LNG attempts to push through uncertainty

THE world’s biggest LNG-related industry groups have admitted at the LNG18 conference in Perth this week they face an uphill battle getting their voice heard as a fossil fuel in the emissions reduction debate while struggling under a self-made glut.

Anthony Barich

While Chevron had made final investment decision on Gorgon in 2009, all of Australia’s other LNG mega-projects currently rolling off the production line or already online were approved over the next two years, so the reasons to host LNG18 in Western Australia, where almost $80 billion alone has been invested, were obvious.

This is to say nothing of Woodside Petroleum’s recently canned $40 billion Browse development and Inpex’s Ichthys and Shell’s Prelude floating LNG projects in the Browse Basin off WA’s coast.

Yet the decision of Woodside and its Browse joint venturers speaks to a wider issue – is a struggling industry worth investing in? – which makes their voice all the more difficult to be heard in the cacophony of white noise surrounding the fossil fuel divestment movement.

Their answer, of course, was yes, but there are a minefield of issues in the way.

A big one, the fossil fuel divestment movement, gained yet another notch on its belt this week when it was revealed fund management firms Australian Ethical and Hunter Hall Investment Management.

The two firms, which each have $1.4 billion and $1.1 billion worth of investments respectively in their portfolios, vowed to totally divest from fossil fuels.

“The rapidly declining cost of renewable energy means we are now confident that collapsing investment in natural gas would not push demand back to coal-fired power," Australian Ethical managing director Phil Vernon said.

He cited a United Nations report that claimed the majority of newly-installed capacity in electricity generation around the world last year was into renewable technologies.

Yet Origin Energy managing director Grant King, who chairs the LNG18 national organising committee, said yesterday that natural gas’ reliability proved it to be “the ultimate firming fuel”, citing its saving role for Japan’s energy mix post-Fukushima, a tragic event which was in nobody’s forecasts.

Tasmania’s current energy malaise is another example, where “nobody has written about” natural gas’ saving role.

“That pipeline is flat out supplying gas to the Tamar power station which was closed three months ago because they didn’t think they’d need any gas,” King said.

“So I think people are being a little bit naïve and ideological about some of these [fossil fuel divestment] issues, because what we know in this industry more than anything else is people want a reliable supply of energy, and they value that reliability and they will pay for that reliability, as it’s been evidenced time and time again.

“Natural gas will play that role globally, and LNG in particular, because of the flexibility of its supply chain.”

Meteoric rise

Australia’s rise since world energy leaders decided to host LNG18 in Perth five years ago is nothing short of meteoric.

Western Australia Premier Colin Barnett told LNG18 delegates yesterday morning that at the start of the decade Australia's LNG production stood at 20 million tonnes per annum, with the two producers being the Woodside-operated North West Shelf venture (16.3MMtpa) and ConocoPhillips’ Darwin LNG (3.7MMtpa).

By the end of this decade, total production is expected to be closer to 85MMtpa.

Sitting alongside King were four other leaders of the world’s biggest gas-related industry bodies, many of whom were forthright in the struggles they have endured, particularly at the UN Conference of Parties (COP21) forum in Paris late last year, in getting their voice heard as the world debated how best to keep emissions rises to 2C over historical norms.

When a freelance writer who attended COP21 noted that gas and especially LNG were scarcely mentioned officially, particularly in the Nationally Determined Contribution target statements of the world’s biggest energy users China and the US, International Institute of Refrigeration general director Didier Coulomb conceded that was the case.

The Frenchman said that while the IIR has relationships with all the major relevant UN agencies and was working hard on them, “gas is not mentioned a lot”, largely because “people generally don’t understand what it is” in the context of its role in reducing emissions.

“They all speak more generally about the future and commoditisation of energy,” he said.

“However, all the predictions show that gas will maintain its market share in the future compared with energy sources which will decrease – like coal and oil – in order to meet the goals of COP21 from each country.

“Gas will increase its market share because it’s more flexible and because there are other ways to transport gas like pipelines and LNG.

“In any case, people can try to develop renewables, but we cannot replace all fossil fuels with renewables for the next few decades.”

This view was confirmed by BP’s latest Energy Outlook issued in February which forecast a surge in gas consumption and renewables that will see carbon emissions growth more than halve out to 2035 relative to the past 20 years.

While BP confirmed many analysts’ expectations that gas would overtake coal in the world fuel mix by 2035, the surge in renewables had taken BP by surprise.

Yet industry can push out as many reports as they like, it doesn’t seem to be making much of a dent in global discussions on reducing emissions where it counts – in forums like the UN and the G20.

Another Frenchman who fronted media at LNG18 yesterday, LNG18 steering committee chair Jerome Ferrier, said he was “personally very concerned” about the lack of recognition of gas or LNG at COP21 in Paris “because I am French”.

“It was very difficult to raise a voice because we are considered a fossil fuel,” he conceded.

He insisted though, that when discussing one one one with the non-government and government organisations, such as those within the G20, “they took into account that natural gas is better than both the other fossil fuels”.

“It was very clear, but it was not the location at COP21 to acknowledge that, because the aim was to reduce emissions and we emit CO2 emissions,” Ferrier said.

King took the same line, saying that basically governments quietly know the importance of gas’ role, they just won’t say it.

“When you consider the commitments to reduce carbon emissions from those countries, the amazing story is substituting coal for gas in the US, and the extent to which that will continue,” King said.

“The US’ COP21 commitments are almost entirely premised on gas – it just doesn’t sound like it.

“As the gas price fell the rate of substitution increased dramatically. We know that China, the world’s biggest emitter, will double the percentage of gas used in its economy, which is an extraordinary rise in the amount of natural gas used considering they’re already one of the largest users globally.

“The fact that the world’s two largest economies are going to massively increase their use of natural gas is not a headline story, it’s just a fact, and some facts are boring, but it’s actually very important to understand.”

“Gas was actually talked about a lot [at COP21] because it’s actually the key to reducing carbon emissions. Some of those [COP21 commitments] were premised on gas but they just took it for granted.

“I also believe Europe will substitute once the price falls.”

New report

Grant's argument received a shot in the arm this week when the Grattan Institute launched its report, Climate phoenix: a sustainable Australian climate policy.

Australian Pipelines & Gas Association CEO Cheryl Cartwright said the report's emission intensity scheme proposed for the electricity generation sector was "worthy of further consideration".

“As the report points out, we can achieve lower carbon emissions in Australia in a relatively short time by switching to natural gas for power generation,” she said.

“As a cleaner burning fuel, natural gas fired electricity generation has less than half the emissions generated by coal-fired electricity.

“Additionally, the relatively quick start-up times for generators make natural gas a sensible choice for meeting peak demand as well as supplying consistent baseload power. Natural gas combined with renewable energy is the way of the future.

“It is also of benefit to use natural gas directly in households. Not only does have lower emissions than electricity from the grid, it is also less expensive."

It’s also cheaper. Cartwright cited recent Australian Bureau of Statistics figures which showed that in 2013-14 Australian households used 205 petajoules of natural gas and liquefied petroleum gas (LPG) at a cost of $6.2 billion, and 216PJ of electricity at a cost of $16.1 billion.

This ismore than twice as much as they paid for each petajoule of natural gas.

Positive signs

Yet there are also signs that the gas industry is starting to break into the emission conversation at policy level.

One emerging player in this regard at which the LNG is looking with keen interest is India, which King said was a “pretty price-conscious market”

International gas Union president David Carroll said his group was working closely with major global organisations to insert the voice of gas into policy, including the World Bank, the G20 and the International Energy Agency, among others.

He noted that the International Energy Forum and the IGU would sponsor a joint ministerial in New Delhi on natural gas and its role in assisting the developing world “energise its economies” on December 6, with a special focus on India.

“That’s reflective of the fact that with this ministerial forum in India, with China’s leadership at the G20 where there will be a ‘gas day’ in conjunction with the ministers’ meeting in late June, that natural gas is inserting itself into the equation,” he said.

“It’s an uphill battle, but it’s an everyday battle.”

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