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Let’s talk about gas – a great resource of diminishing value

Unpicking these facts is essential to an understanding of today’s increasingly strident debate over the role of gas. There is not, and will not be, a singular role for gas over the coming decades.

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In some applications replacing gas is reasonably straightforward. For most Australians it would be cheaper today to use electricity rather than gas in their homes, and it’s likely that gas will be phased out in that application as we get serious about reducing emissions.

It is much harder for electricity to provide the high-temperature heat required for many industrial processes. The answer is likely to lie in developments in concentrated solar thermal technology or renewable hydrogen. These developments should be a priority arising from the Technology Investment Roadmap being developed by the federal government. This roadmap is the subject of a discussion paper released on Thursday.

Gas will almost certainly be too expensive to replace coal in “base load” power generation. Solar and wind will be lower cost. However, balancing that solar and wind to provide reliable power is likely to need gas and some mixture of storage for some while. In this application, the volume of gas will be relatively small.

Finally, technology development, most probably in hydrogen production and usage, will also be essential if gas is to be replaced as a chemical feedstock.

Whatever the demand for gas, its supply is the other side of the issue. Traditional sources in eastern Australia are rapidly running out or becoming expensive, and non-traditional sources mostly require controversial production technologies.

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Low-cost conventional gas – less than, say, $5 per gigajoule – is highly unlikely and just about any source (coal seam gas or imports via LNG) is more likely to be above $8 per gigajoule, even if spot cargoes can be bought more cheaply in today’s market.

A major gas pipeline from Western Australia has been considered as an alternative. The most recent public analysis by ACIL Allen suggests it would be expensive. There is a bigger hurdle. Such a major piece of infrastructure would need to be heavily used for at least several decades to provide a financial return. In a world moving to near-zero emissions, that prospect seems most unlikely, and so the result could be an expensive stranded asset. Shipping LNG from WA to the east coast is a far more flexible option.

Gas has been and remains a valuable resource. It is also a significant source of export revenue for Australia. We will get the best value from this resource only if we have a clear-headed approach to the relative economics of its various roles and how each will change in the years ahead.

Unfortunately, clear heads on this topic seem to be in short supply.

Tony Wood is the director of the Grattan Institute’s energy program.

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