Tag Archive for: energy security

Taiwan worsens its vulnerability to a Chinese energy blockade

Anyone would think that Taiwan, faced with a risk of blockade from China, would be doing all it could to ensure self-sufficiency or at least long endurance without supplies. But in energy security, it is going backwards.

President Lai Ching-te’s government is increasing Taiwan’s dependence on short-term energy imports that China can easily stop. The administration is persisting with an almost decade-long campaign to shut down the island’s nuclear power stations and wants to increase the share of liquified natural gas (LNG) in its energy mix. Progress on renewable-energy capacity has been slow.

Lai’s government is understandably concerned about energy security, as at least 97 percent of the island’s energy is imported. But it also wants to reduce carbon emissions, having established a goal of net-zero by 2050. The Taiwanese government views LNG as a cleaner type of energy and is phasing out the widespread use of coal. Natural gas powered 32 percent of Taiwan’s electricity in 2016. The figure rose to 42 percent last year, and Lai is pushing for it to reach 50 percent by 2030. The drive for LNG grew following Donald Trump’s election as US President. Taiwan plans buy more US LNG over the next decade to help reduce its trade surplus with the United States.

However, LNG is difficult to store long term, which would create problems in the event of a quarantine or blockade. Taiwan is densely populated and has limited space for the fuel’s expensive storage infrastructure. Lu Tsaiying, an energy expert with Taiwan’s Research Institute for Democracy Society and Emerging Technology, notes that Taiwan’s LNG stockpiles would only last 12 days in a crisis. In contrast, coal could last 42 days and crude oil 146 days.

Lu predicts that coal, which currently powers 39 percent of Taiwan’s electricity, and renewables, powering 12 percent, would be the main sources of energy during a blockade, quarantine or even a war. The government would rely on its existing coal powerplants and convert decommissioned coal-fired power stations into emergency back-up plants. She estimates that Taiwan could survive for at least 40 days in this way, and possibly much longer depending on its power-rationing system. Coal can be more easily stored, and its energy density is twice that of LNG. According to Lu, ‘the Taiwan government is increasing strategic coal reserves’.

Although Taiwan has been slow to act, it’s beginning to give unprecedented attention to energy security. In July, Lu’s think tank and the American Foundation for Defense of Democracies will hold tabletop exercises focusing on Taiwanese energy resilience. Taiwan’s state-run power company, Taipower, will provide data. Ranking officials and industry leaders will be invited.

There is also ongoing debate in Taiwan around nuclear power. While nuclear fuel must be imported, it requires very little land relative to the power it generates. Lai’s independence-minded Democratic Progressive Party is avowedly anti-nuclear. When his predecessor, Tsai Ing-wen, first came to power in 2016, she took on a gargantuan task of simultaneously reducing carbon emissions and phasing out carbon-free nuclear energy, which then accounted for 12 percent of the energy mix.

Many renewable-energy projects are now running dramatically behind schedule. Tsai originally aimed for renewables to make up 20 percent of Taiwan’s energy mix by 2025. The government missed this deadline, extending it to the end of 2026. Despite this extension, experts remain sceptical of the Lai administration’s ability to reach its target. Meanwhile, Taiwan’s six aging nuclear reactors have been decommissioned on schedule, with the final one to be decommissioned on 17 May.

Energy shortages in Taiwan present a global security risk, as the island makes about 90 percent of the world’s most advanced chips. The semiconductor industry is especially energy-intensive, and a power disruption of only a few seconds can damage output. Along with many minor power disruptions, Taiwan has suffered three major blackouts over the past seven years. In 2022, one of those major blackouts left more than 5 million homes without electricity and reportedly cost semiconductor, petrochemical and steel businesses more than NT$5 billion.

The Taiwanese government tends to blame blackouts on human error and an over-centralised grid, but critics argue that operating power reserves are insufficient. Artificial intelligence industries also consume enormous amounts of energy, leading some to question whether Taiwan’s power supply can meet growing demand.

Nuclear power was the only domestic issue that significantly divided the Democratic Progressive Party (DPP) and the two opposition candidates during last year’s presidential election. The DPP’s main opposition, the Nationalist Party, wants to pass laws extending the life of the one remaining reactor in southern Taiwan.

On 9 March, Tung Tzu-hsien, the deputy convener of Lai’s climate committee, voiced support for nuclear power, pointing to the importance of Taiwan maintaining manufacturing capacity ‘if war breaks out.’ The US de facto ambassador Raymond Greene told the Taiwanese media that nuclear power was ‘an exciting area for cooperation going forward,’ adding that the US had offered to help Taiwanese government with a transition, if it wanted one. Lu notes that even though the Nationalist Party’s legislation is expected to clear Taiwan’s parliament, Taiwanese laws will still require the reactor to undergo lengthy security checks. This means it will take three to five years before the shuttered reactor is operational again.

The gas plan that’s sailing Australia into strategic peril

Australia’s east coast is facing a gas crisis, as the country exports most of the gas it produces. Although it’s a major producer, Australia faces a risk of domestic liquefied natural gas (LNG) supply shortfalls as soon as 2028.

Domestic price caps, intended to keep residential energy costs down, makes exporting gas more profitable. So importing gas, and therefore building LNG import terminals, appears to be the policy of choice for the Victorian government. However, relying on imported LNG will create a vulnerability in energy security.

Instead, Australia should be developing resilience. We should prioritise new domestic projects, such as the Northern Territory’s Beetaloo Basin, to increase domestic supply and improve our energy resilience. Distribution infrastructure would be needed.

Import terminal projects, such as the recently constructed Squadron Energy’s Port Kembla terminal, and Viva Energy’s Geelong proposal, are pitched as fast, efficient, market-driven solutions. The essential logic: if we export too much, we can simply buy it back on the global market.

It’s a traditional market solution that does not account for strategic risk and the potentially higher prices of imported gas. While commercially convenient, it assumes ongoing access to the international market.

Importing LNG ignores lessons we should be learning from Australia’s liquid fuel supply chain failures. Australia imports around 90 percent of its refined fuels. Nearly all local refineries have shut. We rely on complex, just-in-time maritime supply chains for the fuel that powers our economy and sustains our military.

The Department of Defence and national security experts have long warned that international maritime supply chains are vulnerable to disruptions—whether due to conflict, coercion or climate. Defence continues to scramble to patch our vulnerability with stockpiles and contingency planning.

Yet our gas policy seems intent on replicating these vulnerabilities. We are creating dependency on overseas production and on maritime transport. LNG tankers, and the floating storage regasification units that they feed, rely on uninterrupted access to global trade routes. The same routes that are subject to increasing contestation.

Gas is a strategic resource as well as a commercial product, with applications across commercial, industrial and residential sectors. It is particularly important for Australia’s mining and manufacturing sector. In the event of major conflict in the Indo-Pacific, Australia’s maritime trade will be directly threatened. It will need to defend itself and keep the economy running, and likely increase domestic manufacturing capacity as well. Gas will be an important part of this.

The government is committed to gas as a long-term source of energy, and there is currently no viable clean alternative to replace its industrial applications. We need similar commitment to expanding overall gas supply and production.

The federal resources minister, as a last resort amid shortfall, can redirect LNG exports back into Australia. But such an interventionalist practice would likely harm foreign investor confidence and damage important bilateral relationships.

Tapping available domestic resources is a better option. Australia has ample gas reserves in the Northern Territory, notably the Beetaloo Basin. But we lack the infrastructure to transport that gas where it is needed. A new pipeline connecting the basin to the east coast would be a nation-building project. It would also build resilience by creating domestic supply for a strategic resource.

Such projects will face such challenges as timeframes, costs and environmental risks. Each must be considered and carefully investigated. But failing to secure resilient domestic energy supply has its own costs and risks. Dependency on imported gas makes us vulnerable to global markets, international maritime transport and foreign actors. All while we have large domestic reserves.

Importing LNG will unnecessarily outsource control over a crucial economic input. Building overland pipeline infrastructure to access domestic reserves will develop self-reliance and retain Australian ownership over a strategic resource.

The Australian Competition and Consumer Commission has warned that while imports may be a viable short-term option with lower up-front infrastructure costs, they alone will not guarantee price stability or energy security. The Defence Strategic Review has called for whole-of-nation approaches to resilience. Gas is a test case.

We need to consider strategic risk in our energy planning. Short-term price signals cannot outweigh long-term sovereign capabilities and strategic interest. Nor can national security and energy policy remain separate.

We must act right now, as energy policy is at the fore of national political debate. We should fast-track the development of reserves such as the Beetaloo Basin and prioritise projects that underpin energy resilience and future prosperity. We should treat gas like the strategic asset it is and commit to pipeline infrastructure that connects our nation, not just our markets.

Northern Australia strengthens its role in economy and energy security

Each day, more than 160 airline flights carrying 13,000 passengers take off and land at Perth Airport to and from destinations across northern Australia. They ferry skilled workers to and from minerals and energy operations. Darwin and Brisbane airports also host air services to and from northern Australian resources hubs.

This provides a real-time indicator of the health of the Australian resources sector, which is overwhelmingly concentrated north of the 26th parallel.

In 2023-24, aircraft and passenger movements between Perth and Western Australian destinations exceeded interstate traffic for the first time, pushing the airport to new throughput records.

Despite price weakness for some minerals, the resources sector remains healthy. Northern Australia’s minerals maintain outsized importance in the national economy and for state and federal government revenues.

The Department of Industry, Science and Resources’ latest Resources and Energy Quarterly, released in December 2024, highlights the fact that the minerals and energy sector generates two thirds of national exports and 11.4 percent of GDP.

Northern Australia’s minerals and energy dominance makes it central to the national resources sector and thus much of the Australian economy. In 2023–24, the combined value of the top four exports from northern Australia—iron ore, liquified natural gas (LNG), metallurgical coal and thermal coal—was $261 billion, or 63 percent of total resource exports.

Northern Australia contributes almost all the nation’s iron ore exports, expected to total more than 900 million tonnes in 2024, or some 56 percent of global seaborne trade in the commodity.  Export value is about $140 billion. While iron ore prices are expected to soften in 2025, volumes are forecast to rise. The Pilbara remains by far the largest iron ore production centre in the world.

Metallurgical coal is northern Australia’s next largest export by tonnage, with the north contributing 46 percent of global supply. All 81 million tonnes of the nation’s LNG exports in 2023-24, worth $69 billion, came from northern Australia. This supply is vital to the energy security of economies such as Japan, Taiwan and South Korea.

Exploration spending is the long-term bellwether for the minerals industry. According to S&P Global data, northern Australia hosts 803 of more than 2000 exploration properties in the country. Australia-headquartered companies operate 632 of them. Identified reserves and resources in exploration properties are valued at $14 trillion.

While data is unavailable on mineral and petroleum exploration spending for northern Australia as a region, there is an indicator in the trend in the Northern Territory, where mineral exploration budgets were up 86 percent in the five years to 2023-24. The search for deposits of critical and strategic minerals such as lithium, copper and uranium drove the rise.

S&P Global records 163 mines in northern Australia, including those under construction. Outputs include copper, lithium, zinc, phosphate, vanadium, manganese, rare earths, gold, and metallurgical and thermal coal. The 11 secondary processing plants in northern Australia produce refined products such as alumina and metals including aluminium, copper and zinc.

Northern Australia, with abundant land and sunshine, is already a major source of renewable energy, with high potential for very large-scale production. From the Pilbara to the central Queensland resources hub, mines and mineral processing plants are increasingly sourcing energy from solar generators, backed by coal or gas. Whether exports of electricity and products such as green hydrogen are viable and will find markets remains to be seen.

While northern Australia’s minerals and energy future and its national economic contribution remain very positive, the region faces challenges in sustaining and growing production. As a December ASPI report highlighted, the region is vulnerable to natural disasters, particularly as some of its infrastructure is inadequate in the face of severe weather events. The government needs to spend more to maintain vital transport links as well as energy and telecommunications services.

Federal and state project assessment and approval processes have improved during the past decade and must continue to do so while maintaining scientific rigor. Efficient coordination between levels of government and between agencies is vital.

New lower-cost LNG supply from the United States and Qatar puts pressure on Australian LNG projects and their host governments to control costs of both construction and operations.

Several critical minerals projects in northern Australia have been held back by depressed and volatile prices, largely due to market manipulation by the current dominant producer, China. Australia and like-minded governments are working together to underwrite the commercial viability of such projects so they can attract global financing and move to construction and operational phases.

The thousands of workers who commute by air to, from and within northern Australia are testament to the strength of the resources sector, but also highlight the region’s chronic shortage of resident skilled workers. More locally and regionally based workers will help northern Australia capture greater value from its industries. The liveability of the north’s cities and towns is key to attracting and retaining more people.

The daily stream of jets from major population centres to northern Australia, however, will remain the main source of skilled people that contribute so much to the national economy and its energy security.

The world’s appetite for coal was increasing even before the Ukraine war

Coal accounted for half the growth in global power generation last year, and further increases are likely this year as European nations restart mothballed coal-fired power stations.

For the first time since 2013, the increase in demand for coal-fired power last year exceeded the growth in renewables.

The growth in demand for coal is detailed in two reports issued last week by the International Energy Agency and the consultancy BloombergNEF.

Half the countries that pledged at last November’s United Nations COP26 climate conference in Glasgow to phase out coal generation have in fact increased it.

The goal of achieving net-zero emissions by 2050 agreed at the COP26 climate summit last year assumed that unabated coal-fired power generation would fall by an average of 11% a year through to 2030 and would be completely phased out by 2040.

Instead, the increase in coal-fired power last year was 8.5%. Taking last year as an exception, the trend of the previous three years showed a small decline of less than 2% a year, though that was entirely obliterated by last year’s surge. It suggests that the political commitments to curb carbon emissions made at Glasgow are out of kilter with economic reality.

The growth in demand for coal-fired power has been driven by the speed of global economic recovery from Covid-19, the depletion of hydro-electric power by droughts across the northern hemisphere and soaring gas prices.

The world’s three biggest coal users each boosted their output: China’s coal-fired power rose by 9%, India’s by 16% and the United States’ by 14%.

In China and India, coal-fired generation remains the default option for baseload power. In the US, recently approved climate legislation has yet to shift the renewed emphasis on coal under Donald Trump’s administration.

Coal use grew because it could: coal-fired generators were operating at below their maximum capacity and had the ability to respond to unexpected growth in demand.

The reports show that construction of new coal-fired generators is overwhelmingly concentrated in the emerging world, led by China, India and Vietnam. In both advanced and emerging nations, there is greater investment in new renewable power sources than in fossil fuels.

In the advanced nations, a net 21 gigawatts of coal-fired generating capacity was retired in 2021 (roughly equivalent to Australia’s current coal generating capacity). In the emerging world, by contrast, a net 34 GW of new coal-fired power was added. The construction of new plants in the emerging world has slowed sharply: last year’s build was the lowest on record and down from 43 GW in 2020 and 61 GW in 2019.

The Ukraine war has forced a shift in the advanced world this year. Germany is bringing 7.2 GW of retired coal-fired capacity back on line to ensure continued power amid cuts to its gas supply from Russia. France and the Netherlands have both relaxed limits on coal use, while the United Kingdom, Italy, Austria and Greece are discussing or have already approved delays to phasing out coal-fired power and are temporarily reopening idled plants.

Wind and solar have received the lion’s share of fresh investment in the power sector, with a rise from 30% to 75% over the past decade. The share of fossil fuels globally shrank from 55% to 14% in the same period.

However, coal remains the biggest single source of electricity, accounting for 35% of global generation last year; fossil fuels, also including gas, oil and diesel, accounted for 61%. The major emerging economies remain heavily dependent on coal, which supplies 74% of power in India, 62% in both China and Indonesia, 86% in South Africa and 60% in the Philippines.

Despite the massive investment in renewables, which the International Energy Agency expects to reach US$472 billion this year, solar and wind still only account for 11% of global generation. Hydro-electricity is a further 16%, while nuclear is about 10%. Solar and wind power have a much higher share of total installed capacity—around 25%—but their use depends on weather.

Globally, the problem is that demand for electricity has been growing rapidly. Total generating capacity has almost doubled in the past 15 years, but investment in baseload power has failed to keep up, resulting in shortages and astronomic prices.

This has been made much worse by the Ukraine war and the sanctions on Russia, which previously provided 25% of the global gas trade, 18% of thermal coal exports, and 8% of oil.

Since the invasion, the thermal coal price has risen from US$170 a tonne to an average of close to US$350 a tonne as buyers tussle for available supplies.

Australian producers, which are the world’s biggest coal exporters, have had had no difficulty in replacing the Chinese market after Beijing imposed embargoes on Australia (before the ban, China took about 20% of Australia’s coal exports). Last year, Japan increased its coal purchases from Australia by 15%, India by a massive 38% and Korea by 33%.

However, Australia’s ability to do more is heavily constrained. Financial institutions will not support new coal projects, particularly for thermal coal. Coal projects for steelmaking may still be able to gain finance, though that is far from certain. Coal companies’ main option is to expand existing mines through their own cash flows.

The Labor government is expected to take a tougher stance on new coal project approvals than its predecessor, although both the New South Wales and Queensland governments have a strong incentive, in the form of coal royalties, to authorise expansions.

Prime Minister Anthony Albanese has said that coal mines that ‘stacked up’ environmentally could be approved and that Labor would welcome the jobs that would flow. He has rejected calls from the Greens to join the 40 nations who pledged at COP26 to phase out coal. However, Environment Minister Tanya Plibersek blocked a Clive Palmer-owner large open-cut coal project near Rockhampton in Queensland because of concerns it could affect the Great Barrier Reef.

The world’s energy woes aren’t over

Russia’s invasion of Ukraine is the immediate cause of the global energy crisis, but the seeds were sown by years of weak investment in fossil fuels, partly reflecting concerns over climate change.

Before the war, Russia was the supplier of about 8% of the world’s oil trade, 25% of gas exports, 18% of thermal coal exports and 9% of metallurgical coal.

Russia is still supplying oil, gas and coal to global markets, but estimates by a Finnish think tank show that the volume of fossil fuel exports is down by 22% since its peak in March, and pipeline sales of gas are down by 50%.

Eight years of falling investment levels means the lost Russian volume can’t readily be replaced. In the oil industry, investment fell 45% between 2014 and 2016, as a result of weak prices, while the Covid-19 pandemic brought a further 30% drop.

According to the International Energy Agency, investment in global fuel supply reached US$1.3 trillion in 2014, but had almost halved to US$680 billion by 2020. While investment rose last year, it remains well below pre-pandemic levels.

The oil price has come down from the peak of US$120 a barrel reached in June to around US$105, reflecting improved supply from the North Sea and Canada, the release of oil from IEA reserves and the slowing Chinese economy. The IEA warns that further oil price rises remain possible.

Gas is the most critical shortage. Spot liquefied natural gas prices in Asia had been as low as US$2 per million British thermal units (MMBtu—a measure of energy volume) in mid-2020 but have risen 20-fold to more than US$40/MMBtu.

Prices were soaring ahead of the Russian invasion as LNG supplies struggled to meet rapid growth in Chinese demand and had briefly risen above US$35/MMBtu in December last year.

European authorities are racing to fill storage reserves so there’s sufficient gas to meet household heating and industrial needs over the northern winter if Russia totally cuts its supplies. Russia is already curbing supplies to Europe with the apparent intent of leaving it with insufficient gas in storage for the winter.

Coal has been the alternative to gas. The German government has approved bringing 27 idled coal-fired generators back into production; however, the European Union’s ban on the provision of financial services to ships carrying Russian coal, which came into effect this month, has halted Russian seaborne exports altogether. That has pushed the thermal coal price to the astronomic level of US$480 a tonne, up from less than US$50 a tonne two years ago.

The EU and the UK have similar plans to ban financial services to tankers carrying Russian oil by the end of this year. Few shipowners would sail without insurance, and most ports demand it. The US is concerned that the financial services ban could push the global oil price to unbearable levels.

It has proposed allowing insurance for ships loading Russian oil at a steep discount, but few analysts believe that would work without the backing of China and India. As things stand, Russia is selling much greater quantities of discounted crude oil to refineries in Egypt, the United Arab Emirates and Turkey. Much of it is turned into oil products that are then shipped back to Europe or the US, while the crude oil from the Middle East that used to supply these refineries is directed instead to refineries in Asia.

Sanction regimes inevitably leak—Iran was still able to sell oil, albeit at reduced volumes, throughout former US president Donald Trump’s ‘maximum pressure’ campaign.

Australia’s experience at the hands of Chinese economic coercion highlights the flexibility of commodity markets. Although China was by far Australia’s largest market for coal and Australia was the largest seaborne supplier to China, Australia’s coal miners quickly adjusted to the Chinese ban and found new markets in countries formerly supplied by the miners that were now supplying China. The same was true of China’s embargoes on Australian copper and cotton.

Russia has had to accept discounts of 25% to 30% on its oil sales since shortly after the invasion. Although its energy exports were not sanctioned at that stage, the financial sanctions on Russian banks made buyers wary.

The IEA estimates that energy suppliers have won a US$2 trillion windfall from the soaring prices this year, doubling their income. Although this is likely to encourage some lift in investment spending, it is unlikely to deliver an appreciable increase in supplies.

The IEA’s energy report cites the example of Australia. There was traditionally a close relationship between coal prices and investment in Australia: for every US$10 increase in the coal price, investment would rise by about US$1.5 billion.

‘If this relationship were to be applied to the situation in 2022, we would expect capital investment in Australia of around US$13.5 billion, a level last seen in 2012. However, estimated spending in Australia in 2022, at US$7.5 billion, is around half of this level,’ it says. Australian thermal coal miners can no longer obtain bank finance for expansion and must rely on their cash flow or equity sales, while hoping for government approval.

The IEA sees little prospect of increased coal investment outside China and India because of climate change concerns. It notes that large companies like BHP and Anglo American are selling coal assets to smaller businesses less subject to shareholder scrutiny, but also less able to raise capital for expansion.

However, investment in the coal sector is rising in China and India. China’s domestic coal production rose by a phenomenal 350 million tonnes in the latter half of 2021 according to the IEA (for comparison, Australia’s total production last year was 370 million tonnes).

The IEA expects some increase in investment spending in oil and gas production this year, but says that will be entirely the result of inflation. Allowing for inflation, spending this year will be unchanged from 2021 and below 2020 levels.

Soaring energy prices are a political problem for governments around the world. Responses include cutting energy taxes and providing subsidies to energy consumers.

But many emerging nations don’t have that latitude. Many have long subsidised energy costs and the budget burden is now soaring unsustainably. Argentina is facing pressure to abandon its subsidy scheme, which doubled in cost to US$13.5 billion in the year to June. Sri Lanka’s electricity board was forced to raise prices by 260% earlier this month. Others will follow.

Europe’s desperate attempts to secure LNG supplies to replace Russian gas are leaving poorer countries in the cold. Pakistan has been attempting to buy LNG, but its last four tenders have all failed to attract a single bid, with suppliers preferring the premium markets of Europe and China.

The downsides of hydropower

The era of cheap oil and gas is over. Russia’s war in Ukraine—or, more specifically, Europe’s ambitious effort to wean itself off Russian fossil fuels at a time when international supplies are already tight—is driving up global energy prices and raising the spectre of a global energy crisis. Alternative sources of energy are looking more appealing by the day, as they should. But the embrace of hydropower, in particular, carries its own risks.

Hydropower is currently the most widely used renewable form of energy, accounting for almost half of all low-carbon electricity generation worldwide. Its appeal is rooted in several factors. For decades, it was the most cost-competitive renewable, and many hydropower plants can increase or decrease their electricity generation much faster than nuclear, coal and natural-gas plants. And whereas wind and solar output can fluctuate significantly, hydropower can be dependably produced using reservoirs, making it a good complement to these more variable sources.

But there’s a hitch. The most common type of hydropower plant entails the damming of rivers and streams. And hydroelectric dams have a large and lasting ecological footprint.

For starters, while hydroelectric generation itself emits no greenhouse gases, dams and reservoirs emit significant amounts of methane, carbon dioxide, and nitrous oxide. Under some circumstances—such as in tropical zones—they can generate more greenhouse gases than fossil-fuel power plants. One study found that methane—a greenhouse gas that is at least 34 times more potent than CO2—can make up some 80% of emissions from artificial reservoirs, though a wide variety of geographical, climatic, seasonal and vegetational factors affect reservoir emissions.

And while hydroelectric dams are often touted for delivering clean drinking water, controlling floods and supporting irrigation, they also change river temperatures and water quality and impede the flow of nutrient-rich sediment. Such sediment is essential to help re-fertilise degraded soils in downstream plains, prevent the erosion of the river channel and preserve biodiversity.

When dams trap the sediment flowing in from the mountains, deltas shrink and sink. This allows salt water to intrude inland, thereby disturbing the delicate balance between fresh water and salt water that is essential for the survival of critical species in coastal estuaries and lagoons. It also exposes deltas to the full force of storms and hurricanes. In Asia, heavily populated deltas—home to megacities like Tianjin, Shanghai, Guangzhou, Bangkok and Dhaka—are already retreating fast.

Dams also carry high social costs. In 2007, then-Chinese Premier Wen Jiabao revealed that China had relocated 22.9 million people to make way for water projects—a figure larger than the populations of more than 100 countries. The Three Gorges Dam, the world’s largest hydropower station, which became fully operational in 2012, displaced more than 1.4 million people.

To top it all off, there is good reason to doubt hydropower’s reliability. If mitigation measures prove unable to slow global warming adequately—an increasingly likely scenario—the frequency and intensity of droughts will continue to rise. As water levels in rivers and reservoirs drop—exacerbated by evaporation from open reservoirs—so will the water pressure needed to spin turbines, resulting in less electricity. And this is to say nothing of giant dams’ ability to compound downstream droughts, as has been seen in the Mekong River Basin.

Given that dams are expensive, years-long undertakings, the wisdom of investing in building more of them is questionable, to say the least. But the world’s love affair with dams continues. Almost two-thirds of the earth’s long rivers have already been modified by humans, with most of the world’s almost 60,000 large dams having been built over the last seven decades. And, global dam construction continues at a breakneck pace. In 2014, at least 3,700 significant dams were under construction or planned. Since then, the dam boom has become more apparent, with the developing world now a global hotspot of such construction.

While dam-building activity can be seen from the Balkans to South America, China leads the way as both the world’s most-dammed country and its largest exporter of dams. From 2001 to 2020, China lent more than US$44 billion for the Chinese construction of hydropower projects totalling over 27 gigawatts in 38 countries.

China is not hesitating to build dams even in seismically active areas, despite the risk of a devastating earthquake. And China really should know better: its own scientists linked the 2008 Wenchuan earthquake, which killed more than 87,000 people in the Tibetan Plateau’s eastern rim, to the new Zipingpu Dam, located near the quake’s epicentre.

There is no question that the world must cut its reliance on fossil fuels. But building more hydroelectric dams—especially in the earth’s most biodiverse river basins, such as the Amazon, the Brahmaputra, the Congo and the Mekong—is not the way to do it. On the contrary, the global dam frenzy amounts to a kind of a Faustian bargain, in which we trade our planet’s long-term health for a fleeting sense of energy security.

Meeting the ADF’s future energy requirements

The global energy system is undergoing a rapid and enduring shift with inescapable implications for militaries, including the Australian Defence Force. Electrification and the use of alternative liquid fuels are occurring at scale across the civilian economies. Despite that, fossil fuels, such as diesel and jet fuel, will be around for a long time to come, given their use in long-lived systems like air warfare destroyers, Lockheed Martin’s F-35 aircraft, M1A2 Abrams tanks, and in capabilities still in the design stage but planned to enter service beginning in the mid-2030s such as the Hunter-class frigates.

Australian supply of these fuels is provided by globally sourced crude oil flowing through a handful of East and Southeast Asian refineries. Supply arrangements for these critical commodities are likely to become more fraught, however. This is already occurring because of the fracturing of global supply chains and the drive for national resilience in many nations, driven by Covid-19, the return of coercive state power and, of course, Russian President Vladimir Putin’s war in Ukraine. Australia’s dependence on imports for liquid-fuel security, at least as it pertains to the ADF, extends well beyond insufficient reserves and refineries.

As I explain in a new ASPI report, launched today, the long-term nature of major platform acquisitions, as well as infrastructure investments, means that the Australian government and the ADF must move beyond assessing the implications of this future and begin to plan and act to shape the ADF’s energy future in ways that take advantage of the wider international and domestic energy transition that’s underway. Futureproofing the ADF requires the growth of an alternative fuels sector in Australia to meet broader needs that include but aren’t defined by the ADF alone. That can only be achieved through partnerships because no individual operator or enterprise has a monopoly on the energy sector.

Partnerships can be used to shape the alternative-fuels market in Australia by providing a secure source of investment for alternative-fuel providers. Those fuels can then supplement traditional fuel sources until a complete transition away from fossil fuels can occur.

In this context, the golden thread for Defence is its need for rapid transition towards renewable energy sources as a means to operationalise its strategy among its many and varied plans and contracts. Without the appropriate investment and support, energy security, stable fuel costs and low emissions will remain elusive. Hence, partnerships and co-investments can achieve sustainable change, ensuring Australia’s current and future energy security that the ADF relies upon.

The rapid and long-term shifts occurring in the global energy system are due to technological advances and the availability of cheaper renewable fuels. However, Australia’s dependence on imports for liquid-fuel security places the ADF at risk. The risk isn’t whether the ADF can get to an area of operations and perform poorly but whether it can get there at all.

In the absence of proactive change, Defence may ultimately have to ‘own more and more of [the fuel] supply chain from well (or synthetic fuel plant to bowser’, which would be a bad outcome from all perspectives. In this context, the ADF’s transition to renewable sources isn’t a zero-sum choice that results in operational capability being undermined or degraded. A rapid transition to renewables will make the ADF more effective in doing what the government directs and demands in the more divided and dangerous world and region we’re already experiencing.

The government and Defence must recognise this long-term risk to a fundamental input to our military capability and start acting to mitigate it for the future.

Does Australia need a merchant shipping fleet?

If elected to government, the Labor Party says it will enhance Australia’s economic sovereignty and national security by creating a strategic merchant shipping fleet. As a first step, it will appoint a taskforce to guide the establishment of the ‘strategic fleet’, which is likely to comprise up to a dozen vessels including oil tankers, container ships and gas carriers. The Australian-flagged and -crewed vessels will be privately owned and operate on a commercial basis, but could be requisitioned by government in times of need.

In addition to creating the strategic fleet, Labor plans to address skills shortages in the Australian maritime sector by re-establishing the Maritime Workforce Development Forum, which was abolished by the Coalition after it took office in 2013.

The arguments that Australia needs a merchant fleet for reasons of national security and to provide a domestic source of skilled Australian seafarers have some validity. Shipping is also economically efficient in terms of fuel costs, carbon emissions and reduced congestion on the roads.

Domestic freight in Australia (other than some bulk cargoes) mainly goes by road and rail—except across Bass Strait, and in northern Australia, where most freight goes by sea because of a lack of land transport infrastructure. According to data from the Bureau of Infrastructure, Transport and Resource Economics (BITRE), rail transport accounts for approximately 49% of total domestic freight by volume (iron ore and coal moving from mines to a port constitutes about 80% of this), road freight makes up about 35% of total freight, and coastal sea freight 17%. Over the 13 years from 2000–2001 to 2011–12, coastal sea freight actually declined, while road freight increased by nearly 50%. Most coastal sea freight is carried by foreign-flagged ships operating with coastal trading licences issued by the Australian government.

Trying to get more interstate and intrastate cargo back to sea is sensible, but that hasn’t happened for several reasons: road transport provides better door-to-door movement; road transport doesn’t pay its true costs of using the roads; large integrated transport companies have a lot of government influence; and Australian industry has argued strongly against the risks of increased costs.

Europe has faced a similar dilemma but, with increased road congestion and high highway tolls that put more of the true costs onto road trucking, a trend has emerged of more trucks and containers being moved by sea (‘short sea shipping’) where sea transport is an alternative to land transport. Special types of dedicated truck ferries and container or ro-ro (roll-on/roll-off) ships have emerged for this trade.

There could be scope for a similar move back to sea transport in Australia, particularly if the true costs of road transport were factored in. Also, the type of container/ro-ro ship that’s used might be suitable for the defence force’s transport requirements in an emergency situation.

The debate over the need for Australian-flagged merchant ships has a long history running right back to federation. Over the years, there have been many government inquiries and much research into the issue, most notably the comprehensive Crawford report on the revitalisation of Australian shipping  in the early 1980s.

These inquiries have invariably come back to the simple fact that Australian-flagged ships with Australian crews cost more than foreign-crewed vessels. Even when reviews have recommended new financial incentives or regulation changes to help build an Australian merchant navy, successive governments haven’t followed through on those proposals.

The two large container/ro-ro ships, Tasmanian Achiever II and Victorian Reliance II, currently entering service with Toll Shipping for the Bass Strait trade are the largest cargo ships on the Australian ship registers. They are broadly similar to the container/ro-ro ships employed around Europe. Such vessels would also be suitable for moving freight by sea elsewhere around Australia, especially over longer routes such as Perth to Sydney or Melbourne to North Queensland.

The only other large vessels on the Australian ship registers are the four LNG carriers employed on the gas trade between northwest Australia and Asia, some floating protection and storage operations vessels employed in the offshore oil and gas industry, and a few other special-purpose vessels, such as the Aurora Australis, the Antarctic research and supply ship.

The Australian ship registers currently comprise the general register and the Australian international shipping register (AISR). The latter was established about six years ago to provide a competitive registration alternative for Australian ship owners and operators that engage primarily in international trade. Registration on the AISR provides access to income tax exemptions and other tax incentives and allows the use of mixed Australian and foreign crews.

Oil tankers and gas carriers are basic national security requirements for the assured movement of fuels around the coast in times of national emergency. There’s little ability to transfer fuel around Australia other than by ship. It would take over 1,000 truck movements to shift the same volume of fuel carried by one medium-sized tanker. In addition to several foreign-flagged oil tankers, two small foreign-flagged gas carriers are currently employed on the Australian coast.

Our military bases and airfields in northern Australia would be heavily dependent on fuel imports by sea in any conflict situation. All fuel for the country’s north is currently imported from Asia, and that itself is a major strategic vulnerability for Australia.

There are no oil tankers (except for small in-port bunkering tankers) currently on the Australian registers. In comparison, New Zealand has two large coastal tankers for moving oil around the country. A sound national security argument can be made for moving some tankers and coastal gas carriers onto the Australian register—something which could be encouraged through the use of government subsidies.

Bringing some oil tankers and gas carriers back onto the Australian register with Australian crews could be the first move in Labor’s plan to establish a strategic fleet. The proposed taskforce could then investigate the feasibility of using Australian-flagged and -crewed container/ro-ro ships to move more domestic freight back to sea. Using Australian-flagged and -crewed ships for general international trade, as opposed to those on the AISR, would likely remain economically unattractive.

Scarcely ahead: tech titans and the resource race (part two)

In the not-too-distant future, battery technology will power the world. As I wrote in part one, much like oil has dominated energy geopolitics, critical minerals like cobalt—essential for batteries—will dominate tomorrow’s race for energy security. That requires that governments think about strategies to secure access to these minerals, just as they did with oil.

Thus far, Western countries have trusted in the invisible hand of free markets. But this hasn’t been working. Scarcities in critical minerals—caused by high demand and supply problems—is already affecting consumers such as tech companies in the supply chain ‘downstream’. The effects could spread as energy grids and transport increasingly rely on ‘green’ electrification—which relies on mineral availability.

As countries increasingly rely on battery tech for energy needs, uninterrupted access to critical minerals will become essential. At that point, the logic of energy geopolitics—where control of resources becomes a coercive tool—could become a factor. In 2010 Japan—a big manufacturer of consumer electronics—experienced a taste of that kind of future resource competition when China deliberately cut export quotas for rare earths.

And even those countries that possess deposits of critical minerals cannot simply rely on free markets. Resource-rich countries rarely find it economically viable to produce, refine and manufacture products from domestically mined minerals. As The Economist pointed out in a recent article, the idea that Wakanda—the homeland of Marvel Comics superhero Black Panther—successfully refines ‘vibranium’ to achieve technological supremacy and energy self-sufficiency is pure ‘fantasy and wish-fulfilment … it is as if Norway had a monopoly on oil, petrochemicals and plastics’.

Rather than rely on the free market, Western governments could adopt the Carter Doctrine approach. Just as the US government made securing access to oil a cornerstone of US foreign policy, governments could make gaining and maintaining access to critical minerals a key policy objective. Certainly China is already pursuing a multifaceted strategy to secure direct access to critical minerals across Africa.

In March for example, China tried to buy a 32% stake in Chilean lithium-mining company SQM SQM_pb.SN. The Chilean government has asked anti-trust regulators to block the move, arguing that it would give China an unfair global advantage in battery technology development. If the Chilean government fails, then China will control 70% of the world’s lithium supply. For countries concerned about their future energy resilience, such an outcome should be unacceptable.

But the Carter Doctrine approach has costs. Witness the bloody history of oil: major oil producer Saudi Arabia is a close US ally despite its terrible human rights record. And oil was probably an important factor in the decision to invade Iraq.

The concentration of critical minerals in dangerous and unstable locations—such as the Democratic Republic of Congo—is likely to create trade-offs that would be just as unpalatable. Seeking energy security in that way means using hard power and potentially implicitly condoning the actions of dictators.

There’s a third option: domestic geological exploration. That approach gives states control over their own requirements and insulates them from supply disruptions. And it wouldn’t require that governments get their hands dirty. Instead, they could create incentives for mining companies.

What could governments do? First, they could define which minerals are really critical and are available within their borders. For example, Australia holds approximately 14% of global cobalt reserves.

Second, government can provide better mapping of deposits. Critical minerals are found in every country, but there’s not been a lot invested in trying to find them. Sediment and rock hides deposits, making mapping difficult and discovery expensive. As a result, mineral deposit mapping is incomplete. One senior policymaker from the Energy and Minerals Division in the United States Geological Survey noted that the US has better maps of Afghanistan’s geology than it does of its own geology.

Third, governments can set the regulatory environment and give companies incentives to pursue riskier investments that don’t have immediate pay-offs. Left to their own devices, companies may wait for an upswing in prices before looking for critical minerals. But the lag between discovery and production can be more than a decade. In addition, the costs of discovery are going up. One Australian mining report found that discovery costs this decade are 50% higher than in the last decade.

So governments need to think well ahead about their needs in the face of critical mineral scarcity and find ways to encourage exploration and development even in slow periods. US President Donald Trump’s executive order last December recognised as much. It ordered the development of a national strategy by 18 June 2018 to define critical minerals, speed up domestic discovery efforts and improve the regulatory environment for critical mineral exploration.

Do these three things and resource-rich countries like Australia will have big economic opportunities. Australia only just got into the cobalt game and has already signed a major deal with a South Korean battery maker—contingent on production starting before 2020. But it’s unclear whether such production targets are possible, and whether the Australian public would be willing to accept the significant environmental costs that such mining incurs.

This is where an informed democratic debate is needed. Today out-of-sight mining companies in poorly regulated areas of the world bear the environmental, moral and political costs of rich-world purchases of consumer electronics. If Western countries are going to ramp of domestic production of critical minerals, their governments need to explain that we cannot build solar panels or run electric vehicles without digging up the earth. And then we’ll need to have a difficult, informed and realistic conversation about the opportunities, costs and opportunity costs that a battery-powered future holds.

Assessing Australian energy vulnerability

LNG plant, Victoria.

Some analysts have recently observed that Australia isn’t complying with its International Energy Agency obligations—it’s the only member of the International Energy Agency (IEA) that doesn’t have a 90-day supply of strategic petroleum reserves. But aside from the fact that Australia isn’t living up to an international agreement, just how vulnerable does that lack of reserves make Australia? Coming up with an answer isn’t easy—assessments are mixed, and the data contested. Still, overall, Australia’s energy vulnerability seems to be getting worse, not better.

When Andrew Davies and Edward Mortimer assessed this issue back in 2011, they concluded that Australia’s vulnerability in the next five years would be low, even without a strategic reserve, largely because of a diversity of suppliers in the market. Further, they demonstrated that strategic reserves held by other countries had a marginal impact on helping to sort out shocks in in the system, again, largely because of the diversity in suppliers. They did, however, predict that in the medium term (5 to 25 years), things weren’t so rosy—because of a gradually increasing concentration of suppliers. Just four years later, their predictions about increasing vulnerability appear to be coming true. Read more