In May 2021, Australia’s federal government announced that it would fund a new natural gas power plant. For this purpose, it set aside AUD $600 million. The government wants to build the plant in the Hunter region of New South Wales (NSW).
On the same day as the announcement, the International Energy Agency released a new report. In the past, critics have said that the agency supports fossil fuels too much. However, this report stated that there should be no fossil fuel projects in the world. That includes oil, natural gas and coal. According to the agency, this is our only chance to reach net-zero emissions by 2050 and help prevent the worst effects of climate change.
Therefore, the Australian government’s focus on natural gas in 2021 is a major cause for concern. The most damaging aspect? The potential for methane emissions.
The problem with natural gas production in 2021: Methane
Cutting methane is key to slowing the Earth’s warming
A 2021 UN report highlighted a vital step to slow down the atmosphere’s heating. Humans must cut methane emissions, it says. In fact, the report calls for us to halve these emissions by 2030. In fact, this means that we could avoid 0.3°C of global warming by 2045.
However, unfortunately, we are not on track. “Methane emissions are increasing faster now than at any time in nearly 40 years of the observational record”. These are the words of Professor Drew Shindell, the report’s lead author.
Natural gas creates methane emissions in 2021
This increase in methane emissions directly links to a rise in natural gas use. That is because methane primarily makes up natural gas. Also, unfortunately, natural gas projects are still prone to leaks in 2021. For example, methane might leak when miners extract natural gas from the ground. Furthermore, these leaks can happen at gas power plants. They could even come from the natural gas cooker in your kitchen.
Methane is a powerful greenhouse gas with a short life span
Methane traps roughly eighty times more heat than carbon dioxide over a period of 20 years. Therefore, in the short term, it causes a lot of damage to the climate. However, methane only lasts about ten years in the atmosphere while carbon dioxide lasts a century. That is why it is so important to stop natural gas production in 2021. It would allow this methane to disappear from our atmosphere.
We must make a big cut to methane in the next decade, says Professor Shindell. Then, “we’ll see public-health benefits within the decade and climate benefits within two decades.”
What is the Australian government’s 2021 natural gas plan?
New South Wales: Natural gas power stations
Australia’s federal government announced plans to build a natural gas power station in 2021. The 660-megawatt station will be located at an old aluminium smelter site at Kurri Kurri. That is in the Hunter Region. The station is part of the government’s economic recovery policy from COVID-19. Therefore, the government calls this a “gas-fired recovery”.
In NSW alone, it plans to give the natural gas industry AUD $723 million. Therefore, with this money, fossil fuel companies will create electricity from natural gas.
2021 natural gas development projects
The Australian government will also support companies to find and produce more natural gas in 2021. One example of this is the Beetaloo basin. This is a gas reserve in the Northern Territory. For this purpose, the government has promised AUD $173 million.
In addition, the 2021 federal budget set aside further funding for natural gas projects. This amounted to almost AUD $59 million. As a result, the natural gas industry will construct more infrastructure. This will include gas storage facilities and pipelines.
New natural gas projects will not bring down gas prices
According to the government, this gas-led recovery plan will provide affordable gas to Australian users. They also claim low natural gas prices drive down electricity prices.
Gas prices in 2021
However, these new natural gas projects cannot provide cheap gas in 2021. Their production and transport costs are too high. In fact, a new natural gas power plant would raise electricity prices. That is the opinion of some energy analysts and economists.
What is the natural gas price in 2021?
Since 2015, gas exports have linked Australia’s gas prices and liquefied natural gas (LNG) export prices. Specifically, LNG netback prices are a major influence on natural prices. This is especially true in the east coast gas market.
Liquefied natural gas netback prices
In June 2021, the LNG netback price was at AUD $9.69 per gigajoule. Furthermore, natural gas suppliers often add additional charges to this price. Therefore, natural gas customers may also have to pay supply and transportation fees in 2021. This is in addition to further retailer charges.
Natural gas 2021: What is the price forecast?
Going forward, Australian natural gas prices will stay above the pre-2015 level. At this time, we considered natural gas a cheap fuel. Now, it is highly unlikely that natural gas prices will ever fall to AUD $4 per gigajoule again. For example, in 2021, it costs natural gas producers nearly double that to extract and supply the gas that remains in eastern states. Therefore, the price is about AUD $7-8 per gigajoule for this gas.
High prices reduce natural gas use
These high natural gas prices have led Australians to reduce their use of the fuel. This is the case for both households and industries. Overall, Australia’s natural gas consumption has fallen 21 per cent since 2014.
Will natural gas consumption increase in Australia?
In early 2021, natural gas-fired electricity in the National Electricity Market fell to a 16-year low. This trend will continue, according to the Australian Energy Market Operator. It predicts that we may have almost zero electricity from natural gas within 20 years. Therefore, natural gas consumption will decline in Australia.
Renewable energy consumption rises on the back of declining costs
On the other hand, renewable energy now powers 28 per cent of the National Electricity Market. Over the last decade, renewable energy and storage technology costs have fallen sharply. Consequently, wind and solar are now the cheapest forms of electricity available. So, why are we still investing in natural gas production?
Experts stress the danger of natural gas focus in 2021
Several energy and economy experts have highlighted the above trends. For this reason, they criticise the idea of a natural gas-led recovery in 2021.
Among them are people appointed by the government, such as Dr Kerry Schott. She is the Chair of Australia’s Energy Security Board. Instead of natural gas, Schott suggests that Australia invests in renewable energy in 2021. Renewable energy can provide dispatchable power just as well as gas. Also, it is cheaper and cleaner than natural gas.
Kurri Kurri power plant is a bad investment
A new natural gas power plant in NSW is unnecessary, Greg Bourne states. He is a former President of BP Australasia. Currently, he is a Climate Council spokesperson. Instead, Bourne highlights two projects that will supply cheap, clean electricity to NSW.
Firstly, there is the NSW government’s proposed Renewable Energy Zones. Secondly, there is electricity company AGL’s planned renewable energy and battery projects.
Gas demand is declining
The International Energy Agency does not see a great future role for natural gas. Rather, its Net Zero by 2050 report forecasts that gas use will decline dramatically. Namely, global natural gas demand will fall by five per cent annually in the 2030s.
Bruce Robertson suggests this as another reason for the government not to fund new gas-fired power plants. He is an energy analyst at the Institute for Energy Economics and Financial Analysis. Besides, he points out that the Kurri Kurri power plant will only run two per cent of the time anyway. This is simply not economical, according to Robertson.
2021 natural gas investment will lead to stranded assets in the power sector
Both Bourne and Robertson believe that the Kurri Kurri power plant will end up a stranded asset. In other words, it will be a project that is a waste of money because it will not be used much. Moreover, they argue that any investment in natural gas in 2021 would have the same result. Therefore, they both call for the government to invest in clean energy industries instead.
Ending gas production in Australia
Such a shift in economic focus could help Australia avoid much damage. Most importantly, this would end natural gas projects in 2021. This fits with the recommendations of the International Energy Agency. Consequently, Australia could reduce its methane emissions. This would give the country much greater hope in its fight against climate change, as noted by the UN.