Australia’s energy future and natural gas: Will turning off the taps see greener sources rise to meet supply & demand void?

The global trials and tribulations of the current energy landscape have worsened the supply and demand imbalance, spurring high energy prices and supply shortages, due to an energy environment peppered with geopolitical problems, energy security fears, market volatility, rising demand, and transformation woes on the road to net zero. This backdrop serves to push Santos’ CEO and many others to see natural gas, especially LNG, as the linchpin of the energy future not just in Australia but also across the globe. With the feasibility, affordability, and availability of green and renewable energy technologies still not up to the task of replacing fossil fuels, the use of oil and gas together with renewables, low-carbon, and decarbonization tools is perceived to be the best way forward.

The global oil and gas industry has helped underpin billions of dollars of economic benefits for countries worldwide. The recent energy crisis forced countries to scramble to strengthen and diversify their energy mix to meet the rising demand and tackle supply constraints. As the gears on the global energy stage keep turning, whichever energy policy is up now may be crushed under the wheel tomorrow, but it is widely believed that a whole spectrum of energy sources, including oil and natural gas, will be needed to power the world over the coming decades, with further population growth on the horizon.

Taking a gamble on some of the emerging energy sources during the energy transition era is not for the faint of heart, however, most global fossil fuel players are diversifying their portfolios and making forays into low-carbon and renewable energy while continuing to search for more black gold and gas. In Australia, the 2022-23 domestic and international gas sales results were part of a $254 billion spend on Western Australian resources, flowing through to government revenues, huge supply chain industry expenditure, and supporting a record 126,480 jobs.

The government data shows LNG sales surged to a record $56 billion during the year, up almost $18 billion, while domestic gas sales hit an all-time high of $2.5 billion. Bearing this in mind, Caroline Cherry, Australian Energy Producers’ WA Director, highlighted that these results showed how critical the new gas supply was to meet the forecasted growing demand for electricity generation and mining.

“As a WA Parliamentary Inquiry examines gas policy settings, this should serve as a reminder of what can be achieved if we get the policy settings right and unlock new gas supply. The Australian Energy Market Operator (AEMO) is warning more gas is needed to replace coal and back up renewables in WA electricity as well as to support the role of gas in mining and minerals processing,” added Cherry.

The government said investors poured more than $27 billion into mining and petroleum projects during the 12 months, the highest for a calendar or financial year since 2015-16. With this at the forefront, Kevin Gallagher, Santos’ Managing Director and Chief Executive Officer, said that Australia’s energy future would depend on natural gas while addressing a WA Energy Club luncheon in Perth, Western Australia, on Wednesday, November 15, 2023.

Santos’ CEO explains during his speech that the ramifications of the Ukraine and Gaza Strip crises have spread far beyond these countries while the power rivalry between the United States and China along with other geostrategic battles are generating instability with effects being “keenly” felt in energy markets. Open, competitive markets have underpinned global prosperity and peace after World War II, but these events are driving a faster retreat. In light of this, Gallagher is adamant that Australia needs to resist this retreat and remain “an active and collaborative member of the Asian region” by using its resources to assist its neighbors not only in securing “their energy needs” but also in decarbonizing “their economies.”

Santos’ CEO used the International Energy Agency’s latest ‘World Energy Outlook’ to support his views about the need for global and regional cooperation. He deemed the IEA’s claims about no country being “an energy island” or insulated from the risks of climate change, which spell out the necessity of collaboration, as “sound and sobering advice” and “a sensible approach.” The agency warned that the outlook for energy security would look “perilous” if the benefits of “interconnected and well-functioning” energy markets were to be lost, hampering the ability to ride out unexpected shocks.

Gallagher hammers this home further by elaborating: “Australia’s position as a leading and trusted gas supplier for the giant energy-consuming economies of Asia is in decline. Our neighbors are concerned about Australia’s ambivalence to their energy security and its apathy towards the success and growth of the gas industry, despite the clear role that gas will play in the region for decades to come.

“According to Wood Mackenzie, Australia’s gas industry will remain important with gas demand in Asia forecast to grow by around 50% between now and 2050. Countries like Japan, Korea, Malaysia, Indonesia, Singapore, and China, simply will not sacrifice the energy security of their people or their economies.”

Following the Queensland government’s program, which supports exploration to unlock new gas reserves, Australia’s oil and gas industry hopes to see a boost in energy security and more economic benefits. Australian Energy Producers believes this move will help homes and businesses on the eastern seaboard continue to enjoy an “affordable and reliable” energy supply.

Furthermore, Australian Energy Producers’ Queensland Director, Keld Knudsen, is convinced that the opening of the program to applications would help inject millions of dollars of exploration investment into regional communities around the Bowen and Galilee basins while extracting the benefits of gas on the path to net zero.

Knudsen continued: “Securing new supply can then deliver more benefits to Queenslanders – like 30,000 jobs along the supply chain, the billions spent with local Queensland suppliers and contractors, or the $1.4 billion a year of royalties flowing to the state budget on average. This revenue is helping the state fund critical public services and infrastructure such as its hospital building program, cost of living relief, and youth justice reforms.

“Queensland is reaping the benefits of producing gas while the southern states dither and neglect the national interest and shared responsibility all jurisdictions should exhibit to ensure energy supply. There are mounting warnings of energy supply shortfalls in coming years in New South Wales and Victoria yet these southern states continue to outsource their energy security to Queensland.”

Santos’ CEO, who also pointed out that more gas production was needed, believes that “the climate enemy is emissions, not fossil fuels.” He underlines that shutting down traditional energy industries is bound to drive energy prices up and drag energy security down while slowing the pace of the energy transition engine. Therefore, Gallagher urges governments to engage with oil and gas companies to drive the energy transformation forward.

“We cannot turn off the taps on oil and gas before replacement technologies are technically feasible, affordable, and available. Fossil fuels still account for around 80% of primary energy today – the same as 45 years ago – and peak consumption has not yet occurred. So if we are serious about reducing emissions, we have to be serious about abating emissions from fossil fuels,” emphasized Santos’ CEO.

Moreover, Gallagher pinpoints the need to recognize “the important role” that fossil fuel industries need to play in transitioning to a decarbonized world, as the companies engaged in these industries have the capability, resources, infrastructure, customers, and balance sheets required to deliver a more sustainable future.

“We must embrace Australia’s important role as a reliable supplier of LNG to our region and as a potential provider of new, low-carbon fuels and carbon storage services to decarbonize regional economies. Carbon storage could be an exciting new industry for Australia in Asia,” underlined Santos’ CEO.

Australian Energy Producers recently urged the Commonwealth to fix the broken offshore regulatory system after the backlog of energy supply and carbon capture projects awaiting approval was exposed. Plans have been tangled up in the approvals process for 562 days on average for exploration and 400 days on average for development as a result of regulatory uncertainty, following a Federal Court ruling last year.

With this at the forefront, Gallagher said: “A year ago, when the approval of the Barossa drilling environment plan was set aside by the Federal Court, it was seen by some as a company issue. Today, it is very clear that the regulatory system for offshore projects, administered by NOPSEMA, can no longer be relied upon. It is an industry issue. Only five environment plans have been approved this year. One of them has been overturned by the courts.

“Approvals are taking nearly two years, contracted vessels and equipment are on standby at a cost of millions of dollars per day. And the regulator is bogged down in the assessment of more than 40 plans. But the greater problem is climate activism and litigation that is squarely aimed at finding loopholes in Australia’s legal system wherever they may exist. This litigation has one goal – to stop new oil and gas projects. Like Barossa, like Scarborough. Committed investments totaling more than A$20 billion.”

The Federal Court of Australia granted an interim injunction on November 2, 2023, to prevent Santos from starting to lay the Barossa Gas Export Pipeline (GEP) until November 13, 2023, due to an application made by Simon Munkara, seeking an order to make the Australian energy giant revise and resubmit the environment plan (EP) that was accepted by the regulator, NOPSEMA, in March 2020.

Based on the Federal Court of Australia’s most recent ruling, pipelay activities can begin on an 86 km section of pipeline for the Barossa GEP. In line with this ruling, Santos confirms that no activity will occur south of kilometer point 86 (KP86). The court has set December 4, 2023, as the date for the start of the hearing of the application brought by Simon Munkara and two others seeking to restrain Santos from continuing the pipelay until it revises its environmental plan after re-consultation with relevant persons and NOPSEMA’s acceptance of a revised plan.

For its part, Santos, which is committed to delivering the Barossa gas project, is determined to “vigorously” defend those proceedings. Currently, the Australian player’s guidance on the Barossa project’s cost and schedule remains unchanged, provided the GEP pipelay is completed in 2023, and drilling activities begin before the end of the year.

Located 300 kilometers offshore Darwin, the Barossa field development entails an FPSO vessel, subsea production wells, supporting subsea infrastructure, and a gas export pipeline tied into the existing Bayu-Undan to Darwin LNG pipeline. The first gas production is targeted for the first half of 2025. The FID for the project was taken in 2021, kick-starting the $600 million investment in the Darwin LNG life extension and pipeline tie-in projects, which will extend the facility life for around 20 years. 

In response to the Federal Court’s decision regarding the Barossa project, Australian Energy Producers underlined that the latest court decision was further evidence of “the urgent need” for the Australian government to provide certainty for businesses and fix the broken offshore regulatory approvals system, as the economic and energy security of the country and its international partners were being damaged.

In Australian Energy Producers’ view, this puts reliable and affordable energy for Australian households and businesses at risk alongside the tens of billions of dollars of economic benefits and jobs energy exports deliver for the country. As courts continue to overturn or block approvals already awarded by the NOPSEMA, Australia’s oil and gas industry emphasizes the need for regulations that provide clarity and certainty for the industry while maintaining comprehensive and meaningful consultation with stakeholders.

Gallagher echoed this by saying: “Ultimately, no amount of climate litigation will make the energy transition faster or stop the oil and gas projects needed to meet the world’s energy demand. But if it continues, it will cost Australian jobs, drive energy prices up, and damage our economy. The gas will just come from somewhere else because people around the world will not sacrifice their living standards. The world could not feed itself today, or anytime soon, without fertilizers made from gas.

“We do not yet have replacements for the materials that are fundamental to our modern civilization – steel, cement, and plastics. Chemicals and materials made from oil and gas are pervasive in everyday life – from medicines and medical equipment to the paint on our walls. People, innovation, technology, and science will solve the energy transition problem. But there is no single silver bullet.”

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Natural gas is being touted as the perfect candidate to bridge the supply gap in the transition from emission-intensive fossil fuels to renewables during the race to net zero, thus, a wave of new LNG supply is set to hit the market in 2025, primarily coming from the U.S. and Qatar. As Asia’s developing economies lean more heavily on gas while striving to move away from coal, a boost in LNG demand in this region is on the horizon.

“If governments are truly anti-emissions rather than anti-fossil fuels, they should embrace the ongoing use of abated oil and gas, direct air capture and CCS as well as renewables and new low-carbon fuels. Because the benefits of using existing infrastructure and energy systems will save trillions of dollars and deliver net zero – without compromising our living standards,” concluded Gallagher.