December 4, 2013

Some commentators continue to grab the wrong end of the pineapple when assessing the impact of liquefied natural gas exports on greenhouse gas emissions.

Singling out LNG production with scant regard for Australia’s wider industrial processing and power generation sectors provides a remarkably narrow view of a big picture and one which ignores the role cleaner forms of energy, such as natural gas, play in helping reduce greenhouse emissions.

Australia has a national emissions reduction target that the new Coalition Government has committed to meeting.

Neither this government nor the previous government has dictated where those reductions should come from. In fact they can come from anywhere across the economy.

While still under development, the Direct Action Plan is targeting large scale low cost abatement across the Australian economy to meet Australia’s emissions reduction commitments.  Far from a commitment to not reduce emission, Australia’s commitment to reduce emissions by 5% on 2000 levels by 2020 stands up well to commitments made by other countries.  The following chart, published in The Australian on 24 June 2013 shows the average carbon prices in a range of countries.  Clearly, Australia is not a laggard in this area.

average carbon prices

LNG is hardly the greenhouse bad boy.  To focus on emissions in Australia is to ignore the larger picture.  The need to reduce emissions is a global issue and LNG exports have a major role to play in the region, in both providing much needed energy to growing economies and doing so in a relatively cleaner way.

A 2011 Worley Parsons study compared the lifecycle greenhouse gas emissions of Australian LNG projects from Queensland using natural gas from coal seams as the fuel source compared with Australian east coast black coal exports.

It found that for every tonne of CO2-e emitted in LNG production, up to 4.3 tonnes of emissions from the coal alternative can be avoided globally.

The Americans are seeing the results of natural gas fired power generation – recording the lowest greenhouse gas reduction levels in 20 years.

Mr Kohler is also not correct to say the US has a “ban” on gas exports.  Far from it.  In fact, the US Department of Energy is required by law to approve exports to countries where the US has a free trade agreement (FTA).  For non-FTA countries, there is an approval process that has seen four projects approved in recent years and many more under consideration right now.

It is the operation of market in the US, that saw prices rise to $13 and then fall as price incentives brought on new supply and spurred technological breakthroughs, not export restrictions, which has brought on gas supply and price falls, not restrictions on exports.

Meanwhile the Chinese city of Shanghai, with a population of more than 20 million people, is moving to natural gas as part of a long-term city plan to reduce emissions.

The Australian oil and gas industry is today building almost $200 billion worth of projects – and it has the potential to build another $100 billion worth. But without substantial policy reform, further investment in this sector may not proceed.

Recently natural gas was identified by Deloitte as a “super growth industry” that could lift Australia’s next wave of economic prosperity over the next 20 years. It is one of five sectors, including farming and tourism that could add $25 billion to the economy by 2033.

Gas prices have been unsustainably low in eastern Australia for the past 15 years. That they are now rising is due to a combination of factors – increases in the cost of supplying gas and the need to support export and domestic demand. As demand for any good increases and the cost of producing that good rises, so too does the price.

Finally, the claim by Kohler “Add to that the fugitive emissions from the gas liquefaction plants and Australia’s LNG export industry is likely to be a big net cost to Australia, not a benefit, especially in the early years while the capital cost of building the plants is written off in depreciation against taxable profits” is well off the mark.

The industry paid $8.8b in tax last year and this is expected to rise to more than $13b by 2020.

In relation to fugitive emissions, the industry measures and accounts for all its emissions, including any fugitive emissions associated with its activities.  Fugitive emissions are managed carefully and are a small fraction of Australia’s overall emissions.  They do not change the overall story that greater use of natural gas in Australia and in the region is an overwhelmingly good news story for the Australian economy and for global greenhouse responses.

The best response to rising gas prices and to make a real and lasting contribution to meeting our global climate change challenges is not more regulation or a halt to a major export industry, it’s more gas.

This blog post was first published in The Australian on Thursday December 5.