The Grattan Institute has published a report forecasting the decline of natural gas as an energy source, contrary to the Federal Government’s plans for the fuel to drive Australia’s recovery from the COVID recession.

Flame out: the future of natural gas shows that a combination of economics and environmental imperatives imperil the industry.

Australia must reduce emissions over the coming decades to meet its international climate change commitments, according to the report. Gas is a fossil fuel, so the gas sector is no exception.

The report outlines how the east coast has already burned most of its low-cost gas, and will not go back to the good old days of low prices, so gas will become an increasingly expensive energy source.

Over time, gas will decline, economically and environmentally. The report advises that, rather than indulging in wishful thinking or living in denial, the Federal Government and the gas industry – and its customers – should start planning now for a future without natural gas, or at least with a dramatically reduced role for natural gas.

The Prime Minister has advocated for a gas-fired recovery for manufacturing, raising expectations of big price reductions. But the report shows that eastern Australia faces inexorably more expensive gas. If the Government tries to swim against this tide by directly intervening in the market, taxpayers will pay the price via big subsidies.

Even if the Government could significantly reduce gas prices, the benefits to manufacturing are overstated. The companies that would benefit most contribute only about 0.1 per cent of gross domestic product, and employ only a little more than 10,000 people. And much of this gas-intensive industry is in Western Australia, which has low gas prices already.

According to the research, the Government’s best role is to support the development and deployment of the low-emission alternatives that can replace natural gas in manufacturing, such as renewables-based hydrogen and renewables-based electricity.

The report also outlines how gas no longer stacks up as a ‘transition fuel’. As Australia’s coal-fired power stations retire over coming decades, it would be more expensive to replace them with gas than to switch to more renewable energy such as wind and solar.

Gas will play an important backstop role in power generation when the sun isn’t shining and the wind isn’t blowing, but this does not require large volumes of gas.

In the home, too, Australia must either replace natural gas with low-emissions substitutes such as biomethane or hydrogen, or switch to electricity for heating and cooking.

According to the Grattan Institute, it is already clear that households would save money and Australia would reduce emissions if new houses in NSW, Queensland, South Australia and the ACT were all-electric. Governments in those places should impose a moratorium on new gas connections.

Energy Networks Australia (ENA) welcomed the focus in the report on renewable gas to help decarbonise Australia’s energy sector.

ENA Chief Executive Officer, Andrew Dillon, said networks were already delivering projects to support the greening of Australia’s gas networks, including injecting renewable gas into networks.

As highlighted in the recent Gas Vision 2050 report, transformational technologies such as hydrogen, biomethane, carbon capture and storage and renewable methane can all support Australia’s decarbonisation.

“The future of gas is not ‘flame out’ but rather ‘flame green.’ All options to reduce emissions from gas should continue to be investigated and tested,” Mr Dillon said.

“There will be some opportunities for electrification, but gas will still be required for manufacturing – which requires high energy heat that only gaseous fuels can provide – and household heating like hot water, cooking and space heating.

“As the Grattan report notes, there is an urgent need for action to decarbonise this gas load and networks are working to deliver this via renewable gas blends for their customers.”

However Mr Dillon also said that the report was flawed in its proposition of a moratorium on gas connections in new residential developments in NSW, ACT, QLD and SA.

“This is an ideological approach that would deny households an important and efficient fuel of choice and potentially drive-up whole-of-system costs and increase customer bills,” Mr Dillon said.

“Grattan acknowledges that a moratorium will reduce customer choice but then suggests customers could choose bottled gas instead.

“Customers want affordable renewable gas options and industry wants to deliver this. A better approach would be governments providing policy frameworks to incentivise renewable gas.”

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