Australia needs more gas as ‘safety net’ for all energy transition roads

Australian Energy Producers, representing Australia’s upstream oil and gas exploration and production industry, has revealed the findings of a new report, which show that the country will still need substantial gas production 26 years from now to ensure “reliable and affordable” energy in 2050, even under a net-zero scenario.

According to ‘The future role of natural gas in Australia and the region,’ which EY was commissioned to deliver by Australian Energy Producers in a bid to provide an independent assessment of the future role of natural gas in Australia and the region to inform the country’s future gas strategy, gas is expected to play “a major role” in the global net zero transition.

Furthermore, EY examined around 350 net zero pathways around the world and has recommended Australia should prepare for multiple gas production scenarios due to the uncertainty of the transition. Based on this report, ongoing investment in gas supply is needed to maintain production levels from operating fields to offset the decline, as investment in new supply options will help meet projected demand.

“To manage the risks associated with the transition to net zero Australia’s energy and climate mitigation policy needs to prepare for all three future scenarios, with policy and regulatory actions that keep as many pathways to net zero viable for as long as possible. Preparing for only one pathway leaves Australia extremely vulnerable to developments that are outside Australia’s control,” outlined the report.

Furthermore, the Electrify Scenario shows that domestic and regional demand for Australian gas would total 56% of current production levels in 2050 after a renewable rollout equal to 20 times the current levels. In the Blended Scenario, the demand for Australian gas would increase to 2040 before decreasing to 86% of current levels by 2050 as renewables grow to 13 times current levels. On the other hand, the Capture Scenario indicates that demand for Australian gas would rise 30% from current levels by 2050 with a more limited renewable rollout at only 10 times the current levels.

Commenting on the report’s findings, Samantha McCulloch, Australian Energy Producers Chief Executive, remarked: “The study shows gas is a safety net for Australia’s energy transition, providing affordable and reliable energy for households and businesses. The inclusion of natural gas as a core pillar of Australia’s energy and climate policies will speed up the transformation and secure substantial economic benefits from net zero.”

Moreover, the report found Australia’s unique position serving growing Asian demand meant it had to chart its own course, capturing more of the global market and lowering emissions through supporting renewable roll-out and coal-to-gas switching. In addition, the report highlights that LNG represents “a significant export revenue opportunity for Australia across all three scenarios, even where LNG exports are complemented by low-carbon hydrogen exports over time.”

With this at the forefront, McCulloch concluded: “Australia needs to plan for both strong domestic and international demand for gas to secure the associated emissions reduction and economic opportunities. As well as keeping the lights on across Australia and the region, Australia’s gas industry delivered over $16 billion of government revenues last financial year and spent another $45 billion with Australian businesses, all the while supporting tens of thousands of jobs across the economy.”

Additionally, the report notes that Australia’s gas industry has “a critical role” to play in rolling out net zero technologies and fuels including carbon capture, utilization and storage (CCUS), and low-carbon hydrogen, as these two are seen as “key complements” to natural gas in a zero-emissions future with all plausible net zero pathways involving CCUS and hydrogen albeit at different scales.

Meanwhile, Australian Energy Producers recently urged the Commonwealth to fix the broken offshore regulatory system after the logjam of energy supply and carbon capture projects awaiting approval was exposed. While emphasizing that Australia’s energy future would depend on natural gas, Kevin Gallagher, Santos’ Managing Director and Chief Executive Officer, said while addressing a WA Energy Club luncheon in Perth, Western Australia, that “the climate enemy” was emissions and not fossil fuels. 

At the time, Gallagher emphasized that shutting down traditional energy industries was bound to drive energy prices up and drag energy security down while slowing the pace of the energy transition engine. Therefore, he urged governments to engage with oil and gas companies to drive the energy transformation forward.