24 March 2021
Pathways to net zero
Origin Energy Executive General Manager, Integrated Gas, Mark Schubert's speech to the Australian Domestic Gas Outlook 2021 Conference, 24 March, 2021.
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I’d like to begin by acknowledging the traditional owners of this land, the Gadigal People of the Eora nation – and pay my respect to their elders past, present and emerging.
Such acknowledgement of the Traditional Owners is particularly important at a conference where we focus on the resources of this great nation and how best to optimise them, and there is much we can learn from 60,000 years of history.
I’d like to change gears from the gas market discussion of this morning and talk about the exciting opportunities ahead for Australia to become a leader in low carbon and zero emissions gas and renewable fuels.
Australia has a rich history of exporting our commodities all over the world whether it be wool, wheat, aluminium, iron ore and coal, and more recently LNG. We should be immensely proud that over a relatively short period of time, Australia has become the world’s number 1 LNG exporter, much of it due to achieving world first export-scale CSG to LNG production.
In a rapidly decarbonising world, gas will be critical to enable switching from emission intensive sources of energy and support growth in renewable generation. There are still many parts of the world that rely heavily on burning wood, coal, and kerosene for heat, cooking and light, with significant public health and air quality impacts for the people who live there. Continued and increased supply of gas to these countries can make a tangible difference in people’s lives.
But the world is changing fast and in the absence of consistent action by governments, we are seeing businesses, including customers, drive action on climate change. While renewables will ultimately be the primary source of energy all over the world, gas has a crucial supporting role to play as a lower emissions and flexible firming fuel. And when batteries and other large scale storage technology develop to the extent that they can firm renewable generation for longer periods of time than they can today, such as for several days, then they will take on more of that firming role.
Our industry can’t rest on its laurels knowing that gas will play a role in the future energy mix. The gas sector can and must start reducing emissions today.
Our major trading partners are setting ambitious climate targets. What was considered radical only a few years ago, is now accepted as the urgent and minimum level of action we need to take to prevent the worst impacts of climate change.
Japan, along with many European nations, have pledged to be net zero by 2050 and China by 2060. We are seeing our customers, and their customers, demanding low carbon products, driven by their own climate change ambitions.
It is our belief that producers that not only reduce their direct emissions but also find a way to abate their customers’ emissions, will have a competitive advantage.
As little as two years ago, the concept of the world’s major oil and gas companies embracing a low emissions future would have been inconceivable. Yet here we are today – the likes of Shell, BP, Total, Equinor – have all declared net zero ambitions – as has the American Petroleum Institute. Origin has made clear our aim to be net zero emissions by 2050, as have many other local gas producers.
Australia, with our abundance of renewable wind and solar, has the potential to be a global leader in this space. We can decarbonise our own economy AND help to support our customers and trading partners to achieve the same.
Domestic gas producers know this is not just for the benefit of our customers overseas but will be key to ensuring the sustainability of one of Australia’s key export industries for decades to come.
Today, I want to talk about pathways to net zero for Australia’s gas industry, the opportunities to leverage our world class technical expertise and the benefits for both the industry and customers.
At Origin, we have already started on this pathway because we believe that by addressing this today, we can ensure the smoothest transition for our industry and the tens of thousands of jobs that it supports.
How do we get to zero carbon gas?
The impact of climate change is real, and there is a cost to doing nothing. We must also be pragmatic, measured and avoid unintended negative consequences.
We need to take into account the decarbonisation pathways of our customers around how they plan to convert or update their plant and equipment to take lower carbon fuels.
For Origin, it means that we recognise that any development of new supply, such as our permits in the highly prospective Beetaloo Basin or our farm-in to the Canning Basin that we announced in December, will need to build in plans for how we abate the emissions from that gas.
These are exciting basins. Given their remote locations we need to consider that as well as selling gas domestically, we will need to enter long-term supply contracts with international customers, and therefore we need to meet those customers’ demands – which are increasingly focused on abating the emissions associated with gas.
The opportunity to abate the emissions associated with gas
To limit global temperatures from rising above 1.5 degrees, the IPCC recommends three actions:
- Annual CO2 emissions should be 50-55% lower in 2030, compared to 2016 (the year that Paris was signed)
- The world has to keep within a cumulative carbon budget of less than 500 gigatonnes (Gt) by 2050. Given the current rate of annual emissions is 41Gt/year, the global carbon budget would be exhausted by the early 2030s.
- Achieving net zero emissions by 2050 – methane and nitrous oxide would have to be steeply mitigated and all sectors will need to need to decarbonise.
Of the 41Gt of annual global CO2 emissions mentioned earlier, the energy sector is responsible for 33Gt. Gas is responsible for around ~21% of that (~6.9Gt/year), LNG comprising about 1.4Gt of that (or 3.5% of global emissions).
Origin has worked closely with the CSIRO’s GISERA to map what a typical CSG to LNG cargo looked like in terms of emissions – the first step to mapping a path to carbon-neutral or green LNG.
For every LNG cargo shipped from Queensland that ends up being used in gas-fired generation in Asia (CCGT), 307Kt of CO2e is produced. Queensland ships ~340 cargoes per year, resulting in 104 MTPA of CO2e emitted.
These estimates are merely a starting point and we will continue to add more data to our modelling to improve our estimates and ensure that we fully understand our industry’s true emissions footprint.
Technology has a key role to play here. At Origin, we are utilising well-level data collected by CSIRO and incorporating advanced emissions monitoring technologies to improve confidence in our emissions estimates.
Origin’s approach to producing gas and limiting global temperature increases is simple:
- First we need to Reduce – reduce the emissions from our operations using every option in the toolkit,
- Then we take steps to Remove – remove carbon from the atmosphere.
- And then we also Reimagine – we develop new products and services such as zero carbon options and renewable fuels to meet our customers’ needs.
Reducing our emissions is a crucial first step.
Of the typical LNG cargo that produces 340kt of CO2, there’s 40Kt of CO2-e that’s under our operational control associated with the production of gas.
In the past three years, we have been able to reduce our direct emissions by 30% on a 2017 baseline.
We start with methane emissions, as methane has a greater global warming potential than CO2 in the short term.
In day to day gas operations, not all methane emissions can be reduced fully as there are safety considerations, but attention to flare and vent reduction and preventative maintenance will address many of the methane emissions we observe today.
An IEA study in 2019 found that while each basin will be different, a significant portion of methane emissions could be permanently avoided in Australia at no net cost.
At Origin, we use a Marginal Abatement Cost Curve or MACC to prioritise emissions reduction activity. The MACC needs to be tailored to site specific operations, but there are clear opportunities to economically reduce emissions – for us this includes replacement of devices (for example instrument gas systems with instrument air or electric actuation or installing knock out drums for improved gas and water separation efficiency at certain well heads).
In addition to equipment opportunities, there are operational improvements to be undertaken, enabled by advanced analytics. For example, in our Queensland gas fields we are applying data and analytics and artificial intelligence to better predict which wells are most suited to being turned during planned maintenance events at the gas processing facilities. By turning down the wells with the lowest probability of downhole pump issues, this directly reduces the likelihood of requiring intervention and emissions.
Similarly, the tool is used to quickly determine which wells to turn down across the field to ensure we don’t flare during process upsets. By implementing lessons learned from previous field turndowns and using data and AI, we have reduced flaring at our gas processing facilities by 57 per cent. We are now working on integrating this directly into our control system which will enable full integration of AI and control and ensure we start turndown the second we see a downstream process upset. This will further reduce flaring from our facilities.
As a result of all our improvements to date, we now have a methane intensity of less than 0.1% of metered gas sales from our operated areas. While this is already significantly lower than the 0.25% methane intensity target of the Oil and Gas Climate Initiative, a group of 12 global oil and gas companies, comprising the likes of Shell, BP, Chevron, Total and others, we want to go harder.
I’ve just spoken about methane, but we are also looking to reduce other sources of emissions that are under our operational control.
This includes increasing the efficiency of our operations to reduce fuel and electricity consumption, including using renewable energy to power our operations wherever possible. Given Origin’s expertise in electricity markets, we are well placed to help achieve this.
When we can’t physically reduce carbon emissions, we must find ways to remove an equivalent volume of carbon from the atmosphere and do this both for Origin, and on behalf of our customers who use our product. After all, the lion’s share – some 87% – of CO2-e from the typical LNG cargo are Scope 3 emissions, primarily associated with end use, typically gas-fired generation.
While our operational levers become more effective at reducing the direct emissions from gas production, one of the intermediate pathways to remove carbon from the atmosphere is to create carbon credits through offset projects. A simple way to offset emissions from an LNG cargo today is to purchase offsets – for example using Australian carbon credit units, neutralising the 304Kt of CO2 from a LNG cargo would cost about US$3 million at US$10 tonne/CO2.
However, the maths is not on our side. If you remember that worldwide gas accounts for 6.9Gt of CO2e emissions each year, the total cumulative volume of carbon offsets ever generated and credited is just 4Gt, less than 60% of the annual emissions from gas production and use. This is why we start with reduction, but it is also why we can’t rely on offsets alone – they need to both be utilised to offset hard to abate emissions and the number of credible carbon offset projects needs to significantly increase.
It is also clear in Origin that because we want to meet a 1.5-degree pathway, we need to pull EVERY lever that is available to us today, and invest in levers that will be available to us tomorrow.
Carbon capture and storage is a credible future opportunity to remove emissions, and should continue to be explored at commercial scale – this is vital in bringing down the cost per tonne of CO2 captured and stored. Gas operators have an advantage here as we not only understand our basin suitability but are familiar with the drilling and processing technology required. However, due to the complexity of CCS and the need for a tailored solution for each project, more work is required to help it move down the cost curve like other low emissions technologies. Making CCS work on a technical and commercial basis will be critical to the longevity of Australia's gas assets and continued government and industry support will be crucial.
There is also much potential in carbon negative technologies still in early stage development. Origin is supporting a number of university and research initiatives and is always on the lookout for other viable options, however a lot more research and development is required to get these technologies to commercial scale.
We do not yet have all the answers, but must continue to strive forward. Because we know one thing – to meet a 1.5-degree pathway, we will need to have a range of technologies at our disposal.
Reducing and removing will get us part of the way there. But it is not enough. In addition, we need to help our customers by reimagining the energy products we sell them.
Electrification with renewable energy is the biggest step we can take to decarbonise energy. But it is not enough. Not all countries have the same access to renewable energy that we have. Not all industries can be decarbonised with electrification. In addition to clean electrons we need clean molecules. Molecules which can be easily and safely transported and substituted into industrial processes.
Gas is incredibly flexible. We can green our gas production and provide low carbon gas. We can offset or remove the carbon associated with its use to make it a carbon neutral product. But we can also capture the carbon at source and convert our gas resources into hydrogen, resulting in a blue hydrogen product.
We need to keep looking forward and evolving our portfolio of fuels in a low emissions world.
With our abundance of great renewable resources, rich heritage in exporting commodities all over the world, world class technical ability, proximity to Asian markets and established supply chains, Australia is in the box seat to be a global leader in low and zero carbon fuels.
Hydrogen is a way that we can virtually bottle Australia’s sunshine and ship it anywhere in the world.
We see significant export demand in Asia from the 2030s and even sooner from Japan and Korea from the mid-2020s. Origin is looking at export-scale green liquid hydrogen and green ammonia opportunities, using renewable energy and sustainable water resources.
We aim to supply hydrogen locally too to help support Australia’s decarbonisation journey, where renewable fuels could be a significant disrupter of diesel – decarbonising heavy mobility and industry and improving fuel security at the same time.
We are looking to commence FEED on the most advanced of our projects, where phase 1 is a 300MW, 36ktpa green liquid hydrogen facility in Townsville in Queensland, this year. This year, we will also complete a feasibility study for a >500MW green ammonia plant in Tasmania’s Bell Bay that will export more than 420ktpa of green ammonia.
The head of our future fuels team, Felicity Underhill, will be here later this week to detail our plans, but in short, we are really excited about the potential to take our many decades of expertise in electricity, gas development and export, and apply it to a whole new low and zero carbon industry for Australia.
Connecting our customers to the energy and technologies of the future
Origin is positioned for a low-carbon future and is not afraid to be taking a leading role in this space, and this is for a very simple reason – our customers want this too.
When we tested the LNG market on carbon neutral options, we found that it wasn’t governments, but actually companies and investors who are leading the charge in setting increasingly ambitious clean energy targets. Where greening energy supply was once considered an ideological position, companies must now demonstrate to their stakeholders how they understand and mitigate the risks of climate change.
Customers also said that achieving emissions reductions across the entire supply chain – Scope 1, 2 and 3 – was the preferred approach on a road to net zero.
While a carbon neutral gas is easy for our customers to incorporate into their processes, customer demand for low and zero carbon fuels such as hydrogen is not only growing, but it already exists, particularly out of Asia. We have talked about our partnership with Kawasaki Heavy Industries in Japan previously, and have just announced a new collaboration with one of Korea’s largest industrials, Posco, on developing these opportunities.
There is a massive opportunity for gas and energy companies in Australia to lead the energy transition – and Origin is front and centre.
The world is changing at a rapid rate and COVID-19 has, if anything, accelerated the pace of change.
The oil and gas industry supports more than 80,000 direct jobs and many, many more indirectly. To provide a just transition for workers in a world that is being rapidly disrupted we must start looking at a sustainable pathway for these industries now rather than in 10 years’ time when we will be much further along the path.
Demand for low and zero emissions energy is growing fast in response to customer preference – and I can see a time in the not-too-distant future when customers for our other commodities will start to demand that supply chains for our metals, our agricultural products or manufactured goods are lower carbon than they are today.
We have an opportunity today to set our industries up to compete in a world where ability to abate is not a nice to have, but increasingly a competitive advantage. You can be sure Origin is up for the challenge.
Thanks for your time today and good afternoon.