GOT GAS: Could climate concerns threaten new Australian gas projects?
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Are new Australian gas projects really under threat as claimed by the Investor Group on Climate Change? Will it be business as usual or perhaps something in between?
The investor group, which represents institutional investors managing more than $33 trillion in global assets, questioned the viability of eight fossil fuel developments if the world attempts to limit global heating by 2050 to 1.5 degrees Celsius.
In its modelling, which was carried out by Wood Mackenzie, the IGCC found that all assessed projects would record lower cash flow as Australia’s net LNG exports declined slightly to 2030 before falling sharply to less than 20% of current levels by 2050.
It also found that domestic gas consumption would rise slightly if renewable energy uptake increased progressively and would decline substantially under the accelerated uptake of renewables. This is dependent on how quickly long-duration energy storage for renewables is adopted.
Are Australian gas project’s doomed?
So just how likely is this scenario?
A large part of this will be due to market forces. If Asian buyers shift away from natural gas towards more sustainable sources of energy, then there’s a good chance that this scenario will play out in some way or another.
There’s already some evidence that this shift might happen sooner rather than later with Japan’s Osaka Gas – a major buyer of LNG – saying earlier this week that it will provide technical support for a US$10.75bn Desert Bloom green hydrogen project in the Northern Territory.
While this is not a direct investment in the project, the move is still a clear sign that the Japanese utility is already starting to consider its options and that green hydrogen is somewhere very prominent on its list.
Governmental support will also play a limited role in whether gas projects proceed, especially if the Coalition is returned to power and it continues to promote its gas-led recovery.
However, any support from the government would pale in comparison to pressure from market forces.
It could also work the other way. Labor has already committed to boosting the use of renewables and green hydrogen, and while this doesn’t mean that gas projects would not be approved, they might find their favoured status diluted.
Others might argue that regardless of climate concerns, Australia having the ability to export gas would support allied nations – particularly those in Europe that are reliant on Russia for a significant chunk of their gas supplies.
This is an unfortunate fallacy as it ignores the long distances required to ship the LNG, the limited export capacity that Australian LNG producers have outside of their existing long-term contracts with their Asian buyers while new supplies that could potentially be contracted to European buyers are several years away.
It also discounts the growth of renewables and green hydrogen in the longer term.
A more likely story
So are all the gas projects going to be cancelled?
Hardly. Although some of the projects will undoubtedly fall by the wayside, especially those with approvals further out on the calendar.
Woodside’s Scarborough and Santos’ Narrabri gas projects are already well ahead of the pack and likely to proceed, especially since they will make up for declines in both LNG exports and domestic gas supplies.
The others face a more uncertain future that is contingent on how quickly domestic gas demand and supply declines and the development of viable carbon capture, storage and utilisation – which would make blue hydrogen produced from gas a more attractive proposition.