Australia must reduce gas demand and ‘relentlessly’ pursue renewables - report

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DEMAND reduction should be the focus of Australian gas policy, while renewable electricity should be pursued “relentlessly”, according to an independent think tank. 

The Grattan Institute report says expected gas shortages over the coming decades should prompt policymakers to “put demand reduction ahead of increased supply”. 

As the country moves towards a “mostly electrified economy”, the report says, demand for gas is expected to decline, although there will continue to be some “small niches” that will still require gas, along with backup electricity generation when renewables cannot meet demand. 

Official figures forecast gas demand of more than 600 PJ by 2045. The institute’s analysis also predicts the gas industry will be responsible for 64 MtCO2e of emissions by 2050, with carbon capture and renewable gas expected to reduce emissions by 25 MtCO2e. “High gas use means heavy reliance on implausible abatement options,” the report says.

Gas demand is already declining across manufacturing and residential use, while electricity demand is now 11% below its 2014 peak. Oil and gas production accounts for over half of Australia’s gas consumption.

Alongside reducing demand, the report called for a major increase in development in green hydrogen – generated through renewable-powered water electrolysis – and biomethane. 

However, renewable gas production is “a long way off track”, the report says. According to official figures, green hydrogen production is currently at 0.1 PJ, far below Australia’s 2030 target of 60 PJ. Biomethane production, meanwhile, is also at 0.1 PJ, compared to the 2030 target of 10 PJ. 

The report highlights cost barriers facing both forms of renewable gas production. Crop-based biomethane production, considered the most feasible feedstock for producing the required amount of gas, costs nearly A$30 per GJ, more than double the current price of natural gas in Australia. Green hydrogen, meanwhile, is constrained by high electricity costs. 

The report urges the government to “relentlessly” pursue the “efficient rollout of renewables and storage to drive down the cost of electricity”. 

A ‘costly’ gas transition?

The institute’s call for a change in priorities came after the Australian government announced plans last month to expand petroleum exploration in Victoria and Tasmania. Resources minister Madeleine King described the move as “vital” to meet the country’s energy needs. 

The government is also under pressure from opposition leader Angus Taylor, who in April said “we must dig and we must drill” in domestic oil and gas reserves. 

The Grattan Institute made seven recommendations to help reduce gas demand and ensure energy needs are met. These include the introduction of phase-out dates for residential gas use and legislation to restrict gas network expenditure to “only what is required to safely operate the network until phase-out”. 

The think tank also called for measures to reduce emissions from Australian LNG producers through taxation. LNG exports from Australia have more than doubled since the mid-2010s, but the report warns the market is shrinking as other countries seek to reduce their reliance on imported energy. Policy intervention is required to “replace the economic contribution” of LNG, it argues. 

The report concludes that without action, the gas transition “will be costly, chaotic and inequitable. Governments must take control to both accelerate and manage the gas transition.”