With polluting emissions from LNG 13% higher than gas, and Australia’s primary export destinations targeting net zero emissions and therefore less dirty LNG, Australia’s gas-led recovery is looking increasingly like the Australian government is ‘flogging a dead horse’.
Australia’s core export markets for LNG, coal and iron ore – Japan, South Korea and China – gave firm net zero emission commitments last month to 2050, and 2060 for China.
Net zero emissions means that demand for Australian LNG is now on the downward slope, with primary energy demand predicted to fall by 17% by 2030 according to the International Energy Agency.
Australia’s export markets have changed course, and will now get their energy from renewables, nuclear, hydro and batteries, and through demand reduction via efficiency gains, electrification and behavioural changes.
Indeed, the clear established global trend is less polluting LNG, gas and coal, and more renewable power in electricity systems coupled with grid scale batteries.
With shrinking demand, Australia already have enough gas to supply the domestic consumer and our increasingly climate conscious, shrinking export markets.
Exporting Australia’s gas requires an energy intensive liquefication process to turn the gas into the transportable LNG. Gas is predominantly methane, and methane is the greatest threat to the warming climate. Taking in all the emissions and burning as fuel, LNG produces more greenhouse gas emissions than coal.
Australia’s key export markets have signalled firmly their intent to reach net zero emissions. To do this, they will increasingly turn to less polluting piped gas where they can, not Australia’s high emitting LNG.
Because most of the gas Australia produces is exported, the gas industry’s claim that gas emits 50% less greenhouse gas than coal is misleading.
The 50% figure only covers only domestic consumption. Once the effects of liquefaction, shipping, regasification and distribution are considered, LNG is obviously very polluting, something our export markets will be very conscious of.
The gas industry in Australia, and the Australian government, are flogging a dead horse by introducing a gas-led recovery while our key export markets are intent both on reducing emissions, and on reducing imports of Australian LNG.
The gas industry has had years to prepare for the global energy transition currently underway, and export market shrinkage as countries commit to the Paris Agreement should have been factored into their forecasting.
Instead, it appears to have come as a surprise. The gas industry has been laying off workers, cancelling or delaying major expansion projects, and cutting exploration and development budgets as it struggles to cope with very low global gas prices and the global supply glut of gas that will continue until late this decade due to the overbuilding of LNG plants.
Australian gas companies have lost between 50% and 70% of their value since 2011. In just the first six months of this year, Australia’s gas industry suffered $25 billion in write-offs.
Just this week, Shell added to this, writing off $1.9 billion on its Prelude disaster. And Origin is suffering more pain, with a 76% drop in drill activity compared to last year, and a 39% slump in revenues posted for the September quarter.
The Australian government’s plan for a gas-led recovery is crazy. If low oil prices persist, we’ll see even more write downs.
That means that any government subsidies provided to this loss-making industry will be banked to pay shareholders and prop up debt, rather than investing in new gas.
From every angle, the gas-fired recovery is a gas-fired disaster for Australia.
Bruce Robertson is an LNG/gas analyst with the Institute for Energy Economics and Financial Analysis