Got Gas: Another snag for the natural gas plan?

The Federal Government’s much panned plan for natural gas to lead Australia’s economic recovery has hit another (admittedly lesser) stumbling block that was dropped in place by one of the plan’s supporters.

APPEA, which represents the country’s oil and gas explorers and producers, while still broadly supportive of the gas-led recovery plan, rubbished efforts to turn Queensland’s Wallumbilla gas supply hub into a copy of America’s Henry Hub.

Its chief executive Andrew McConville said that rather than copying the Americans, Australia needs to develop its own market-driven system.

A sound idea, as what works for the US may not work for us, but it is certainly rooted in self-interest as APPEA believes the hub should minimise the need for government intervention.

Minimising government intervention is market speak for letting market forces decide on natural gas pricing. And when you have an export sector competing with the domestic sector for the same product – as is the case in the eastern states – there’s little chance that the government’s goal of affordable gas will be met.

Not that the Henry Hub-like plan is any better though.

The government’s belief that gas can be made cheaper and help drive industry is puzzling given that the industry itself has voiced its scepticism about how that will actually play out.

Natural gas will certainly play a role for some years to come, but in the face of the growing renewable energy sector, it is hard to see how it can lead the recovery.

Even more telling is the Australian Energy Market Operator noting that gas consumption would fall over the next 20 years and may even disappear entirely from the grid.

Its annual Gas Statement of Opportunities does not contain a single scenario where gas demand increases over that time period.

Rather, renewable energy, energy efficiency and potentially hydrogen are all expected to impact on natural gas use.

Never mind natural gas, what about hydrogen?

Speaking of hydrogen, just how likely is the wonder green fuel able to step up as the renewable fuel of the future?

If Norwegian energy research firm Rystad Energy is to be believed, it’s going to be a hard slog.

Rather than replacing natural gas, hydrogen’s ability to dominate the energy mix of the future will require aggressive government support and for batteries to fail.

Rystad noted that battery technology was the most powerful option to reduce emissions in a system dominated by wind and solar, with the potential to reduce 78 per cent of the world’s emissions to zero.

Carbon capture and storage could potentially reduce 62 per cent of the world’s emissions, but is considered to be the least practical solution while hydrogen could reduce 51 per cent of the world’s emissions but would need to be used in areas where batteries are already well ahead such as electric vehicles and electricity grid support.

In other words, for hydrogen to make it big, batteries will have to fall on their own sword; a scenario that is unlikely.

Rystad believes it is more likely that hydrogen will see limited use in steelmaking, shipping and long haul aviation.

It added that there is little chance that hydrogen fuel cell vehicles (FCEVs) will displace battery electric vehicles though they may still establish market share in some niche markets or in countries that push policies favourable to FCEVs.