Critical role for gas in transition to net zero

Maintaining gas production at least in the short term is critical to achieving net-zero carbon emissions by 2050 according to a submission from the DomGas Alliance to the Federal Government’s “Future Gas Strategy”.

The Alliance, a member-driven industry body representing big gas users in Western Australia, says gas is critical to decarbonising the energy system by providing support to the grid as we shut down coal plants.

It says that gas will be needed well into the next decade and even beyond, because gas is hard to replace as a feedstock for industrial processes and in processing alumina, mineral sands and critical minerals.

The gas industry is a significant driver of the growth and development of the WA economy. ACIL Allen estimates that in 2021-22, gas exports alone contributed $48.2 billion to WA’s export income and the industries it fuels were responsible for 54.4% of total economic activity in Western Australia in 2021-22, supporting 403,359 full-time equivalent jobs.

The Alliance says that WA is probably better placed than the east coast, as most of the population here understands that gas in WA underpins our economy, but it is a major issue in the east coast where activists and governments want to phase out gas as soon as possible.

In 2018, the Alliance commissioned a study by Wood Mackenzie, which showed that gas demand would increase in the short to medium term in WA because the first steps in decarbonisation would include the closing down of the State’s coal-fired power stations and the transition from diesel in regional areas, fuels producing much more carbon dioxide than gas.

Since the report was written, most forecasts have shown the increase in demand will go well into the 2030s before plateauing and gradually declining.

The study reported: “This is driven by gas’s role in supporting the faster incorporation of renewable energy into the WA economy, but which will eventually push it towards longer-term gas demand destruction. Near-term domestic gas demand growth (between 2021 and 2030) therefore remains compatible with the WA Government’s net zero emissions aspirations by 2050.”

The study also showed that the State used more gas as industrial feedstock (60%) than for power generation (40%). Bearing in mind that it is going to be a lot harder to transition to cleaner gas substitutes for heat or feedstock, gas will continue to be used in these industrial sectors for some time to come.

The Australian Energy Market Operator (WA) confirmed the analysis of Wood Mackenzie and forecast an increasing demand for gas well into the next decade before it begins to plateau and then decline, as more renewable energy is introduced, and alternative clean fuels become more economic.

The submission says: “What is evident is that WA’s Domestic Gas Policy has helped underpin the State’s mining and minerals processing sector as well as enabling the State to develop an advanced industrial base using gas as feedstock for chemical, fertiliser and other uses.

“All members of the Alliance, and other major gas users, are committed to achieving net zero emissions by 2050. While gas-using industries are taking positive steps to decarbonise, gas will continue to play a vital role in their operations for the foreseeable future.

“The WA Domestic Gas Policy is a good model which achieves both export of LNG to global markets together with a commitment to providing domestic gas for WA consumers. There is a degree of tension between the two aims, but for the most part LNG exporters adhere to the policy and supply both markets seamlessly.

“Those that don’t are coming under increasing scrutiny by the Government which recognises that additional gas will be required for the WA market in the transition to net zero.

“The Alliance has always supported the development of the LNG industry because the policy ties exports to a commitment to deliver 15% of those export volumes to the domestic market. Without the economies of scale afforded by LNG export opportunities, much of the offshore gas in the Carnarvon Basin would not have been developed.

The east coast policy settings don’t support this alignment. The only mechanism in place to ensure domestic supply is the Australian Domestic Gas Security Mechanism which is a heavy-handed policy tool that diverts gas from LNG exports to domestic supply by order of Government.

We are now facing new challenges in the energy landscape, with declining reserves in traditional domestic gas supplying fields, a fast transition to renewable energy, coal supply constraints, and an increased linkage between the WA gas and electricity systems.

AEMO forecasts a gas shortfall in this State from this year to 2026, peaking in 2024, and a big deficit from 2030 onwards with shortfalls of more than over 16% of demand each year.

The 2022 Gas Statement of Opportunities notes the importance of the WA domestic gas reservation policy and assumes the 15% of gas committed to reservation by suppliers for domestic use is actually being delivered to the market – which it is not. Some LNG producers are not currently meeting the clear intent of the policy to deliver 15% of their gas reserves to the market.

In January 2023, as a result of disruptions to domestic supplying facilities, domestic users of gas, including DGA members, incurred significant commercial losses due to some LNG suppliers not making gas available to the market.

The WA Government has now made it clear that in order to transition to net zero carbon emissions, gas will play a critical role, and the Government also realises that additional gas supplies will be required not just for this transition, but to keep our value-adding industries operating which use gas as feedstock or for heat production in minerals processing.

DomGas Alliance has made a number of recommendations to the current inquiry by the Legislative Assembly’s Economics and Industry Standing Committee into WA’s Domestic Gas Policy, essentially to improve the policy by addressing the absence of compliance mechanisms.

These recommendations also address some of those policy areas under Commonwealth jurisdiction and represent the insight and experience of large gas users in grappling with gas supplies in a tightening market, and under policy settings which lack enforceability.

There is unilateral commitment to transition to net zero, however the path may have some twists and turns before we get there.