Australia opens future gas strategy consultation as it balances decarbonization goals

Australia released a future gas strategy consultation paper to formulate a medium and long-term plan for gas production, consumption and substitution as it looks to balance its decarbonization goals while being a reliable global supplier, the Department of Industry, Science and Resources said Oct. 3.

Australia is among the world's top LNG exporters. It recorded its highest exports in 2022, reaching 81.5 million mt, increasing 0.5% year on year. Natural gas is widely used in its domestic economy to generate electricity, as a heat source for residential and commercial sectors and large-scale industrial users, feedstock in manufacturing and transportation fuel.

The strategy's key objectives are to support decarbonization of the Australian economy, promote energy security and affordability, enhance the country's role as a trade and investment destination and help its trade partners achieve net-zero targets, the paper said.

"We need to ensure gas demand decreases faster than supply through the energy transition," Minister for Resources and Northern Australia Madeleine King said in a separate statement Oct. 3. "Gas shortages, supply disruptions and high prices are among the consequences of reducing supply faster than demand."

Asian spot LNG prices surged to $84.762/MMBtu on March 7, 2022, on fears of a shortage due to the Russia-Ukraine war. Prices have eased since, but they have been volatile because of supply risks and capacity constraints worldwide. Platts, part of S&P Global Commodity Insights, assessed November JKM at $14.197/MMBtu on Oct. 2.

The consultation paper, which has invited households, gas producers and investors to provide feedback, seeks to work out a plan as some countries reduce their reliance on gas and scale up renewables, while others turn to gas to cut fossil fuels usage.

The paper also highlights the need for "responsible resource management" as current production rates indicate that Australia's "identified [gas] reserves will be depleted in about 18 years."

The strategy also aims to explore ways to minimize harm to the local environment. The consultation closes Nov. 13 with a strategy due to be finalized in 2024.

Domestic needs

Australia's gas-fired generators consumed about 380 petajoules in 2020-21, producing around 5.7% of Australia's greenhouse gas emissions, the paper said. However, gas alongside electricity storage was vital for a stable grid when energy from other sources such as renewables is intermittent.

The Australian Energy Market Operator, or AEMO, in its 2022 Integrated System Plan said that gas was necessary to support the Australian government's target to reach 82% of electricity generated from renewables by 2030.

In Western Australia, gas powered generation was expected to increase in the medium term because of schedule coal-fired generators closures, while in the Northern Territory, gas fired generation was expected to be relatively stable as there was no coal-generated electricity and large-scale renewable projects were still progressing.

Australian homes and small businesses -- the residential and commercial sector -- consumed an average of about 200 PJ/year of gas over 2011-2021, producing around 2.3% of national net GHG emissions.

Some Australian homes and businesses could save money on their energy bills by switching to electric appliances, the paper said, adding that the government's Household Energy Upgrades Fund was directed toward improved energy performance.

Meanwhile, natural gas was the largest source of energy for Australia's manufacturing sector, which used 408 PJ, or about 26%, of domestic gas supplies in 2020-21. Manufacturing gas demand was expected to remain steady until 2028, before gradually declining over the next few decades.

"On the east coast, AEMO forecasts a steady decline over the 20-year outlook for large industrial and commercial sectors. Demand is likely to drop from 259 PJ in 2022 to 229 PJ by 2042," the paper said. The decline was expected to be driven by opportunities for electrification and fuel-switching from gas to hydrogen from the late-2020s. "However, timing remains uncertain as technology develops," the paper said.

Future demand for gas as a feedstock was likely to depend on the availability and cost effectiveness of substitutes such as hydrogen and biomethane.

Electrification may replace gas as a heat source in manufacturing and minerals processing in some lower-heat processes through commercial technologies like heat pumps or alternative fuels like biomass.

Cutting emissions

To ensure that gas is produced and consumed in a way that is consistent with 2050 net-zero targets, some steps required include carbon capture and storage, cuts in leaks, venting, flaring and fuel gas use, as well as efficiency, demand management and fuel switching or substitution.

"We recognize that all countries will determine their own decarbonization pathways to meet their individual circumstances and the imperative of addressing climate change," the paper said. "Through the Future Gas Strategy, we want to better understand the role Australian LNG plays in our trade partners' energy transitions."

The strategy will also closely align with the Australian government's sectoral decarbonization plans and other emission reduction policies such as the Safeguard Mechanism.

The Australian government aims to develop six sectoral decarbonization plans: electricity and energy, industry, the built environment, agriculture and land, transport and resources.

"Information we gather through this consultation process will inform several sectoral plans," the paper said. The plans will help maintain momentum in Australia's existing legislated emission reductions targets of a 43% cut from 2005 levels by 2030 and net zero by 2050.