No quick or easy fix to gas supply issue

Victoria's gas supply issue has no quick or easy fix.

And while this presents serious challenges for government energy policy, it has created a unique opportunity for ECT in the domestic market.

The below article in today's Australian Financial Review ($) by Angela Macdonald-Smith highlights:

• Declining output from Bass Strait driving increased reliance on expensive coal seam gas from Queensland, significantly impacting affordability
• Victorian gas production set to plummet by 25%, or 60 petajoules a year, by 2022
• Project pipeline is insufficient to offset the decline, with the next significant new resource to come online only providing 24PJ per year
• ACCC forecast a production shortfall of 116-156PJ this year
• Credit Suisse analysis indicates up to 200PJ a year shortfall, increasing to 700PJ, requiring 'tens of billions of dollars' of investment
• Local retailers assessing the feasibility of filling the gap with LNG imports

The domestic gas price has risen dramatically in the past few years in response to the constrained supply and increased demand.

Much of the demand has come from increased reliance on gas-fired power generation to back up intermittent Wind power as coal-fired power stations such as Hazelwood have closed down.

But another market segment has been hit even harder; industries that rely on large volumes of process heat. Timber and dairy processors, abattoirs, and greenhouse operators, to name a few.

These industries largely relied on brown coal briquettes to fire boilers that generated large volumes of heat. With the closure of the Morwell briquette plant in 2014, those businesses that were close to the gas network made the switch to gas. Gas has now doubled or tripled in cost for these businesses, threatening viability and jobs.

Some firms have resorted to importing coal from as far as Queensland. Others have access to relatively cheap biomass, but there is often not enough, and it's lower in heating value than gas or the old briquettes. Some biomass sources cause boiler fouling issues and result in high operational costs.

This unfortunate state of play has created an opportunity for our Coldry pilot facility, 50km northwest of Melbourne.

Upgrades to the pilot plant over the past year or so to enable higher volume testing under our R&D program have resulted in higher volumes of merchantable test product, leading to enquiries from former briquette consumers.

And while our Coldry plant isn't commercial in the context of global coal pricing, our Coldry solid fuel pellets are more cost-effective than gas in the Victorian and Tasmanian markets, presenting the opportunity for the sale of the test product.

These industries can't turn to Wind and Solar power for their process heat needs, as those technologies aren't suitable.

We see a tremendous long-term opportunity to support this market with a cost-effective solid fuel alternative. As such we're currently undergoing trials with several end-users and assisting with new boiler specifications, sourcing and financing.

We recently announced our first trial shipment to Tasmania.

Our Coldry pilot plant is limited, with a current capacity of ~15,000 tonnes a year. Further upgrades could see that increase to ~35,000 tonnes a year.

With the gas supply-demand issues likely to persist for years to come, we're currently undertaking a feasibility study for a large-scale commercial demonstration Coldry plant of ~170,000 tonnes a year capacity. Located in the Latrobe Valley, this plant would aim to service those businesses left stranded by the rising gas price, plus enable emerging higher-value processes such as coal to hydrogen, oil, gas and fertiliser.

And while we can't claim to be the answer to Victoria's gas woes, at the very least, we may be able to provide a reliable alternative to the local businesses reliant on affordable process heat.

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