“Natural gas as a partner to the net zero future”
Australian Energy Producers Chief Executive Samantha McCulloch
Australian Domestic Gas Conference, Sydney
I would like to begin by acknowledging the traditional owners of the land on which we are meeting, the Gadigal People, and I pay my respect to their Elders past, present and emerging.
Since we last gathered here 12 months ago to discuss the outlook for domestic gas, the alarm bells have only intensified about the need for new gas supply.
The supply issues on the east coast gas market have now spread to the west.
The imminent risk of gas shortages across Australia is now a national crisis. And as we find ourselves having the same conversations 12 months on, with very little change, the question has to be asked, is anyone in government listening?
Let’s start with three basic truths:
- Gas will continue to play a critical role as a flexible and dependable source of energy as Australia transitions to renewable sources.
- New investment is urgently needed if gas supply…is to keep up with demand from homes and businesses, and for gas-powered electricity generation.
- A faster transition to net zero increases the need for carbon capture, utilisation and storage.
Those are not my words.
They are direct quotes from the ACCC, AEMO and the International Energy Agency respectively – all in the past 12 months.
The evidence is in. We have consensus. The independent experts have spoken.
Australia needs to stop debating whether gas has a future in the net zero transition and address the real and pressing issues facing our energy sector today.
Instead, the questions decision makers need to be asking today is: What do we need to do to ensure Australia has enough gas to meet domestic demand?
After more than a decade of energy policy missteps and inaction, Australian households and businesses are facing higher energy prices and increased risks of blackouts and gas shortages.
The time for excuses, short-term political fixes and finger-pointing is over.
Australia needs a national plan to address the looming gas supply crisis.
Essential gas projects that have been stuck in regulatory purgatory for years have to come online as soon as possible.
And we need regulatory certainty and stability to support investment in the next generation of gas supply, all the way from exploration to production.
These should not be hard decisions.
The consequences of failing to act are profound. We only need to look to what happened in Europe after Russia’s invasion of Ukraine triggered a global energy crisis.
Gas shortages saw huge price increases, industries shut down, a resurgence of coal and record CO2 emissions.
We simply cannot afford to see a similar story play out in Australia.
Australian natural gas is more important today than ever before.
Natural gas not only has a role to play in Australia’s net zero future, it is integral to achieving net zero by 2050, to hitting our renewable energy targets, and for ensuring energy security and affordability.
The share of natural gas in Australia’s primary energy consumption is higher today – at 27 per cent – than any time in history.
In the last decade – while the share of coal and oil in our energy mix has declined – gas combined with renewables has filled the gap.
Between 2012 and 2022 natural gas and renewables both increased their contribution to Australia’s primary energy consumption by exactly the same amount – 220 PJs per year.
Over this same period, it is no coincidence that Australia’s greenhouse gas emissions decreased by around 20 per cent.
Gas is backing up the roll-out of renewables and supporting the phase out of coal.
And it is natural gas that is the largest energy source powering Australian manufacturing and industry. It will be essential for new industrial opportunities linked to advanced manufacturing and critical minerals processing.
And the importance of natural gas is set to continue to 2050 and beyond, as the world and Australia transform to net zero.
In the IEA’s Net Zero by 2050 scenario, natural gas is the second largest contributor to total global energy supply between now and 2050 – behind only oil.
In the IEA’s vision for net zero, gas provides more energy between today and 2050 than wind or solar.
Further, the IEA have highlighted that “Cutting investment in fossil fuels ahead of scaling up investment in clean energy pushes up prices but does not necessarily advance secure transitions”.
Similarly, in the IPCC’s 1.5 degree scenarios, global gas demand in 2050 averages 62 per cent of today’s levels – with gas demand as high as 165 per cent of today’s levels in some scenarios.
So while we hear increasing calls for the phase out of natural gas, the science of net zero clearly shows we will continue to need gas well beyond 2050.
And gas will be just as important in Australia.
In the 2023 Net Zero Australia study, undertaken by the University of Melbourne, University of Queensland, and Princeton University, five scenarios were developed for reaching net zero in Australia.
Across these scenarios, demand for Australian natural gas in 2050 averages 77 per cent of today’s levels, increasing to well over double today’s levels in their Constrained Renewables scenario.
For reference, the Constrained Renewables scenario requires us to deploy our entire renewable capacity every 6 months between now and 2050.
Similarly, analysis undertaken by EY to support our Future Gas Strategy submission identified three net zero-aligned gas demand scenarios for Australia out to 2050.
EY found that ongoing investment in Australian gas supply is required across all three scenarios and that ensuring the long-term sustainability of the gas sector will be pivotal to managing risks to energy security, cost-of-living, and emissions reductions targets in Australia and the region.
We see the same message reinforced by AEMO in last week’s Gas Statement of Opportunities which highlighted a doubling of annual gas consumption in power generation in the 2040s in their Step Change scenario.
The natural gas industry is also key to delivering the CCUS projects and low-carbon hydrogen essential to reaching net zero.
Currently, CCUS globally stores around 45 million tonnes of CO2 – equivalent to around 10 per cent of Australia’s total annual emissions.
So we know CCUS works.
The IEA is clear that reaching net zero will be virtually impossible without CCUS.
In Australia, the Net Zero Australia study also finds there is no pathway to net zero without CCUS.
And it is the oil and gas industry that has the skills and experience to deliver these CO2 management solutions.
Our industry is also at the forefront of developing low-carbon hydrogen. Over 80 per cent of global low carbon hydrogen production today comes from fossil fuels – primarily natural gas – with CCUS.
Further, of the large-scale renewable hydrogen projects under development today, 80 per cent are being developed by, or in partnership with, the oil and gas industry.
While on renewable hydrogen, it is worth touching on ‘gas alternatives’, and their potential role in Australia’s energy mix.
While there is strong potential for low-carbon hydrogen and biomethane to play an important role in a future energy mix, we need to be realistic about where these technologies are today.
The fact is that all low carbon hydrogen options are significantly more expensive than natural gas.
Renewable hydrogen is still in its infancy. To put it in perspective, the total annual global production of renewable hydrogen today would substitute Australia’s domestic gas demand for less than three days.
Gas combined with CCUS remains the most affordable and mature pathway to low-carbon hydrogen production today.
It can help to fast-track Australia’s efforts to develop a hydrogen industry, enabling Australia to gain an early foothold in emerging global markets. It can help to reduce energy input costs for Australian manufactures that select to switch to hydrogen.
But here Australia is putting ideology ahead of our competitiveness and ultimately emissions reductions. Hydrogen produced from natural gas with CCUS is excluded from the national Hydrogen Headstart program. And it is not even mentioned in the Future Gas Strategy consultation paper.
While this is a domestic gas-focused conference, we cannot talk about domestic gas in this country without talking about our LNG exports.
After all, much of the investment that has unlocked Australia’s domestic gas supply in the past 20 years has been driven by the LNG export opportunity.
As well as underpinning domestic energy security, our LNG exports are driving extraordinary economic benefits including $93 billion of export earnings last financial year that underpinned an estimated $16 billion in direct payments to governments.
Our LNG exports are also critical to the decarbonisation of energy systems in our region, and have potential to do more if we seize the opportunity on our doorstep.
Southeast Asia alone is expected to increase LNG demand by a factor of 10 by 2050 under some IEA scenarios – adding the equivalent of Australia’s annual LNG export capacity.
Yet this economic, strategic and emissions reduction opportunity will go begging if we continue to put barriers in the way of new gas supply.
THE SETBACKS
Energy and climate policy has a history in Australia of being driven by populist politics and ideology, rather than evidence and analysis.
While independent energy agencies such as the ACCC and AEMO call for new gas supply, unprecedented Commonwealth interventions have chilled investment and raised questions from our regional partners about the reliability of Australian energy exports.
In the past 18 months alone, our industry has been hit with:
– Price caps and a mandatory Code of Conduct on the east coast
– Threats of interrupting export contracts
– Bans on new gas connections in Victoria that send the wrong message about the role of gas in the net zero transition
– Onerous emission baselines for all new gas facilities under the Safeguard Mechanism
– Regulatory uncertainty and delays for offshore gas projects as a result of legal action waged by activists
– No exploration acreage releases since 2022 in what used to be an annual process.
This is on top of longstanding barriers to new supply, including permitting delays and moratoriums on gas exploration and production at state and federal levels.
Meanwhile, the industry is facing increasingly extreme activism and ‘lawfare’, which is exacerbating project delays and costs.
This lawfare and activism is deeply counterproductive for both our economy and efforts to reduce emissions.
As the Australia Workers Union said in its submission to the Future Gas Strategy:
“Giving in to calls from some activists to ‘switch off gas’ would see industries collapse, essential goods become scarce and our quality-of-life plummet”.
Some problems with gas supply rest with individual states, and it is no surprise that the states facing the most severe shortfalls are also the ones limiting gas.
Victoria is ground zero for irresponsible energy policy.
Bans on new household gas connections take choice away from consumers and push more people on to an already strained coal-based power grid.
Just last week, AEMO warned that Victoria is facing peak-day gas shortages from 2025 and supply forecasts have worsened as a result of investment uncertainty and project delays.
Yet instead of looking to encourage more gas supply, Victoria continues to demonise gas while attempting to outsource its energy security responsibilities to other states.
TIME TO RESET
The growing disconnect between the realities of the energy transformation and the politics of energy policy poses a growing risk to energy security, energy affordability and Australia’s pathway to net zero.
Today represents an opportunity – or, more accurately, a responsibility – to reset Australia’s energy policy settings to secure our future gas supply.
Australia can ill-afford to waste any more time if we are to avoid the worst of the structural shortfalls that AEMO and other independent experts are forecasting.
But it will take political courage to stare down the activists who want to reduce everything to a binary choice that puts natural gas on the wrong side of the net zero ledger.
The anticipated release of the Australian Government’s Future Gas Strategy is the opportunity to reset Australia’s energy policy and chart a realistic and necessary vision Australia’s gas policy.
A vision grounded in evidence that leaves the short-sighted politics and ideology out of it.
A strategy that recognises the critical, long-term role of gas in achieving net zero by 2050.
This recognition must be two-pronged – new gas for domestic use and for our valued international customers.
The Future Gas Strategy must prioritise removing barriers and putting in place the policy drivers to facilitate investment in new gas supply.
There are three things Australian Governments can do avoid the gas supply cliff we are heading for, and to secure our country’s long-term energy security.
First, we need a national plan to urgently bring on new gas supply to address near-term structural shortfalls in eastern and western Australia.
This should be a standing item at the top of the agenda for every meeting of the Energy and Climate Change Ministerial Council.
It is almost inconceivable that, in the face of escalating warnings of gas shortfalls, there is virtually no mention of gas in the Communiques coming from these Ministerial meetings.
Price controls imposed on the east coast gas market should not be a permanent fixture. They have been a handbrake on investment in new supply, and the accompanying threats of interrupting export supply contracts have damaged relations with our tradi9ng partners.
The government should outline a plan to return to market signals and incentivise new supply ahead of the scheduled 2025 review of the Code of Conduct.
Second, we need regulatory certainty and stability.
The government must fast-track fixes to the regulatory uncertainty and delays for gas projects, onshore and offshore – including streamlining environmental approvals in the Environment Protection and Biodiversity Conservation Act reforms.
The Australian Government is moving to fix the uncertainty and delays that have plagued offshore gas projects for the past 15 months. The expected passage of legislation this week in the House to facilitate regulatory reforms will be a welcome step towards this.
Addressing the delays in environmental approvals is critical to bringing on new supply. The Coalition has made this central to their negotiations with the Government on the Petroleum and Resource Rent Tax reforms.
Bipartisan support for the sensible PRRT changes while delivering better environmental regulations would be a win-win, and we urge the Government to continue to work with the Coalition to provide certainty to industry.
Finally, the central role that CCUS has to play in Australia’s net zero transformation should be recognised and supported.
Australia needs a CCUS roadmap to ensure we can realise our potential to be a major regional player in CCUS and to keep pace with the United States and Europe that are pouring significant investment into the sector.
The roadmap should also support the decarbonisation of hard-to-abate industries such as steel and cement by incentivising CCUS projects in energy-intensive regions around Australia.
Without these essential reforms, the journey to net zero will be harder, it will take longer, and the impact on Australian families and businesses will be greater.
Thank you for your time.
