports increased 16% to 788 PJ from 678 PJ over the same period. The decline in total energy was driven by a decline in uranium exports, which fell 31% to 3,267 PJ from 4,754 PJ.
Energy intensity

The energy intensity of industry is the energy consumed to produce one unit of economic output. Energy intensity is measured in PJ of energy consumed per million dollars of GVA(footnote 8) . A decline in energy intensity is viewed as an improvement, as it indicates that less energy is used per unit of GVA.

For much of the period since the early 2000s, growth in energy consumption by industry has remained below the rate of economic growth. Over the period 2002-03 to 2010-11, energy consumption by industry grew 18%. In comparison, economic growth as measured by GVA grew by 28%. The 8% decline in the ratio of energy consumption to economic activity in the Australian economy during the same period represents an improvement in energy intensity.

The overall improvement in the energy intensity of Australian industry can be attributed to a number of factors, including energy efficiency improvements associated with technological advancement and structural change in the Australian economy towards less energy-intensive industries such as commercial and financial services.

A high energy intensity figure does not necessarily imply that a given industry is using energy inefficiently. Most industries engaged in the physical transformation of raw materials will use more energy than service industries. As such, the differences in energy intensity between industries reflect different production processes and the respective need for energy in that production process.

As Figure 3.11 illustrates, the manufacturing industry is the most energy intensive industry within the Australian economy, followed by transport, postal and warehousing, and mining. The commercial and services industries, which include retail, health and education among others, are non-energy intensive industries.

Figure 3.12 graphs the direction and magnitude of change in the energy intensities of selected industries.

The industries that showed the greatest decrease (i.e. improvement) from 2002-03 to 2010-11 were construction (23%), agriculture (18%) and commercial and services (18%). The increase in energy intensity in 2006­07 for agriculture coincided with severe drought conditions(footnote 9) , which caused major declines in the volume and value(footnote 10) of agricultural production even as energy consumption increased in those years.

The energy intensity of the mining, and the water supply and waste industries increased, however, between 2002-03 and 2010-11, recording rises of 23% and 19% respectively. The quantity of material that must be moved and processed is a key factor in the energy consumption of mining a given commodity. Factors likely to have contributed to the long term increase in energy intensity in mining included the compositional change to the industry towards less value added products, such as iron ore.

The energy intensity of manufacturing, Australia’s largest industry consumer of energy, remained relatively stable over the 2002-03 to 2010-11 period. Transport, postal and warehousing, the next largest consumer of energy, increased its energy intensity by 6%.


Australia’s energy economy

This part of the paper looks at Australia’s historical reliance on a carbon energy economy, comparing the use of fossil fuels versus renewables to produce energy in Australia over time. The information contained in the Bureau of Resource and Energy Economics, Energy in Australia 2012 publication provides data used in this section.

The Australian Government has identified the crucial role technology plays in its efforts to reduce the nation’s carbon pollution emissions and is investing more than $5 billion in developing and commercialising clean energy technologies(footnote 11) . Renewable energy is an essential part of Australia's low emissions energy mix and is important to Australia's energy sustainability. It plays a strong role in reducing Australia's greenhouse gas emissions, where it can replace higher energy sources, and helping Australia stay on track to meet its obligations set out in the Kyoto Protocol.

Figure 3.13 presents Australia’s domestic primary energy supply split by fossil fuel and renewable energy sources. Total primary energy supply (TPES) is a measure of the total energy supplied within the economy and is equal to domestic production plus imports minus exports. TPES includes the supply of both primary(footnote 12) and secondary(footnote 13) fuels.

Australia's total domestic primary energy supply was 6100PJ, in 2010-11(footnote 14) . As Figure 3.13 shows, the majority of this (96%) came from non-renewable sources, with the remaining 4% sourced from renewables.

Total energy consumption in Australia has increased rapidly over the last two decades, rising 54% from 3,950PJ in 1990-91 to 6,100PJ in 2010-11. This is against the backdrop of a growing economy and population (the economy grew 5% and the population grew 3% over the same period). The growth in the use of fossil fuel energy sources, which increased 57% over this period, has supported the rise in energy consumption. Energy supplied from renewable sources also experienced an increase (9%), although to a lesser degree than fossil fuels, reducing the share of renewables in the total domestic primary energy supply from 6% in 1990-91 to 4% in 2010-11.

Total net energy consumption is a measure of the total energy used within the Australia. While the use of coal was the main energy source for much of the period, it has been surpassed by oil in recent years.

Australian oil consumption increased 52% over the 1900-91 to 2010-11 period. While coal consumption rose significantly over the same timeframe (31%), it fell sharply later in the period (11% between 2008-09 and 2010-11). The use of natural gas recorded the most significant rise over the 20 years to 2010-11, increasing over 230%.

The change in the consumption of energy sourced from renewables was more modest, rising 10% over the period.


Renewables

Although Australia’s energy consumption continues to increase, the rate of growth has been slowing in recent years. Energy consumption in Australia increased at 1.8% on average per annum in the 10 years between 2000-01 and 2010-11, compared with 2.2% per annum over the preceding decade.

In 2010-11, 10% of electricity generated in Australia came from renewable sources. Hydro-power is by far the largest renewable energy source used to generate electricity in Australia, however, the energy source’s dependency on water for production leave it sensitive to climate conditions. Between 1990-91 and 2003-04, hydro-power maintained its contribution to electricity generation at approximately 60PJ per annum. An extreme drought over the period 2004-05 to 2009-10, led to a 13% drop in production. Subsequent flood conditions affecting Australia’s eastern states during 2010-11 coincided with a 24% recovery.

While the amount of electricity production from hydro-power in 2010-11 was largely unchanged from the level at the start of the period (1990-91), the energy source’s market share of Australian renewable electricity generation has fallen considerably from 95% of all domestic renewable electricity production in 1990-91 to 66% in 2010-11. This is due largely to the growing influence of other renewable energy sources, particularly energy sourced from wind. Wind power is the second largest renewable energy source for electricity generation; as of 2009-10, it represented 23% of electricity generation from renewables.


Efforts to conserve energy by households and businesses

This section looks at historical electricity prices and efforts by households and businesses to conserve energy.

Retail electricity prices have been increasing at a faster rate in recent years. Figure 3.17 shows the change in electricity prices paid by households and the manufacturing industry between 1980-81 and 2010-11. In the two decades up to and including 2001, electricity prices for households and business rose 171% and 94% respectively, representing an average annual growth rate of 5% for households and 4% for the manufacturing industry in over the period. Since then, electricity prices paid by households and manufacturing have increased at a higher rate over the last 11 years (137% for households and 109% for manufacturing businesses). This equates to an average annual rise of 8% for households and 7% for manufacturing over the 11 year period.

Rising network charges have been the largest contributor to price rises(footnote 15) , particularly during the 2007-08 to 2010-11 period. This is partly due to the removal of cross-subsidies from business to household customers in the 1990s(footnote 16) .

Concerns by Australian households about rising energy costs have contributed to greater attention on ways in which households and individuals can limit their consumption of energy. Various factors influence the attitudes of households when considering energy use practices. In 2011, an estimated 70% of Australian households that installed insulation did so to 'achieve comfort', while more than one in ten (11%) did so because of government rebates(footnote 17) . Figure 3.18 presents information taken from the ABS Energy Use and Conservation survey 2011.

The majority of Australian households (69%) had some form of insulation in 2011, up from 61% in 2005. At state and territory level, the Australian Capital Territory had the highest proportion of homes with insulation (81%), while the Northern Territory had the lowest (44%).

Solar water heaters use energy from the sun to heat water, which then flows to a storage tank, ready for use by households. Approximately 8% of Australian households used solar powered hot water systems in 2011, up from 4% in 2005. In 2011, the Northern Territory had the highest proportion of households using solar hot water systems (46%) followed by Western Australia (21%). Despite Victoria having the second lowest proportion of households using solar hot water in 2011, the state did record the highest increase in boilers powered by solar, rising 280% over the six years to 2011.

Research and development (R&D) expenditure in energy relates to investment into areas including energy resources (e.g. exploration for and mining of coal, uranium, oil, gas and geothermal energy), preparing and transforming energy resources (e.g. preparing oil and coal and using it to generate electricity) and other aspects of energy (e.g. renewable energy, energy distribution and storage, energy efficiency, waste management, and carbon capture and sequestration).

In Australia, most of the R&D in energy is undertaken by private businesses. Business spending on energy related R&D increased at an average rate of 11% a year from 1992-93 to 2009-10. In 2010-11, after a decade of consistent growth, R&D into energy by Australian industry fell slightly to $2.6 billion. This represented around 14% of total business R&D expenditure in 2010-11, up from 5% in 2000-01.

Within the energy related industries, the mining industry was the largest investor in 2010-11, with spending of $1.4 billion or 55% of all business expenditure on energy R&D.

1 BREE, Energy in Australia 2012, p. 3 <back
2 BREE, Energy in Australia 2012, p. 1 <back
3 Includes petrol, diesel, aviation fuel, kerosene, heating oil, fuel oil, refinery fuel and naptha <back
4 Includes aviation fuel, kerosene, heating oil, fuel oil, refinery fuel and naptha <back
5 BREE, Energy in Australia 2012, p.4 <back
6 As measured by energy (PJ) content <back
7 Bagasse refers to the dry pulpy residue left after the extraction of juice from sugar cane, which is used as fuel for electricity generators <back
8 ABS gross value added is sourced from the ASNA and is classified according to the Australian and New Zealand Standard Industrial Classification (ANZSIC) 2006. <back
9 Coughlan et al., 2003, ‘Impacts of 2002–03 El Nino on Australian climate’, Bureau of Meteorology, Canberra <back
10 Value of Agricultural Commodities Produced, Australia, 2010–11 (ABS cat. No. 7503.0) <back
11 Department of Climate Change and Energy Efficiency website: http://www.climatechange.gov.au/government/reduce.aspx <back
12 Primary energy is an energy form found in nature that has not been subjected to any conversion or transformation process <back
13 Secondary energy refer to sources of energy that results from transformation of primary sources <back
14 Figure includes energy imports <back
15 BREE, Energy in Australia 2012, p.40 <back
16 BREE, Energy in Australia 2012, p.42 <back
17 ABS Energy Use and Conservation survey 2011 <back