Case for gas as transition fuel falling apart on both economic and environmental costs

The federal government is still backing in gas as a transition fuel between coal and renewables, even though evidence is piling up for this being a dangerous fiction – both for the environment and Australian shareholders.

Today, the federal government secured 300 petajoules (PJ) of gas from APLNG and Senex until the end of 2030 for the East Coast gas market, under the Gas Market Code of Conduct. 

Energy and climate change minister Chris Bowen called opposition to the move “reckless and pointless peacocking” that threatens the energy transition.

“The new commitments will provide more affordable gas to the Australian market in the short to medium term and will provide the energy security that Australia needs as it makes its transition to net zero emissions,” said 

Yet the announcement of more gas – and demonisation of opposition to it – comes on the same day as news that Australia’s flagship gas projects have cost shareholders $US19 billion ($A29 billion).

Furthermore, federal Labor has approved or supported 16 new fossil fuel projects since it was elected in 2022, which have the potential to release 6.9 billion tonnes of carbon pollution over their lifetimes, says the Australian Conservation Foundation (ACF).

Gas projects aren’t making shareholders money

The Australasian Centre for Corporate Responsibility​ (ACCR) today released financial modelling that shows Australia’s LNG projects did not generate value for shareholders.

The report, “Australia’s LNG growth wave – did it wash for shareholders?” analysed returns from Woodside’s Pluto project, Chevron’s Gorgon and Wheatstone projects, the three east coast LNG plants supplied by coal seam gas, Inpex’s Ichthys project and Shell’s Prelude. 

It found these projects collectively eroded $US19 billion of shareholder value by requiring extra investment for running 35 per cent over budget and behind schedule, according to data from Rystad.

Only Gorgon has delivered a positive return to shareholders – the report did not specific how much but says it has achieved an estimated 10 per cent Internal Rate of Return.

Across the LNG industry, cost overruns and delays will see the industry deliver a negative $US1.8 billion return to shareholders, compared to 

None of the projects are delivering returns that meet the cost of capital – even in the boom times, says ACCR lead analyst Alex Hillman.

“Despite these companies touting their robust contracting strategies and cost contingencies, every one of these projects was over budget. Every project was also late,” he says.

“Out of the eight projects, only one achieved an Internal Rate of Return over 10 per cent. None of them met hurdle rates that European and US oil and gas majors currently expect.

The ACCR report estimated an IRR for the eight projects between 3.4 per cent and 10.4 per cent. Current hurdle rates for a range of large European and US oil and gas companies show these rates are between 11 per cent and 30 per cent.

Gas as dirty as coal? 

Gas has long been held up as the cleaner option to gas, but over the last two years studies have started to turn against that idea. 

This year, researchers from five prominent universities in the US working with NASA, found that gas projects that leak more than 4.7 per cent of their methane are “on par with life-cycle coal emissions from methane leaking coal mines”.

“The methane and SO2 co-emitted with CO2 alter the emissions parity between gas and coal. We estimate that a gas system leakage rate as low as 0.2% is on par with coal,” wrote the authors, led by Deborah Gordon, senior principal in the Climate Intelligence Program at Brown University’s RMI. 

“Recent aerial measurement surveys of US oil and gas production basins find wide-ranging natural gas leak rates 0.65% to 66.2%…. These numerous super-emitting gas systems being detected globally underscore the need to accelerate methane emissions detection, accounting, and management practices to certify that gas assets are less emissions intensive than coal.”

Methane is a potent but short-lived greenhouse gas. It is about 80 times more potent as a warming gas as carbon dioxide, but degrades into carbon dioxide within around 10 years.

This year, investigators from environmental organisation Clean Air Task Force found methane “pouring out” of leaks or deliberate vents in gas pipelines and at gas plants in Queensland and New South Wales. 

Infrared thermographer Théophile Humann-Guilleminot found 101 leaks and methane venting at 15 of 38 sites visited in New South Wales (NSW), and at 20 of 42 sites visited in Queensland.

Venting, where gas is deliberately released, was found at four of seven Santos coal seam gas wells surveyed in the Pilliga/Bibblewindi forest in NSW, and at the APA-operated compressor station at the Wallumbilla Gas Hub.

The camera was only able to capture the existence of methane gas, not the amount released.

In October 2022, Australia signed the Global Methane Pledge, agreeing to cut methane emissions by 30 per cent by 2030 from 2020 levels across all sectors. It is yet to set a national target, however.

Data from the International Energy Agency (IEA), which uses satellite data, suggests Australia is underestimating its energy sector methane emissions by as much as 63 per cent. 

Its methane tracker found that 2.23 million tonnes of methane was released during energy production in 2022, compared to the 1.37 million tonnes estimated by the federal climate change department.

Government-approved fossil fuel projects decimate carbon savings

There is a growing momentum for monitoring and curbing Australia’s methane emissions, and for thinking more critically about fossil fuel project approvals. 

The federal government’s support for 16 new fossil fuel projects, and another 10 waiting in the wings for a decision, is being weighed in this light. 

Over the weekend, the ACF showed that all 26 projects would release 17.8 billion tonnes of carbon dioxide if they proceed. 

These projects alone will undermine the government’s attempts to reduce the amount of emissions Australia produces. 

“For every tonne of carbon pollution that will be reduced by the Albanese government’s current climate policies to 2030, over 7 tonnes of pollution could result from new fossil fuel projects that have received approvals or other material support since the Albanese government came to office,” the report Climate impacts of fossil fuel projects under the Albanese government found. 

“The total carbon pollution that would result from [16] new fossil fuel projects that have received approvals or other material support under the Albanese government is nearly 35 times larger than the total cumulative emissions reduction that will be delivered by the Albanese government’s signature climate policy, the Safeguard Mechanism, to 2030.”