What global trends mean for Australian gas
NGW: What are the broad trends that have shaped the last year for the Australian natural gas industry, and what do you expect to see moving forward?
Graeme Bethune: Over the last year the Australian industry has mostly been shaped by global trends: COVID (lockdowns and recovery), decarbonisation and Ukraine. Through this the industry achieved record production of 143bn m3 and record LNG exports of 80.6mn metric tons. COVID produced enormous international price volatility, with the price slump in 2020 replaced by the price surge in 2021. In March 2021 Santos announced go-ahead for its Barossa project to backfill Darwin LNG and in November Woodside announced FID for its Scarborough-Pluto LNG project. COVID also spurred the Australian government to encourage gas supply through its gas-led recovery and National Gas Infrastructure Plan. Global efforts to decarbonise were reflected in commitments by international companies operating in Australia such as Shell but also in commitments from Australian companies, Woodside and Santos. The war in Ukraine has increased the focus on energy security as well as boosting international prices, which are now being reflected in east coast domestic gas prices.
NGW: Europe is striving like never before to diversify its gas supply. What will this mean for Australia and the broader North East Asia & Australasia region?
GB: It means more competition in LNG markets. Suddenly Europe is a very attractive market for US and Qatar LNG, freeing up LNG that might otherwise have gone to Asia. There is also likely to be less Russian LNG going to Japan and Korea. This provides opportunities for Australia and other Asia-Pacific suppliers like Malaysia and PNG.
NGW: EnQuest has said before that Australia’s LNG output likely neared its peak in 2021. Natural field decline and a lack of new projects were factors in this prognosis, but so was increased competition. With the market now much tighter, does this prediction hold?
GB: This prediction is mostly based on near-term natural field decline, particularly in the North West Shelf, and Darwin LNG. There is some action now on the NWS, with a link completed to Pluto and WA government approval for some onshore gas to go to the NWS for LNG. The NWS is also actively seeking other third-party gas supplies. The Darwin LNG project will effectively be offline for 2023 and 2024, with production from the Barossa field commencing in 2025. On the other hand the Prelude LNG project is now back in full operation after being offline in late 2021 and early 2022.
NGW: What are the main landmarks for the Australian natural gas industry over the past year in terms of decarbonisation?
GB: Increasingly the industry focus has moved to specific decarbonisation efforts. Gorgon CCS is ramping up with 2.1mn metric ton of CO2 buried in the last year, with a total to date of 6mn mt. Santos announced FID on the Moomba CCS project (1.7mn mt of CO2) in November 2021 and FEED-entry on the proposed Bayu-Undan CCS hub (up to 10mn mt/yr of CO2 capacity) in March 2022. Santos believes Moomba CCS is the lowest cost (US$24/mt of CO2 lifecycle cost) CCS project in the world. Bayu-Undan would be the largest, if developed to its 10mn mt/yr of CO2 capacity. Woodside is also actively working on CCS offshore Western Australia, as is ExxonMobil in the Gippsland Basin. Woodside has also acquired nearly all carbon emission offset credits it needs for its 2030 emission reduction target. Moving downstream, Australian Gas Infrastructure Group has begun a pilot project in South Australia blending 5% green hydrogen with natural gas for 700 homes. There are also other similar projects.
NGW: The current global market conditions are certainly an incentive, but what more can policymakers in Australia do to spur investment in the gas value chain?
GB: For natural gas, the current federal government has been supporting development of gas infrastructure. The Queensland, South Australian and Western Australian governments are also supportive, but NSW and Victoria are not. The differing and competing priorities of different Australian governments (federal and state) have made it difficult to develop a long-term national energy policy. However, the federal government announced a target of net zero by 2050 in October 2021, following most of the states.
NGW: High prices have meant a resurgence in coal use in Asia, and indeed elsewhere. To what extent are decarbonisation goals at risk as a result, and what is the solution?
GB: Fundamentally high prices and energy security seem to trump decarbonisation goals however countries also say they want to decarbonise. I don’t think there is a solution. Energy is increasingly characterised by cognitive dissonance. The EU is seeking more fossil fuel from the Middle East but wants the fossil fuel producers to switch to renewables. Rather than heading for some steady-state low-emission equilibrium in global energy, I suspect we are likely to see increasing contradictory swings in priorities. This makes it very difficult for gas producers and lethal for long-term investment.
This Q&A first appeared in the World Gas Conference 2022 daily newspaper, produced by NGW.