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by Eliza Booth, Assistant Editor, Energy Magazine

There’s been a lot of talk, especially from the Federal Government, about the role that gas will play in the country’s economic recovery from COVID-19. However, a new report from the Grattan Institute explores the uncomfortable truth that natural gas is not quite the economic solution we’ve been looking for, and that in fact, natural gas has only a finite role to play in Australia’s energy future.

In May 2020, a leaked draft report from the Federal Government’s National COVID-19 Coordination Commission (NCCC) outlined a gas-fired recovery plan for the pandemic recession. This news was later confirmed by the Federal Government with Prime Minister Scott Morrison spruiking the benefits of investing in the gas market on multiple occasions.

The gas-led recovery plan from the NCCC detailed how growing advanced manufacturing in Australia and creating a competitive domestic gas market would help support around 85,000-170,000 direct jobs, hundreds of thousands of indirect jobs, as well as drive down gas prices.

Prime Minister Morrison also issued an ultimatum to the energy industry: build 1,000 megawatts of dispatchable electricity generation to cover AGL’s Liddell coal-fired plant (which will shut in 2023) by April 2021, or Snowy Hydro would be tasked with building a gas-fired power plant in the Hunter Valley.

Throwing a spanner in the works, in November last year, the Grattan Institute released a report, Flame out: the future of natural gas, which found that the role of natural gas as an energy source for homes and industries will inevitably decline over the coming years, and industry and government need to be ready for this reality.

Tony Wood, Energy Program Director at the Grattan Institute and co-author of the Flame out report, spoke with Energy Magazine about the findings from the report, the future of gas in the energy industry, as well as the role that government and industry need to play to ensure Australia meets its emission targets while ensuring there is enough dispatchable energy to keep up with demand.

Tony Wood argues that gas’s role in Australia’s energy future will be like that of a cameo actor in a theatre production – small, important, but not taking centre stage

What the report says

Flame out explores how a combination of environmental and economic factors are placing pressure on the gas industry and, as a fossil fuel, steps need to be taken to plan for a future where gas plays a significantly reduced role in the market.

Mr Wood said that the initial research for the Flame out report was underway before the announcement of a gas-led recovery and was inspired by high gas prices in recent years, rather than as a response to the Federal Government’s position on gas.

“Gas isn’t cheap anymore. It’s not going to be cheap in the future. That’s our physical reality, it’s not a political or ideological reality, and that has consequences,” Mr Wood said.

The report explored two main challenges affecting the future of the Australian gas industry. Firstly, Australia has strict emissions targets that it needs to meet, and in order to achieve these, it needs to reduce emissions over time. Natural gas is a fossil fuel, plain and simple, and the sector is not exempt from the need to reduce emissions.

Secondly, gas is no longer cheap. The report explains that the east coast gas market will never go back to the days of low-priced gas. This will inevitably lead to gas becoming an expensive energy source which won’t be beneficial for consumers.

The report concludes that to overcome these challenges, governments should support more low-emissions alternatives that are able to replace gas manufacturing, such as hydrogen and renewables-based energy.

By supporting the development and deployment of these technologies, governments and industry will remove the barriers to better, low-emissions options, which will foster a greater renewables-based energy sector.

Why a gas-led recovery won’t work

While the Flame out report was originally conceived before the NCCC’s COVID recovery announcement and intended to look at other main concerns, it does address why the Government’s gas-fired recovery isn’t quite the economic boon some might think it is.

“We didn’t start out to prove that there shouldn’t be, or that there is not going to be, a gas-led recovery. We had two other things we were interested in. But then we started to see the argument for a gas-led recovery and thought, ‘This is crazy. This doesn’t make environmental sense and it doesn’t even make economic sense’,” Mr Wood said.

“Putting aside whether gas can be cheaper, which is what our report was all about, the thing that got us into trouble with a lot of manufacturers was that we were suggesting that even if you did have cheap gas, it wouldn’t be a fundamental economic recovery model for Australia, and that’s what our analysis was showing very clearly.”

Central to the benefits spruiked by the NCCC and Prime Minister Scott Morrison, was that the gas-fired recovery would be a manufacturing goldmine, protecting and creating hundreds of thousands of jobs, however, Mr Wood said that this isn’t quite the case.

“Gas is important, really important, for between five and 10,000 jobs. What we should then be doing is focusing there, rather than trying to artificially protect those jobs, because the fundamental issues are; our gas prices aren’t going to come down, but emissions have to.

“There are jobs that will go over time, and the more money we spend on protecting them, the less money we’ve got to spend on repositioning them.”

Additionally, the report said that even if the Government implemented initiatives it has hinted at, like underwriting new gas pipelines or supporting gas production, the benefits wouldn’t be wide-ranging enough to help the economy recover, especially as these policies and investments take a long time, making them unsuited for rapid economic recovery.

The role of gas in Australia’s energy future

So, if natural gas is not the best option for economic recovery, and Australia needs to concentrate on developing and deploying renewable-based energy options, what role will natural gas play in Australia’s energy future? Mr Wood said that while gas will have a role to play, it won’t be in large volumes. Mr Wood likened the role of gas in the future energy landscape as a cameo actor in a play, acting as a backstop, but not taking centre stage.

“If the Melbourne Theatre Company is putting on a play and they could get Kenneth Branagh to come and do a walk-on cameo in a Shakespearean play for a couple of minutes, that would get the crowd in. It wouldn’t be a big role, but really important. That’s the sort of role gas is going to have. It’s going to be really important, but not onstage all that much.”

With renewable-based energy generation increasing in Australia, especially in South Australia and Victoria, the need for backstop forms of energy will be critically important, especially when weather conditions are not optimal for solar or wind generated energy.

“There will be times in winter when you get higher levels of renewables. Look at South Australia, for example. There are times in South Australia when the winds are blowing, they’re producing much more energy than they can consume. They’re exporting electricity to Victoria.

There are other times when the wind isn’t blowing so much and they’re importing coal-fired electricity from Victoria. They may very well, on average across the entire year, be producing a lot of their electricity from renewables, but there’s still the need for coal.

“But it doesn’t have to be that way. What you’re really looking for is energy that’s available when you need it. You can have a combination of wind and solar with storage and with hydro and possibly with gas for backup, which, for the customer, will provide the same thing.”

What governments need to do

As the Flame out report shows, the Government’s insistence on growing Australia’s gas industry is not the best way forward for the economy or the environment. Instead, Mr Wood explains that there are actions that governments should be undertaking to incentivise industry and consumers to move towards lower emissions technologies.

Firstly, he said that we need to look at the future scenarios that can be assumed. One assumption is that we are not going to see cheap gas prices again, as evident in the report’s findings. The second assumption is that Australia will continue to move towards net zero emissions.

After accepting these scenarios, we need to accept that gas is a fossil fuel, and will not be exempt from changes that need to be made to reach these emissions targets.

The next action, according to Mr Wood, is to move past denial. Much like the seven stages of grief, Mr Wood said that the government needs to be realistic and consistent about what needs to be done.

“The government needs to be consistent. It doesn’t have to go out there telling everybody that they’ve got to reduce emissions, but it’s got to be at least not suggesting the alternative; that we are going to be able to burn gas for decades ahead, because we’re not. If we do that, we will not be in a low emissions world.”

Another important action that governments need to take is to provide predictability for investors. Mr Wood said that currently gas equates to around 19 per cent of Australia’s emissions and that unlike the electricity industry, governments have not signalled clearly that the gas industry needs to be moving towards a lower emissions world. This gap in clear intention from the government is causing uncertainty, which may prove dangerous.

Mr Wood said that the areas where there is an incredibly important role for governments is in technology support, such as supporting the research and development of electrolysis for producing lower cost renewable hydrogen, hydrogen storage, and helping to bring down the cost of renewable technologies.

Finally, and perhaps one of the most important roles that governments need to take on, is encouraging consumers to switch from gas to electricity. Mr Wood stresses that this can’t happen all at once in all places. An overnight switch in Victoria would mean that peak electricity demand would outweigh current peak supply, so this does need to happen gradually.

This includes encouraging all new homes built to be electric only and encouraging consumers to make the switch away from gas. This may be hard as consumers may push back slightly, but governments need to make the benefits of a reduced gas future clear so that changes can be made at the local level.

While some of these actions and roles that governments must take on can be politically tricky, they are necessary to help Australia prepare and plan for a future where gas has a reduced role and low-emission electricity like renewables are given priority.

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