APPEA 2021 conference: speech by Dr Alan Finkel

Main content area
Tags: 

Speech

9 September 2021

Dr Alan Finkel gave the lead industry address at the Australian Petroleum Production and Exploration Association (APPEA) 2021 conference and exhibition in Perth in June 2021.

Watch the video on APPEA’s vimeo

Transcript

Ticky, thank you so much. And yes, it was two years ago that I was speaking to the conference. I wish I could be there with you. It must be thrilling to be in a room with 1,700 people, especially in such interesting times. Premier, I agree with you. I've recently been saying in writing several times that I think we're at the start of possibly technologically the most interesting decade that I can remember in my life actually perhaps since the space race decade of the 1960s.

So since the conference two years ago, what's changed? Well, here's little cartoon parody of Edvard Munch's "The Scream." So we've had COVID, but I'm not here to talk to you about COVID and running away with rolls of toilet paper and sanitizer. But really everything is changing in the international energy and emissions space. You just have to look at the headlines every single day.

One car manufacturer after another is committing to electric technology. Volkswagen, one company, is committing 86 billion US dollars over five years. If you do the conversions, that's more than $22 billion per year invested in electric vehicles and autonomous technology.

As we heard from Ticky Fullerton a moment ago and the Premier, Shell has been in court and they're being forced to step up their energy transition and hasten effectively their rate of reduction of shipping oil. It's a major, major impact. And interestingly, on the day of the court ruling, their share price went up. Because it's not just the kids on the streets. It's the institutional investors, as was said, who want to see this change and are concerned about companies that don't get on the front foot and start to live in this new world.

The IEA, the organization that does the analysis of the energy industry across oil, coal, and gas did a major report just last month called Net Zero by 2050 where they analyzed how we could get to net zero. And basically, their central pathway showed oil in constant decline from now through to 2050. Not getting to zero, but constant decline. Gas, interestingly, increasing this decade before it starts a decline. As the point has been, made we need gas as a transition fuel, or really we needed to firm up the solar and wind that is providing the energy of the future.

But an interesting point that the IEA made was that a lot of gas will still be used in 2050 to produce hydrogen. They said half of that remaining gas will be used to produce hydrogen, but only if it's using CCS or CCUS. And the rest of the gas will be used for chemical feedstock. The role of CCS, I should point out, is being promoted by IEA, the United Nations, the Biden administration. We won't get to net zero without CCS and the companies that can do it and do it really well, the oil and gas companies of Australia and around the world.

Another thing that's changing rapidly is just the rate of adoption of solar and wind. That graph there in Australia has an interesting message to it. You're seeing that hydroelectricity is really not changing at all. And biofuels sort of peaked in around the mid 2000s and substantially is small and not changing at all. All the growth are in two technologies. All of the growth in energy generation in Australia. And you see this reflected around the world. Two technologies, solar and wind.

Now, Australia is part of the international journey. And it's been going for a long time. We've had the renewable energy target that made a big difference to our ability to bring solar and wind into the market. The National Energy Productivity Plan, the Emissions Reduction Fund is taking or paying farmers and others to take carbon dioxide out of the air. That's the offsets that was being talked about. Critical minerals are part of everything that we do going forward.

The National Electricity Market Review that I chaired back in 2017 recommended a lot of changes that have been adopted that stabilize the electricity grid to make it work reliably as the levels of variable renewable electricity that solar and wind increase. And also from the Electricity Review, we've got the integrated system plan. This is, of course, is for the east coast for the national electricity market. And the integrated system plan is critical for getting the energy from where it's being generated to where it is needed.

We've had the national hydrogen strategy that was adopted at the end of 2019 unanimously by all the states and territories and the Commonwealth government. And I will talk more about that. Last year we put out or the government put out a low emissions technology investment roadmap. I had the honor of chairing the panel that advised the government. And that's important. I'm going to talk to you today about both of those. But cumulatively, this pathway that we're on, the highway to the future, is our journey to a low emissions future.

So we all know the problem. The problem is simple. We live on a beautiful planet. And that's the view that the astronauts coming back from the moon first saw. But because of global warming, the planet is undergoing climate change. I'm not suggesting that it will turn red like that. It's metaphoric for a PowerPoint presentation. But as an astronaut would say, Houston, we have a problem.

And we all know the cause. The cause is global warming because of global greenhouse gas emissions. What's interesting is when you look at the makeup of the global greenhouse gas emissions how dominant the contribution from energy is. 73% globally in 2016. I can't find this kind of summary that's more recent, but it wouldn't have changed much. And the remaining quarter is mostly agricultural waste and industrial processes. Energy is the sweet spot to direct our attention.

Now, there are a lot of people out there that would say, well, just use less. It's not so easy. Our civilization is entirely dependent on energy. Look at other things that are important. Medicine. If you took away modern medicine, we'd be going back maybe a couple of hundred years to the Renaissance. There was no worthwhile medicine earlier than about 200 years ago. If you took away modern education, we'd be going about 1,000 years back to the Middle Ages. The first university was formed in 1088 in Italy. But if you took away a controlled energy supply, it is literally back to the Stone Age.

Now, the way we use energy, of course, has been evolving and most rapidly in the last 250 years. But what we've seen is that right from the start of civilization when humans invented or managed fire or controlled fire, every time we've had a new energy source, it's just added to the mix and nothing that we've used previously has been taken away. So fire continues to serve many communities around the world. And then, of course, we had not the discovery of but the learning of how to use coal in large volumes for trains and industrial processes and the Industrial Revolution.

Then around the turn of the previous century in Philadelphia, they discovered abundant cheap oil. That didn't stop the world's use of coal. That didn't stop the world's use of fire. It just meant that we had a more efficient way of doing transport and building heating. And then in the 1950s, we started to develop natural gas for lighting and for building, heating, to replace oil for building heat primarily but not oil for all those other transport and related uses. So we've just been adding to the mix. And that's because every single one of those energy sources added immediate value to the consumers. But now we're being driven by an externality. We have to deal with climate change and carbon dioxide emissions.

So we have to replace the mix starting with fire. We need to get our heat from electricity. We're not going to be using coal for anything in the long term. We'll be using electricity for the trains and even for other heavy transport. We'll be using electricity for our light vehicles and trucks. And we'll be using electricity for all the other purposes, lighting and heating and industrial processes. So this is going to be a unique time in human history. We will actually bring a new energy source on and getting rid of the old.

I wrote an essay, half a book really, called The Quarterly Essay where I tackled what I saw as the best way that we can achieve this. And it's fundamentally aligned to the government's vision that what we need to do is support the development of zero emissions new technology to replace the old rather than just stop the use of the old. We've got to make the old obsolete.

And I dedicated the book to Buckminster Fuller. He's the famous architect who developed the geodesic dome. And he captured it so eloquently. He said, you never change things by fighting the existing reality. So the existing reality is high emission sources, in our case. He said to change something, build a new model that makes the existing model obsolete. People will walk away from that old model when you give them something more interesting, more valuable for their purposes.

One of the themes in my book is that we don't have to compromise. We can have a strong and growing economy at the same time as we're reducing emissions. I call that having your cake and eating it too. But somebody recently had a much more pithy phrase. Cake, have, eat. Now, if you're in my generation, you would think that that's probably Yoda who said that. But it wasn't. It was Boris Johnson at the recent Biden Leaders Summit. A really good turn of phrase from the Prime Minister of the UK.

So where do we start? We're going to be going through a major upheaval. So I said globally energy is responsible for about 73% of all the emissions. In Australia, electricity generation and the use of fossil fuels for stationary energy, that's buildings and heating and for transport, is 72% of our emissions, quite similar to the global. So energy is where we can start.

And the way to wean ourselves off coal, oil, and gas is by initially zeroing out the emissions of the existing electricity supply, the electricity supply that does all the things you expect it to do, whether it's running computers or machinery or air conditioning. We can zero out that 34% by using solar, wind, and the existing hydro. And then we have to double it and triple it. We do it one doubling so that we can replace the energy, the fossil fuels using stationary energy supply, and we do it again for transport.

Once we've done that, we get to what I like to refer to as the electric planet. The electric planet is where we're getting all of our primary energy from renewable supplies or at least zero emissions electricity supplies. It's not going to be easy. We're going to need a whole of economy approach to do this.

And the first attempt from the Commonwealth government to look at that whole economy approach is captured in the low emissions technology statement that was put out last September. And I emphasize that it was the first and the intention is to update this statement every year. And we're currently working on the second low emissions technology statement. It's a principles based approach to reducing emissions.

The government is acknowledging that all of us have to reduce emissions, but we've got to simultaneously ensure our economic and our societal prosperity. And the solution that is being promoted in this statement is that technology can deliver everything that we need. Now, technology can't exist in a vacuum. It needs policy. It needs funding. It needs community support. But technology ultimately is what is replacing the new technologies, what is replacing the old high emissions technology with zero emissions newcomers.

In that first low emissions technology, we identified five priority technologies for the government's attention. Clean hydrogen, storage. We didn't actually focus on solar and wind. We focused on the storage that makes it easier to bring solar and wind into the market, zero emissions steel and zero emissions aluminum, carbon capture and storage, and a biosequestration approach through soil organic carbon emission. So the philosophy here is the first three there, they don't cover of the economy, but those three are significant. And by working on those, we can reduce the emissions but will never anywhere in the world get emissions to zero. We have to have some kind of sequestration capability to get net emissions to zero.

For each of these priorities, we have a financial stretch goal. I'll just show you the one. It's well known. H2 under 2. Can we get the production price of clean hydrogen down to $2 Australian. And that's really a first step. But the mantra will continue, because eventually we're going to have to have H2 under 2 applying to the delivered price of hydrogen to the customer.

As I said, we're working on the next statement. We do use the word roadmap and people refer to that, but the roadmap is really the series of milestone markers that define the roadway and the milestone markers are the individual annual low emissions technology statements. And each statement is intended not to throw out and overturn the previous but to build on the previous statements.

In this upcoming one, we're going to elaborate on the role of government and how government investment can assist those priority technologies to achieve their stretch goals. And we'll emphasize the role of enabling technologies, such as infrastructure for transport and electricity market design, to ensure that the priority technologies can be viably introduced. And one thing that is clear from all of our discussions is the crucially important role of low cost, abundant, clean electricity. We need it for everything. We need it for low cost hydrogen, for the zero emissions steel, and we need it for zero emissions aluminium.

So just to reiterate, I've been saying abundant clean electricity is the key to everything we do. But there are times when despite their versatility, electrons are not always convenient. Sometimes you need high density fuel molecules for chemical industries. Well, you're industry, you know that. The APPEA and other industry groups, Energy Networks Australia in particular, have been for three or four years now putting out a gas vision 2050 document. It was updated in September 2020. I think the first version came out in 2017. Where you are thinking about your future, and there is nothing more important than having that long term view. Not just the simple target, but a strategic pathway to how you will get to a successful, vibrant, alternative, richer future in 2050.

Enter stage left, hydrogen. It's already been mentioned by Ticky Fullerton, by the Premier. Critically important. Hydrogen could serve many, many roles. Electricity will nearly always be the first source of energy, but hydrogen will really balance out its shortcomings and do some things that electricity can't. So hydrogen will be used a lot in the built environment for hot water and heating and cooking. It will also be used in industrial purposes. The main ones around the world are for making ammonia and for oil refining but eventually will be used in huge quantities for steel making. And hydrogen will be used for transport mostly in the heavy duty, long haul transport sectors.

But for Australia, another critically important role of hydrogen will be export. I mean, how else do you take an abundant renewable energy resource, solar and wind, and export it halfway around the world or further in all sorts of directions? Yes, for close customers such as Singapore, undersea cables of the electricity directly are feasible. But for a broad international market, we need to be using the shipping system. So either we ship hydrogen or a derivative of hydrogen.

Where does it come from? You know, but I'll just quickly recap. Hydrogen can come from renewables, so sunshine, solar panels, and water. Put it through an electrolysis unit known as an electrolyzer. You get lots of hydrogen, lots of oxygen. The oxygen you can use, but in general, you just let it go into the atmosphere. No one can say that's a bad thing. But the hydrogen, that's the product you want and you bottle the hydrogen or you put it into a pipe or you send it into a ship. That's the product that you are manufacturing through renewable process.

Alternatively, you can get hydrogen starting with a fossil fuel such as methane, putting the methane through a steam methane reformer. In that case, you get hydrogen, but you also get carbon dioxide. And the world won't buy the hydrogen unless you permanently sequester the carbon dioxide, either by using it to make products or in larger volumes more likely burying it in a carbon capture and sequestration site. And as I said, the IEA says that that's going to be massively required. And it's not easy. And the sorts of companies that should be best positioned to do it well, I think, would be oil and gas companies.

Now, those are the five priorities from the low emissions technology statement. And it's interesting that hydrogen is relevant to four of them. Obviously hydrogen is part of the hydrogen, but also hydrogen will serve us well for long duration days or weeks of electricity storage for very inclement weather circumstances. Hydrogen for making zero-emission steel will be critically important. Making steel is 7% of global emissions. And if hydrogen is made by fossil fuel processes, then we need carbon capture and storage and hydrogen sort of linked together.

So how big is it likely that hydrogen's role will be? Well, let's just look at export and take a worked example. I want you to imagine a future world where Australia is producing hydrogen equivalent in energy terms to our 2019 liquefied natural gas exports. In that year, we exported 79 million tons of LNG and we were neck and neck with Qatar as the largest exporter. Because hydrogen has higher specific energy, that means you get more energy per kilogram, you only need 33 million tons of hydrogen to get the energy equivalent of that LNG. And to make it, you would need 2,250 terawatts hours.

Now, is that a lot or a little? It's a huge amount. It's eight times the annual production of all of Australia's electricity. That's the [INAUDIBLE] Western Australia, the National Electricity Market, all the mine sites all combined. That's eight times our total annual electricity production. So it's huge. If it was all done from solar, it would need about 1,000 gigawatts, or as I like to say in order to tell people register how big it is, you'd need about a million megawatts, a million megawatts of solar generation and a million megawatts of electrolyzers. A massive requirement, but it's doable.

Do we have enough land? Absolutely. We need about 20,000 square kilometers. A lot or a little? It's just under, say, 80% of our largest cattle station, the Anna Creek Station. So if we cover about one big cattle station, we could make enough renewable hydrogen to be equivalent to our LNG exports.

So can we do it? Do we have the know how? Of course we do. We've done it again and again and again, most recently with lithium. But the one that's going to be most familiar to the people here today is what we did with LNG. The first drop of LNG shipped about 10 years after the offtake agreement. The offtake agreement was 1979, and the first drops shipped from the Woodside Northwest shelf in 1989. And over the years, Australia's LNG exports have just gone up and up and up to the point that we're vying with Qatar to be the largest in the world.

There's another advantage we've got besides solar and wind and sunshine and project know how and investment capital, and that other advantage is represented by this circle called the Valeriepieris circle. That circle, more is centered in Singapore, covers 50% of the global population. There it is being held up by Western Australia on the map. 50% of the global population is in our near market. Tremendous advantage for us. And it's happening. The future is here.

Some examples. Two cars. The one on the right, she's mine. It's a Tesla Model S. The one on the left is a brand new Toyota Mirai hydrogen powered car. Absolutely beautiful car. And I had the pleasure of driving it at the Toyota proving grounds in Altona a few weeks ago. And I think that it just proves that a hydrogen electric car should be able to compete.

In heavier transport, passenger trains, Alstom, the French company, has been shipping for a couple of years now a hydrogen powered train. You can see the hydrogen tanks on the rooftops. Got about a 1,000 kilometer range, and it's now being put into public service taking passengers in the Netherlands, Germany, Austria, and Italy. And for reasons I don't understand, Alstom's a French company, but it's not yet running in France.

The International Maritime Organization is committed to halving emissions of the maritime fleet by 2050 off a 2008 baseline. It's going to be extremely difficult for them to do it. And all the focus at the moment is on using ammonia made from clean hydrogen in modified diesel engines. Those engines are huge. You can see the little man standing up on the top there at the top left. But the really good thing about them is they're very, very slow in terms of revs per minute, and that suits the fact that ammonia has a slow flame front. So the engine manufacturers are quite excited about using ammonia as an alternative to messy, dirty bunker fuel.

We've got home grown industries. The world's first commercial hydrogen storage battery is being produced by a company named LAVO in Newcastle. They just announced that a couple of months ago. They've already got thousands of preorders. It can power an average Australian home for two days, but it has 40 kilowatt hours of electrical energy stored as metal hydride in those four yellow tanks. It's got the same energy storage as three Tesla power walls.

In Perth and in Adelaide, there's a move to start blending hydrogen into the energy networks. I don't know if Steve Green's in the audience, but ATCO is doing that and AGIG in Adelaide and Jemena in New South Wales. So blending 5% up to 10% into the gas distribution network is already underway.

Another Western Australian company, Long Pipes, produces single pipes segments. They can be 500, 600 meters long. You can see one trailing out the back of that special trailer. That is suitable for hydrogen as well as other fluids that need to get pumped long distances. So many technologies that we can build on.

All the state and territory governments are supportive. You heard the Premier Mark McGowan talking about the commitment from the Western Australian government and $15 billion from them into renewable hydrogen round. I'm going to talk to you about some of the Commonwealth government support. In the budget that was announced in October of last year to support the low emissions technology inaugural statement, there was $1.6 billion for ARENA to cover 10 year funding and another $300 billion for other clean energy projects. And this year in the budget the government expanded the remit of ARENA to look at not just solar and wind but all the clean or green technologies that we need.

In the most recent budget in May, there was an additional $275 million for hydrogen hubs on top of one that was funded in the previous budget. There was just over $260 million for some carbon capture utilization and storage projects, real ones not research. And there was $566 million allocated to strategic international partnerships that I'm leading as the government's special advisor on low emissions technologies.

The CCS fund that I just mentioned went through its first round, a $50 million round, and about I think six companies got a share of that money. I'm not going to go through them all. I'll just mention the top one is something that you would expect to see. Our customers, Japan in particular and others, looking for the LNG operations, so the extraction, production, handling to become zero emissions. So they can have what they are now calling cleaner LNG or natural gas use.

And at the much more futuristic end, the last one is a direct air capture project. And the idea there is just taking carbon dioxide out of the air and burying it in the ground and claiming payment through either voluntary or in some countries perhaps compulsory carbon market mechanisms. That's exotic. It's expensive at the moment, but it has huge potential.

In terms of those bilateral partnerships that I mentioned that we've got funding for, they're starting to happen. So just five days ago there was an announcement. And the three I'm about to show you, we've been negotiating them all year. But we were targeting the G7 meeting. So Singapore, we had a $30 million agreement with Singapore to accelerate the use of actually ammonia in maritime operations and hydrogen in port operations.

We have $125 million project for technology demonstration in Australia using German technologies that we signed just yesterday or announced just yesterday. And we have a much stronger commitment with Japan to develop low and zero emissions technologies. And the details of that are being fleshed out, but it's now an absolute hard commitment.

The pace of change is stunning. You're all feeling it. I feel it. About four years ago, the discussions or the sound of hydrogen, it was a murmur, the sound of a bubbling brook. I think about two years ago, there was a buzz in the air all about hydrogen. Now it is a roar. The sound of hydrogen today everywhere. Every country that has got any interest in decarbonizing is talking not just about solar and wind but hydrogen. So it's time to get a move on. Get on board. Get on board that hydrogen train. May the force be with you all. Thank you.

[APPLAUSE]

Well, Alan, thank you. Stay there. Thank you so much for that fascinating address and your vision for hydrogen. In particular, I've got one quick question for you. I mean, there you are driving this message that gas and this sector is so important for the transition. I wonder what you think the right arguments for the industry is to drive that message through and whether you think the International Energy Agency's alternative view is achievable given the scale up that they'd require.

I think Ticky, the message is confused out there. So we've all been using the phrase gas as a transition fuel. And it's been widely misinterpreted to mean gas as a replacement for coal, which is effectively what we've seen in Germany. Sorry, in the United States. Where because natural gas in the United States is so inexpensive, it's actually been making the continued operation of coal fired generators and even nuclear generators uneconomic. And you've seen a substantial reduction in emissions from the electricity sector in America through replacement of coal by natural gas. But of course, then you get a lock in effect where that natural gas is there for a long time.

Not speaking about Western Australia, because I'm not sufficiently across how the planning is going there. But certainly in the big use of coal in Queensland, New South Wales, Victoria for electricity generation, the replacement is going to be solar and wind, and it's already happening. 25% of the electricity generated there is already solar and wind. But in order for that solar and wind to operate effectively, stably, and not allow prices to be driven up, we need to support that solar and wind. And the term, of course, is firming. And yes, batteries have an enormous role on that, but they're not there yet. Even though so many have been announced, they're not there yet. They're coming. Pumped hydro, the economics are a bit awkward.

So natural gas is critically important for supporting solar and wind to do the replacement. And that's the transition for the electricity sector that we're going to see on the east coast. And people don't understand that. So the narrative that comes from industry has to be cautious about phraseology. And I am trying now to talk about natural gas firming up solar and wind coming into the system rather than natural gas replacing the electricity generation.

You asked whether the IEA's vision is realistic. They're very cautious in the modeling that they've done, and they've got alternative pathways. But they're also realistic. The energy system of the planet is just gigantic. There is no simple solution. We cannot transition from a fossil based energy system, fossil fuel based energy system to a solar and wind and hydro based system and in some countries nuclear in anything less than a few decades. But we have to be working on it now harder and harder and harder.

And the main message from the IEA is that the investment in renewable alternatives, big as it has, has to triple or quadruple on an annual basis in order to have any chance of getting to net zero by 2050. And we have to be open minded to carbon capture and storage rather than allow people's misassociation of that with coal fired electricity generation to leave a negativity towards using a technology that will serve the planet very, very well.

Dr. Alan Finkel, it's terrific to get your insights. Thank you very much, and we wish you all the best in your new role as emissions reduction czar for the government. Thank you.

Thank you, Ticky.

Read more

Connect with us

Follow the Special Adviser’s office on Twitter

Contact us

Email osalet@industry.gov.au