20 July 2020
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Visiting Fellow, Crawford School,
Australian National University
- Natural gas is chiefly methane, the simplest hydrocarbon. It is a
versatile, clean-burning fuel, with applications in industry, households and
the power sector, although use in the transport sector is small. The widespread
adoption of efficient, flexible combined cycle electricity generation in the
1990s saw gas emerge as the fuel of choice in this sector in many OECD
countries. Used this way, gas-fired electricity has the lowest greenhouse gas
signature of any fossil fuel, around half that of coal. Australia’s ample gas
resources have supported major developments for both local use and a rapidly
expanding gas export industry.
Australian electricity options are short briefings on the principal energy sources
and storage options being debated in Australia, including: coal, natural gas,
wind, nuclear, photovoltaics (PV) and pumped hydro energy storage (PHES).
The global COVID-19 pandemic and its economic
consequences mean that statements and projections about future demand and
pricing of energy options may no longer be reliable. Readers should note that
some figures quoted in these briefings may pre-date the pandemic.
Gas is widely available globally, and used in a multitude of
applications. The clean burning properties of gas are useful in industries such
as glass manufacturing. Gas is also an important feedstock in the chemical
industry. In households, it is often the preferred option for space and water
heating, as well as cooking.
Gas is also widely traded, both by long distance pipeline
and in liquefied form as LNG (Liquefied Natural Gas), generally in dedicated
ships. Pipelines are fixed in location, and tend to be inflexible if demand or
supply change. LNG can be more flexible, as ships carrying it can change
destination, although in practice, contract rigidities have limited the
application of this potential advantage. Russia is the world’s largest natural
gas exporter, mainly via pipelines, while Qatar and Australia are currently the
largest LNG exporters; the US is rapidly expanding exports since they began in
In the past, gas was seen as something of a premium fuel,
and its use in the electricity sector regulated or even prohibited in countries
such as the United States, or generally confined to meeting peak electricity
needs. The introduction of more modern generation technologies, which combined
high performance gas turbines with steam turbines (so-called combined cycle)
gas-fired generation emerge as the new technology of choice, especially in many
OECD countries from the mid-1990s. Its flexibility, short lead times and
relatively low capital cost were key advantages, while its lower carbon
footprint relative to coal and oil fired power is an added benefit wherever
carbon is priced.
The second major and more recent development in natural gas
is the rise of unconventional gas production, in which gas is extracted from
low permeability rock formations, hitherto not accessible by conventional
extraction technologies. Such source rocks include shales, sandstones and coal
beds. Extraction techniques include horizontal drilling, hydraulic fracturing
and dewatering. The rapid growth of such unconventional gas production has been
most marked in North America, transforming the United States from a potentially
large-scale importer into a large and increasingly important gas exporter over
the course of the last decade.
Gas provides around a quarter of national primary energy
needs, with a fast growing role in electricity generation, where the share of
gas-fired electricity generation has doubled in the last decade to around
Gas has predominantly been produced from the Cooper Basin (in
northern South Australia), Bass Strait and more recently from offshore Western
Australia, for use both in Western Australia, and to support a growing export
industry, as LNG.
Figure 1: Remaining gas resources and cumulative production (to 2014; Petajoules)
Source: Figure 1, Geoscience Australia, Gas, Australian Energy
Resources Assessment, 2018.
The years 2008–2010 saw decisions taken to invest more than
$200 billion to dramatically expand Australian LNG exports, based not only on
remote ‘stranded’ gas in offshore northern and western Australia, but also from
coal seam gas (CSG) fields in Queensland. These latter developments have
connected Australia’s east coast gas markets to global gas markets for the
first time. Gas in these markets is generally priced on the basis of an oil
indexation formula, so as these export projects have come online, Australian
gas prices have risen sharply, and have been volatile, as producers have
struggled to cope with a tripling in demand. As gas is generally the highest
cost and marginal fuel for electricity generation, wholesale electricity prices
(already under pressure from other factors) have risen as well.
Australia’s gas production is based on both conventional gas
and unconventional sources, the latter mostly CSG. The regulation of
unconventional gas production remains controversial almost everywhere, and
while there are major differences between shale gas and CSG, some common
features can be discerned. The number of production wells is generally much
larger than in conventional gas, putting a premium on well integrity and
controlling accidental methane emissions throughout the production chain.
Regulation must be performed on an area wide, or basin wide basis. Water issues
are a major concern everywhere, both from potential contamination of
underground water resources in hydraulic fracturing (used widely in North
America), or through treatment and disposal of extracted water, seen in CSG
These concerns have led to widely differing regulatory
approaches often in adjacent areas. For example, in New York State, hydraulic
fracturing is prohibited, while in neighbouring Pennsylvania, it is widely
practised, making that state one of the largest gas producing areas globally.
Similar differences can be seen in Australian states, where Victoria has banned
hydraulic fracturing, and indeed onshore gas exploration,
while Queensland has developed a purpose built, area wide regulatory regime,
with strong emphasis on underground water issues. The International Energy
Agency (IEA) considers
that unconventional gas can be properly regulated, provided certain key
approaches are adopted. The IEA has noted that where gas production is
restricted, higher prices and less secure supplies result.
Australia’s LNG export industry is rapidly emerging as a
major export earner, as massive projects started some years ago come online.
Each of the seven projects is now operating and export revenues have increased
from $18 billion in 2016 to around $50 billion in 2018–19. In 2019, Australia’s
LNG exports reached 77 million tonnes, with some further growth possible. The
massive Gorgon project in Western Australia is one of the largest resource
projects in the world, and also one of the largest carbon capture and storage
projects. Australia overtook
Qatar as the world’s largest LNG exporter for 2019, although the United States
will likely overtake Australia in coming
Pros and cons
Using natural gas to generate electricity has a number of
advantages over other fossil fuels such as coal and oil. Emissions of carbon
dioxide are lower per unit of electricity generation, as are other greenhouse
gases and particulate matter. Gas-fired generators can be designed to respond
quickly to changes in electricity demand and are therefore useful if additional
supply is required at short notice—this ‘dispatchability’ can enable them to
function as peaking power plants and to complement supply from variable
renewable energy generators. Natural gas is also relatively abundant in
Major disadvantages of natural gas relate to it being a
fossil fuel (its combustion produces carbon dioxide), with limited supply over
the long term. Its extraction can create environmental issues, such as the
generation of fugitive emissions from the gas well during extraction and
industrial emissions during processing, and may require intensive use of water.
Other concerns are that emissions from natural gas are still relatively high
compared with renewable electricity generation. Gas and gas transportation is
also expensive compared with other fuels, particularly in Australia’s
R. Quentin Grafton (Editor), Ian G. Cronshaw (Editor),
Michal C. Moore (Editor), Risks,
Rewards and Regulation of Unconventional Gas: A Global Perspective,
Cambridge University Press, 2017.
Department of Industry, Innovation and Science, Resources
and Energy Quarterly
International Energy Agency, Gas 2019
Victoria has maintained a moratorium
on onshore conventional gas exploration since 2017.
The moratorium is due to end on 30 June 2021 (Petroleum
Legislation Amendment Act 2020 (Vic)).
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