28 May 2019

The role of gas in transforming energy

Origin CEO Frank Calabria's speech to the 2019 APPEA conference

** CHECK AGAINST DELIVERY**

I'd like to acknowledge and pay respect to the Traditional Owners and ongoing custodians of this land. We pay our respects to their Elders past, present and emerging. 

Earlier this month, the news that Great Britain had gone a week without coal-fired power for the first time since the Industrial Revolution made global headlines.

It was seen as a watershed moment in the UK’s plan to completely phase out coal by 2025 and highly symbolic for a national identity built on the Industrial Revolution as the birth of modern Britain.

But the real story that week was gas. That week, gas supplied 46% of the UK’s generation output – over 2018, gas accounted for nearly 40% (39.4%) of generation.

Renewables will grow to 40 per cent of the global energy mix under the IEA’s new policies scenario by 2030, and gas will overtake coal to become the second-largest fuel in the global energy mix. 

Similarly in the US, where shale has transformed the market, gas will go from 35% of generation today to 39% in 2050, displacing coal, which will go from nearly a third of generation (28%) today to 17% and nuclear, which will go from nearly one-fifth of generation to just 12%.

Energy is undergoing the most significant transition in 150 years. Energy is increasingly decentralised and low emissions – in Australia, renewables already comprise 21% of the energy mix and we will meet our LRET target of 33,000 GWh comfortably in 2020.

The challenge for governments and economies all over the world will be meeting increased demand for energy at the same time as reducing emissions. The global population is set to increase by 1.7 billion by 2040, which will see demand for energy rise by about a quarter. This will be driven by developing economies in Asia, which are commendably tackling emissions far earlier in their development than today’s established economies.

Gas will be the key to managing the transition – building reliability, security and flexibility and managing cost and emissions.

 For Australia, which became the world’s largest exporter of LNG this year, the opportunity to facilitate the global shift to lower emissions as well as maintain a competitive price for domestic users is clear. This depends on policy continuing to support the development of gas resources.

Finding future sources of gas

With unconventional gas set to become increasingly important in meeting global energy demand, it is also time for the gas industry to step up and ensure that gas is seen as nation building for the Australian economy as coal and iron ore have been.

Australian customers have the right to question why they are paying much more for gas than they have historically.

The truth is that LNG projects would not have got off the ground if not underpinned by long-term purchase agreements with international customers. Australia’s southern basins have served domestic customers like manufacturers for more than 50 years, however, our traditional sources of domestic supply are in decline. We need the development of new supply including new pipeline capacity and potentially import terminals.

AEMO Gas Statement of Opportunities says that the decline in production from the southern states will result in tightness from 2022 and there will be a domestic shortfall from 2024 unless new sources of gas are developed and brought to market.

Developing new reserves is challenging in the present environment – as the ACCC notes, there is little offshore exploration activity expected in Victoria and little onshore activity in Victoria and NSW due to the moratoria and restrictions in those states. It is good to see junior players come in to develop smaller projects in places like the offshore Gippsland Basin, however, on a whole, exploration activity has been declining, due to a number of factors including moratoria, restrictions and increasing regulation and cost.

After a two-year hiatus, we will soon recommence exploration in the Beetaloo Basin.

In 2016, we booked 6.6 TCF of contingent resource based on 10% of our total permit areas of 18,500km2 – roughly the size of Wales.

The wells we’ve drilled to date have targeted dry gas plays, but this year, we are looking at two liquids-rich plays in the Kyalla and Velkerri formations.

The Velkerri shale play has similar characteristics to North America’s Marcellus shales in area and quality. 

If we can flow these liquids, the likelihood and economics of a future development improves significantly.

We firmly believe the Beetaloo has potential to be a game-changer for the NT:

  • Financial benefits to Traditional Owners, pastoralists and local communities.
  • Construction of infrastructure and pipelines – direct and indirect benefits for those working on and supplying materials and services to projects like ours.
  • Royalties to government – benefitting all Territorians.
  • Jobs and opportunities for local and regional businesses.

Rising above the noise

Our industry is a leader in innovation partly because gas exploration, development and production is about problem solving – finding the resources, engineering a way to get them safely out of the ground, reducing the environmental impact and making sure it’s done competitively in a global marketplace.

The key for us as an industry is that while we know the crucial role that gas will play in the future energy space, it is still not clear to the person on the street that gas is good, that it remains on the right side of history.

I think if we went through and said that our greatest strength was our scientific excellence and fact-based decision making and an ability to solve complex problems, communicating the importance of gas in our energy future has been our weakness.

We need to be able to counter the simplistic and negative claims of our opponents with simple, clear messaging in response and the election result should give us comfort that there is merit in continuing to progress the argument, even if, at times, it feels like we are not heard.

Gas is an abstract concept to most households and businesses. You can’t see it and it’s difficult to capture the public’s imagination with gas like Australia’s other great commodities, such as iron ore.

APPEA has been making great strides forward in this case with initiatives such as Brighter – which talk to the benefits of gas to consumers without resorting to jargon.

Increasing exports of gas will cause our own domestic emissions to rise – that has never been in dispute.

What I say to those who hold this up as a reason not to develop Australia’s vast reserves of gas is to acknowledge that gas is the key to lowering emissions globally and that Australia has a comparative advantage that we should be realising.

Australian gas will help the economies of our trading partners reduce their emissions where they use gas to replace coal.

Even though it’s relied on by households and businesses in one form or another, whether it’s through direct use or through gas-fired generation, they don’t recognise the gas industry’s contribution to the economy and our national prosperity like they would more tangible commodities coal or agriculture.  

We are also in a world of much more vocal anti-gas activism. We no longer have a single, clearly identifiable community to engage – our local communities around our operations, are often at opposite sides of the fence to activist groups in the east coast cities. As an industry, we were initially slow to mobilise support around our onshore activities and growth agenda, which enabled grassroots campaigns with a simple, not always factually correct message, to get momentum.

But, one of the lessons from the recent federal election is that the silent majority matter.

What the election result tells us is that Australians are pragmatic, will listen to reason and they will cast their vote based on their own views and needs.

They want energy prices to be lower. They want to keep industries like manufacturing in Australia. And while they are not yet all advocates, we are seeing less hostility outside our immediate areas of operation to practices like fracking in Queensland, where we have been safely and responsibly operating for the past two decades. The feeling I get is that people just want a circuit breaker to higher energy prices.

Energy underpins our economy and is essential for every household and business. In a new Parliament, I sincerely hope Australia can move forward with policies that get investment flowing again, delivering lower energy prices for all customers.

Given how key energy is to an economy’s international competitiveness – look at how US shale has given manufacturing there a shot in the arm – it’s pretty clear that we need to continue to prosecute the case for policies that stimulate supply.

Gas will increasingly be developed onshore from unconventional reservoirs – as an industry, we need to get better at explaining this, demystifying it and making people more aware and comfortable with gas production and reclaim the agenda from opponents who seek to immediately associate unconventional gas with environmental damage.

If we continue to innovate, find ways of getting the gas safely and more efficiently out of the ground and support domestic industry remaining competitive in Australia, we will create advocates.

The continuing debate over energy policy is a good thing, it gets people thinking about and debating the importance of energy and what our options are. This is an opportunity for the gas industry to step up and demonstrate that we’re a fuel for the present and the future.

ENDS