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The Future of Energy Demand and Implications for Australia


Source: RBA Speech, 21 June 2016

The increase in commodity prices, prompted by the increase in demand for raw commodities from emerging economies over the 2000s, sparked a substantial rise in mining investment in Australia. While much of this increased Australia's capacity to produce iron ore and coking coal to meet the increase in steel production in China, it also increased our capacity to produce and export energy commodities, especially LNG. Indeed, approximately $230 billion – equivalent to around 14 per cent of one year's worth of GDP – has been invested in Australia's capacity to produce LNG. As a result, Australia has increased in importance as a supplier of energy commodities, and growth in exports of thermal coal and, increasingly, LNG have made significant contributions to GDP growth.

But as the supply from Australia (and elsewhere) has increased and, more recently, demand has softened, prices of most energy commodities have fallen. This has posed challenges for less efficient Australian producers, and raises questions about the potential for Australia to supply the future increase in demand for energy.

Usage of renewable energy sources, including hydro, wind and solar, is expected to grow rapidly, as their relative prices decline with technology improvements, and government policies support their widespread adoption to meet emission targets. Australia has an abundance of renewable energy sources, and there is significant potential for future development in these technologies.

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