Australia bucks the global trend, goes with natural gas over renewables

Australia’s government appears to be pivoting away from backing coal for future energy needs, but hasn’t quite made it all the way to renewables, instead waylaying into natural gas.

An advisory board set up by Prime Minister Scott Morrison to map out strategies for economic recovery from the novel coronavirus pandemic has confirmed it supports various subsidies to boost the natural gas sector.

Nev Power, the board’s chairman and a former mining executive, told a Senate committee on Aug. 11 that the group was recommending government support for new pipeline and guaranteeing offtake agreements in order to support the expansion of the natural gas sector.

In doing so, Australia becomes just one of a handful of countries proposing to stimulate fossil fuels over renewable energies.

Research by consultancy Eurasia Group identified some $503.2 billion in green stimulus among major economies in response to the coronavirus, but only $199.5 billion in what it termed brown stimulus, which are projects that add to greenhouse gas emissions, such as coal.

Australia was one of the few countries where brown stimulus exceeded green measures, others including Brazil, India and the United States.

China had the largest value of brown stimulus at $85 billion, but it also had $155 billion of green projects planned, according to the Eurasia data.

It may be just coincidence, but a characteristic shared by most of countries pursuing brown stimulus is that their current leadership is right-leaning and somewhat populist in nature, with some also denying climate change.

One of the flagship projects touted by supporters or natural gas is the Narribri venture in New South Wales state, planned by Santos, Australia’s second-largest oil and gas company.

The project, which could meet up to half of demand in New South Wales, the country’s most populous state and home to the biggest city Sydney, is controversial on several levels.

It has attracted opposition from environmentalists opposed to tapping coal seams for natural gas, as well as questions about its economics.

A report prepared by consultants Core Energy, commissioned by the government-mandated energy market authority, said natural gas from Narribri would drive up prices on Australia’s populated east coast as the cost of production is more than double that of the cost of existing fields.

Santos has rejected the report, and has claimed that Narribri gas will be cheaper for New South Wales customers than alternatives from other states, or imports of liquefied natural gas (LNG).

There is a dearth of precise details as to how the government would support the natural gas sector, with advisory board chairman Power speaking only in general terms in his appearance before the Senate committee.

However, Power, who stood aside for his role as deputy chairman of small gas company Strike Energy when he took on the advisory board role, did acknowledge that his group hadn’t really looked at renewable energy projects in detail.

“There were a number of other areas that were looked at, around the advantages of using gas as a firming fuel to assist the introduction of renewables,” Power said.

RENEWABLE FUTURE?

The Australian Energy Market Operator (AEMO) recently produced a report outlining how the country could transition to a renewable future by 2040, bringing A$11 billion ($7.9 billion) in net benefits.

AEMO, which is hardly a hotbed of green activism, advocated investing in renewable generation to replace ageing coal-fired plants, while also building out dispatchable resources as back-up, including utility-scale pumped hydro, battery storage and fast-responding gas-fired power.

What Australia faces is a series of seemingly contradictory needs.

While the government no longer openly talks about supporting the coal industry and developing new coal-fired plants, it appears to be going all-in on natural gas.

At the same time, the government’s energy market operator is envisioning a mainly renewables future.

The natural gas industry believes it’s complementary to renewables, but most likely would welcome taxpayer funding to boost its competitiveness and profitability.

And environmentalists have made it clear that after coal, natural gas is next on their hit list.

Ultimately, policymakers should probably focus on some irrefutable truths.

While Australia is also rich in natural gas, it’s not cheap to produce compared to global competitors where it is needed on the country’s east coast. And where it is relatively cheap to extract on the country’s isolated northwest coast, it makes far more sense to liquefy it and sell it to Asian consumers.