Grattan report pours cold water over gas-fired recovery

IN IT’s latest report, centrist think tank The Grattan Institute has told the gas industry it must swallow a bitter pill: start planning for a future without, or at the very least a substantial less amount, of natural gas.
Grattan report pours cold water over gas-fired recovery Grattan report pours cold water over gas-fired recovery Grattan report pours cold water over gas-fired recovery Grattan report pours cold water over gas-fired recovery Grattan report pours cold water over gas-fired recovery

Urges industry to prepare for sunset before it gets dark

Mark Tilly

Journalist

Mark Tilly

The report, Flame Out, said it confronts the uncomfortable truth that natural gas is in decline in Australia, and that while the consequences of that reality may be painful in the short term, the only rational approach for government, industry and its customers is to start planning for a future of biomethane, hydrogen or electricity. 

Report authors Tony Wood and Guy Dundas also poured water over the government's proclamations that reduced gas prices would benefit Australia's manufacturing sector, saying the companies that would benefit contribute only around 0.1% of GDP, and employ just over 10,000 people - most of whom are in Western Australia. 

These "truly gas-reliant" manufacturers make polyethylene, ammonia and alumna, where gas makes up more than 10% of input costs, according to the report, whereas more than 750,000 workers are employed in manufacturing sectors where gas makes up less than 1% of input costs on average.

"The Government's best role is to support the development and deployment of the low-emission alternatives that can replace natural gas in manufacturing, such as renewables-based hydrogen and renewables-based electricity," The authors wrote in an op-ed accompanying the report. 

However Chemicals Australia has disputed the report's findings. 

The Grattan Institute report also said the argument of gas as a transition fuel did not stack up environmentally or economically, saying it would be more expensive to replace ageing coal-fired power stations with gas than to switch to more renewable energy such as wind and solar. 

"Gas will play an important backstop role in power generation when the sun isn't shining and the wind isn't blowing, but this does not require large volumes of gas," they said. 

The report notes two key challenges facing the government's gas plans - Australia must reduce emissions over time to meet the goals of the Paris Agreement and the gas industry was no exception, and the east of the country has already burned most of its low-cost gas.

It estimates around 19% of Australia's greenhouse gas emissions come from natural gas, 14% from burning the gas, and 5% from fugitive emissions arising from production, processing and transport. 

"The transition fuel argument should not side tract from the fact that Australia, and the rest of the world, must consume less gas over time to reduce the effects of climate change," it said. 

While it notes in some cases gas may be useful to use in a "net-zero emissions world" and the gas could be either captured or stored, or offset by planting trees or in soils, it said these activities have practical and economic limits and therefore gas does too. 

"New gas production sources will be needed to replace declining fields even if gas demand declines, but major new gas field or gas-using industries both appear to be risky investments in a decarbonising world," the  report reads. 

It notes large new gas resources do exist in Australia, but are either expensive, like Santos' Narrabri CSG field, or remote, such as the Northern Territory's Beetaloo Basin. 

"Policy efforts to reduce gas prices are swimming against the economic tide," it said, noting the market was solving the equation by proposing LNG import terminals in the south, which it believes will improve competition and ensure supply. 

The picture the report paints is slightly rosier in the West, noting WA has larger, lower-cost conventional gas reserves, with the forward-looking cost of production sitting around A$2 per gigajoule, compared to the NT and east-coast's A$7/GJ.

Based on the economics, the report rubbishes the idea of a trans-continental pipeline, saying it would be cheaper to transport WA gas to eastern Australia as LNG - which it estimates would cost between $3-5/GJ. 

"As the LNG market is currently over-supplied, regasification terminals are well placed to supply eastern Australian gas users at a reasonable price," it said.

It has also urged some Australian states, including NSW, Queensland and South Australia to follow the ACT's lead and impose a moratorium on new gas connections., describing it as a "no regrets" policy decision. 

"Transition from natural gas to alternative fuels may be difficult, but we cannot avoid the challenges by ignoring them." It said.