4. Maintaining supply while the transition happens

Peaking and firming GPG is an important component of the National Energy Market (NEM) to 2050 and beyond. Demand for natural gas by the GPG sector will depend on the availability of low-carbon alternatives such as hydrogen, energy storage and the ability to abate natural gas safely and effectively. 

On the west coast, GPG will continue to be an important source of electricity generation. It will continue to provide firming and peaking support as more renewables enter the system and low-carbon alternatives become economically viable through to 2050 and beyond. Small-scale generation on mine sites could switch to GPG or to renewables firmed by GPG.

Across Australia, the future demand for natural gas for GPG to 2050 and beyond will be highly dependent on the speed and timing of technological development and commercialisation of low-carbon alternatives. These alternatives include hydrogen powered generators, pumped hydro, batteries, biomethane and other biofuels. 

The Australian Government, in partnership with the states and territories, is active in supporting this transition. The $20 billion Rewiring the Nation program will modernise Australia’s electricity grids and deliver new and upgraded transmission infrastructure. The Capacity Investment Scheme will encourage new investment in new renewable capacity nationally. Building on the National Energy Transformation Partnership framework, these measures will deliver the Australian Government’s 82% renewable electricity by 2030 target.

Why will Australian industry and manufacturers still need gas in the future?

Gas demand from Australian industrial users is likely to remain stable to at least 2035. Demand reduction by east coast industrial and mining consumers is expected to be modest. The west coast and the Northern Territory have a high concentration of industries which use high heat, as well as large mining and minerals processing sectors. The modest overall projected declines in gas consumption reflect how industrial and mining uses offer the most challenging prospects for abatement. 

Reducing demand may require: 

• advancement in a range of different technologies 
• changes in industry operations that switch from carbon-based feedstocks to alternative inputs
• electrification of high-heat processes or switching to low-emissions gases.

The need for gas in high-heat manufacture of products such as concrete, glass and steel, will likely persist. Low and some medium heat applications are expected to be electrified as commercial alternatives scale up, and become more cost competitive and operationally reliable. Higher heat applications require technologies that need further research, development, and operational testing. Some users may also need to turn to gas to replace more polluting fossil fuels on the pathway to net zero. 

Gas as a chemical feedstock to manufacturing processes cannot be electrified and will require direct substitution. Altering the feedstock used in a process is not straightforward, as chemical processes are typically fully integrated into the facility. This means investment in new infrastructure and supply chains will be required. Transition is likely to require a change to the whole operation rather than a gradual change to the facility. Such changes involve significant capital outlays and require extensive testing and planning. 

The pathway to decarbonisation is likely to involve increased demand for gas for some users. The steel industry provides a good demonstration of this. Today’s steel production involves passing inputs of iron ore, coking (metallurgical) coal and limestone through a blast furnace and basic oxygen furnace to produce steel. Emissions per tonne of steel are 2.2t CO2. Replacing coal with natural gas in direct reduced iron and electric arc furnaces significantly reduces emissions to 1.4t CO2. As a result, the natural gas demand from steelmaking will increase, but emissions will reduce.

The pathway to decarbonisation is complex for gas use associated with LNG facilities. These facilities consume large volumes of gas; Australia’s emissions from the production and extraction of LNG are estimated to account for 37 million tonnes of CO2 equivalent, amounting to around 8% of Australia’s total emissions. 

The economic viability of electrifying LNG facilities is determined by a number of factors including the remaining facility life, and the emissions intensity of the connected electricity supply. Electrification, while offering significant efficiencies and operating cost reductions, would require significant capital expenditure and security of supply of electricity to the facilities. Electrification is, however, becoming more cost-effective and could offer a significant reduction in gas demand in the future.

Through the Resources Sectoral Plan for Net Zero additional actions will be recommended, including dedicated sectoral decarbonisation targets across Australia’s LNG value chain. The Resources Sectoral Plan for Net Zero offers an opportunity to provide certainty through a long-term plan that helps drive investments in low-emissions technologies and in emissions abatement in the gas sector, including CCS. 

In all cases, businesses will weigh facility-level infrastructure investments and end-of-life value against the cost of reducing their emissions intensity. In that calculation, businesses are more likely to switch if alternatives are reliable and cost effective. Initiatives that de-risk alternatives by quantifying whole-of-life price, performance, reliability, and safety will support industries make informed choices during the transition.

In some cases, supply-side shortages will have a flow-on effect on consumer goods. For instance, the cost of urea (a nitrogen fertiliser manufactured using natural gas) rose sharply with global gas prices in 2021-22. Gas supply shortfalls are likely to lead to further price spikes and higher import reliance for this key input to agricultural production. If sustained, these higher input costs will impact farm profitability and put upward pressure on consumer food prices.

Overall, this means some gas use may continue to 2050 and beyond. Industrial consumers may need to offset their emissions until it becomes commercial to replace natural gas with low-emission gases. 

Why will Australian households still need gas?

Energy efficient electrical appliances already exist and are readily available to replace the main household uses of natural gas: stovetops, hot water heating and space heating. Most households are likely to embrace opportunities to reduce their energy bills and emissions by switching from gas to electric appliances when existing appliances need replacing. This switch may not be technically or commercially practical in all situations. 

In some locations, the low-emissions gas market may provide a gas alternative where electrification is not feasible. This assumes that this gas can be delivered to where users need it at an affordable price.

The rising cost of remaining on the reticulated gas network can provide the economic incentive to transition for those able to control – and afford – the cost of switching. However, renters, those in community and social housing, and low-income households, have limited or no control over whether they electrify, even where they might want to transition. 

State and territory governments are active in providing information, incentives and direct support for households and small businesses. The Australian Government has a range of programs to support both households and businesses improve energy efficiency and transition from gas. The recently announced Household Energy Upgrades Fund, provides $1 billion to help finance household energy upgrades, and a further $300 million to support upgrades for social housing.

Across GPG, industry and households, gas consumption is forecast to continue beyond 2050. It will take time to develop and commercialise new technologies and processes to abate current gas consumption. In the meantime, gas is needed to support the net zero transition including in industries such as critical minerals processing. While many gas-reliant households and small businesses are able to electrify using current technology, vulnerable households and communities will require support to transition, and some households may choose to continue to use gas.