Future Gas Strategy: consultation paper

Submission Future Gas Strategy

Alan Pears AM 9 November 2023

Contents
Submission Future Gas Strategy ............................................................................................................. 1
My background ................................................................................................................................... 1
Key points ............................................................................................................................................ 1
The realities of Climate Science .......................................................................................................... 4
Distortions in efficiency of gas use and temperatures of heat required for industrial processes ...... 5
Industry ........................................................................................................................................... 5
Western Australian gas consumption ............................................................................................... 14
Concluding comments ...................................................................................................................... 14

My background
I have worked in energy efficiency for over 40 years across all sectors. My work of relevance to gas includes:

• Working for the Gas and Fuel Corporation of Victoria from 1980 to 1983, including managing
the Energy Information Centre and spending some time at the industrial Energy
Management Centre
• Management, policy and program development roles in Victoria’s government energy
department from 1983 to 1991
• Involvement in development and implementation of a number of relevant programs,
including the National Greenhouse Challenge, Energy Efficiency Best Practice, Energy
Efficiency Opportunities and some state industrial programs, residential and commercial
building energy regulation and rating schemes
• Co-author of book chapters and resources on energy efficiency and use across all sectors
• A leading role since 2017 in the Australian Alliance for Energy Productivity’s work on heat
pumps (including co-author of the A2EP/EEC paper for the Commonwealth government on
heat pumps), value chains (eg food and buildings) and digitalisation
• Tertiary teaching in environment and engineering at RMIT and University of Melbourne. I am
a Senior Industry Fellow at RMIT and a Fellow at the University of Melbourne.

Key points
I do not understand how a government agency can write a paper on the future of gas without seriously analysing how and why people now use gas, and how many disruptive forces might impact on attitudes to and usage of gas. Demand for energy is a ‘derived need’, which depends on the nature of demand and the technologies used to deliver services. Indeed, consumers don’t want energy (or technology) for its own sake – they want services they perceive to be valuable or necessary, whether it be to deliver the materials, products or services they sell or to support their lifestyles. In most cases, energy is a small proportion of input costs, even though it dominates
Australian climate impacts, so much existing societal behaviour is ‘economically rational’, while the
approaches of energy policy makers reflect ‘bounded rationality’. Publishing this paper before the demand-side studies are carried out inappropriately distorts the framing of policy-making.

Key points relevant to the issues raised and questions posed in the consultation paper are:

• The need for strong carbon emission reduction is more urgent and far greater than
recognised by most policymakers. IPCC and other studies show this: global heating is driven
by the concentration of GHGs in the atmosphere. Further, impacts of fugitive methane
emissions from gas production, supply and use (as well as coal and agriculture) have high
short-term impacts that are understated by conventional carbon accounting. The paper
should explore a range of contingency measures that can be implemented if climate policy is
accelerated. It should also consider the probability that reporting and action on Scope 3
emissions will be an increasing focus for governments as well as business. And it should
consider outcomes for Australia if Carbon Capture and Storage falls short of gas industry
expectations. See later sections of this submission for more detail.
• Gas use in Australia across all sectors is far less efficient than generally recognised, partly
because of inadequate energy monitoring and analysis. Five decades of cheap gas has led to
widespread inefficiency. The limited end use data available (eg ITS study for ARENA) assumes
80% efficiency of gas use and focuses on the temperatures at which heat is presently
supplied, not the temperatures actually required for processes: this leads to over-estimation
of future high temperature heat requirements. At the same time, gas has lost its image as a
clean, cheap, reliable energy source. These factors mean that the Australian government and
businesses may face serious economic and political challenges as gas demand falls short of
expectations. See later sections of this submission for more detail.
• The framing of questions for discussion is useful. However, a major gap seems to be the lack
of questions focused on emerging business and service provider competitors to gas. This
could help to clarify the competitive context the gas industry will face as disruptive
innovation and powerful forces such as climate change transform our economy and society.
Future gas sources such as hydrogen and biomethane will have to compete in markets
beyond fossil gas to deliver energy services. More focus is required to understand the size
and nature of markets for heat and the future potential of competitors. High efficiency
electric industrial, commercial and residential technologies are developing rapidly, so they
can deliver higher temperature heat at lower cost and more efficiently. This further reduces
likely future demand for heat across a wider range of temperatures.
• Even at present fossil gas prices, gas cannot compete in many industrial processes and
almost all residential and commercial activities, which are the main drivers of southern
state emerging winter supply shortages. The consultation paper states that some homes will
save by electrifying: almost all studies show that most households and commercial
businesses will be financially better off over time. See gbca.org.au regarding the commercial
sector.
• Effective energy efficiency, management and storage policies would reduce the need for
gas-fired electricity generation for firming and to supply winter peak demand.
• The market power of dispatchable electricity generators, including hydro, gas and,
increasingly energy storage, drives high spot prices and, indirectly, overall electricity prices.
Governments will have to address this through changes in market design if Australians are to
benefit from lower electricity prices. Some owners of gas-fired generation capacity,
especially gentailers, are able to adopt a ‘portfolio approach’ that maximises profits from
high spot market prices at the expense of consumers.
• Claims of pressure from customer countries such as Japan for long-term reliable LNG
supply from Australia seem to be inconsistent with effective global climate response or
likely future demand. The paper should analyse the extent to which Japanese (and other
LNG customers) LNG demand forecasts are consistent with them achieving or outperforming
emission reductions consistent with international obligations (which are likely to demand
more rapid emission reductions over time). It is in the interests of LNG customer economies
to encourage LNG producers to over-invest in supply capacity, and to discourage the
Australian government from effectively taxing LNG, to drive down prices they pay.
• In its recent Outlooks for gas markets and investment: a report for the G7, the International
Energy Agency notes ‘….the NZE Scenario implies even more challenging economics for
projects currently under construction. As LNG exporters jostle for diminishing market share,
the utilisation rates of individual plants become uncertain; there is a case that only the
lowest cost producers are left standing, but security of supply concerns may encourage
governments to support higher-cost projects.’ Is it a responsible approach for Australia to
encourage future gas production that will drive devastating climate impacts and create
serious economic risks for our economy and the gas industry itself?
• Carbon Capture and Storage that increases fossil fuel production should be excluded from
consideration as an emission reduction measure, as it facilitates additional emissions of
greenhouse gases from production and use of additional fossil fuels.
• The report notes that 10% by volume of piped fossil gas can be replaced by hydrogen but
fails to point out that this is only about 3% of energy content. This is a puzzling omission.
• LNG import terminals in principle may help to manage supply shortfalls. However, reducing
demand through energy efficiency and fuel switching is likely to be cheaper and more
consistent with climate policy. LNG imports and related infrastructure would be relatively
expensive, and have provoked community concerns about environmental impacts and
safety.
• The International Energy Agency, in its 2023 Review of Australia (p.15) has noted ‘Australia
has also seen rising domestic gas prices, which are increasing in step with LNG netback
prices. This is a unique situation for a producer and exporter’. Clearly, in comparison with
other exporters, Australian governments have failed to capture substantial potential revenue
from gas exports at enormous cost to the Australian economy. Surely correction of this
failure should be considered in this consultation paper. Chronic failure of government policy
and regulation has led to high local gas prices. Should this be allowed to continue? AiG may
have an opinion on this.
• Regarding labour force issues, there is a need to train and certify existing gas tradespeople
in a wider range of activities including electrification. We must also redesign electric
appliances to make installation less dependent on extra training.
• While on page 34 there is reference to reducing demand, the consultation paper pays
limited attention to consideration of options and potential for demand reduction and
management. As noted earlier, much of the winter demand results from inefficient heating
technologies heating thermally inefficient buildings. Competitors are rapidly improving
performance and cost-effectiveness. Targeting high consumers via existing billing data could
maximise effectiveness and equity of gas saving measures.
• Given that southern Australian gas resources have been exported northwards for decades, it
is puzzling that little consideration seems to be given to supplementing southern demand
with reasonably priced gas from northern sources as the supply balance shifts. The
consultation paper should discuss this issue.
The realities of Climate Science
Figure 1 in the consultation paper seriously misrepresents the realities of climate science in relation to fossil gas.

• Fugitive emissions are having a much bigger impact on real world global heating than shown
in Figure 1, from the consultation paper – see Figure 2. The short-term impacts of methane
leakage are very significant, as shown by the IPCC in its 2022 Summary for Policy Makers.
Over the past decade, methane has caused around 2/3 as much global heating as CO2,
despite its much lower concentration in the atmosphere. This reflects its high short-term
Global Warming Potential.
• Increasing evidence from sources such as the International Energy Agency’s global methane
monitoring system show that Australian fugitive emissions from fossil gas production,
distribution and use have been significantly underestimated. This has serious implications for
the coal and gas industries as well as agriculture. This requires serious analysis.
• Present international carbon accounting methods only allocate Scope 1 and 2 emissions to
Australian gas production. This means the emissions from processing and combustion of
Australian gas exports are ignored when Australian policy is developed. Recent trends in
international carbon accounting (eg the Science Based Target Initiative) and Australian
government schemes such as ClimateActive show that scrutiny and action on Scope 3
emissions (including emissions from burning of Australian fossil fuel exports in customer
countries) are becoming high priority issues in global climate policy and credible business
action. Failure to respond to this creates extreme reputational and economic risk for
Australia and the Australian fossil gas (and coal) industry.
• Climate science shows that the timing of emission reductions is very important, as it is the
concentration of greenhouse gases and their short-term Global Warming Potentials that
drive global heating, not 100 year GWPs used in present international and Australian climate
policy. Urgency of action to cut emissions is seriously understated when present
international commitments based on Scope 1 and 2 emissions and 100 year GWPs are used
as indicators. Gas policy must explore the implications of potential changes in international
accounting as the lived experience of the consequences of climate change changes
community priorities.
Figure 2 from the IPCC SPM shows that methane has been a major driver of global heating over the past decade. The Australian government must decide whether it will develop policy based on real- world climate science or outdated carbon accounting methodologies and poor data.

Figure 2. Real world global heating impacts 2010 to 2019 (IPCC SPM 2022)

Distortions in efficiency of gas use and temperatures of heat required for industrial processes
The following material is extracted and slightly modified from my submission to Infrastructure
Victoria’s recent consultation on future Victorian energy infrastructure.

Industry
Overview and data context
In industry, we need to recognise that the temperature and amount of heat provided by gas systems is not necessarily how much heat, or the temperature, that is actually needed. But we have very limited, poor quality data on how much gas each process uses, and how efficiently that gas is used relative to fundamentals of physics and chemistry. This is an embarrassment. For example, the 2019
ITP report for ARENA that analyses industrial heat assumes heat is delivered at 80% efficiency. ITP
2019 (p.25) states that 2016-17 Australian process heat used 1279 PJ of input energy to deliver 1023
PJ of heat (assuming 80% efficiency) of which 730PJ was for industry, including 629PJ of fossil fuel. ITP
(p.30) show that gas provided less than half of industrial heat.

The assumption of 80% efficiency for process heating is open to serious question. Figure 3 outlines the kinds of inefficiencies that can impact on steam system efficiency. Many of these inefficiencies apply to other industrial processes. I have observed such losses across a wide range of industrial sites. Lack of monitoring and failure to analyse the fundamental energy requirements of processes and ‘ideal’ system performance mean that realistic assessment of system efficiency is rare.

As an example, when I analysed energy use at an alumina refinery some years ago, I asked staff how much energy (mostly gas) per tonne of product was used: they answered ‘over 4 gigajoules per tonne’. I then asked them what the theoretical energy requirement was: no-one knew. My chemistry book suggested it was 1.7 GJ/tonne. In another industrial plant, a metal scrap remelting furnace was
calculated to achieve under 28% efficiency – ignoring the potential to utilise the heat from the metal as it solidified and cooled. The same site ran a ‘backup’ gas boiler continuously, at substantial cost, for a process that operated at 65C and was a net source of heat. My recommendation to shut down the boiler and replace it with an instantaneous gas water heater was rejected. Instead of achieving
99% gas savings, they reduced losses by around 40% through incremental changes.

Economists and most engineers simply cannot grasp the scale of the energy waste in Australian industry. Our universities are failing to educate graduates on the scale of waste and the potential for energy savings and multiple business benefits worth far more. This is very costly, as well as driving unnecessary climate impacts and other business costs.

There is probably quite a lot of information around, but much of it would be in confidential consultant reports for individual sites that have never been consolidated.

Some key issues for considering an industrial gas transition include:

• In industry, point of use or local heat pumps can (or will soon be able to) replace energy-
wasteful steam distribution systems in many situations, reduce need for back-up boilers by
using thermal storage, respond to changing production more flexibly and deliver heat at the
temperature required. If actual energy efficiency of gas use is lower than 80% (which seems
very likely, but we have very little data) then estimates of electricity use, capital costs and
impacts on electricity grids due to conversion from gas will be over-estimated.
• ITP (2019 p.22.) states that 39% of process heating in Australia is at temperatures over 800C.
But Victoria is very different, as discussed later in this submission: state level data is needed.
Even a basic state level breakdown is not helpful in identifying potential for electrification –
much of Victoria’s industrial electricity use is for aluminium smelting at over 900C, which
distorts perceptions. And, as noted earlier, neither national nor state level data on
temperatures required for processes is available, as stated below.

FIGURE 3
ITP (2019, p.27) states with regard to its process heat temperature breakdowns:

The following graphs and discussion draw together some information on Victorian industrial energy and gas use to illustrate some of the issues. It should be noted that many high employment, high value adding industries need little high temperature heat.

Figure 4 shows recent Victorian gas consumption trends by industry sub-sector from DISER (Table F,
2020). Sub-sectors that do not publicly report their gas use are responsible for almost half of
Victorian industrial gas use. This includes Exxon’s Altona facility that seems likely to close soon -
ExxonMobil closes Altona oil refinery after review finds it is not economically viable - ABC News .

Figure 5 shows Victorian industrial electricity use by sub-sector. This is relevant, because efficiency improvements and structural change may influence industrial electricity demand (and supply), influencing availability and pricing of electricity for industries shifting from gas.

FIGURE 4

Victorian industrial gas use by sub-sector PJ/year
50.0
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0

Not reported separately
11-12 Food, beverages and tobacco
Wood, paper and printing (+pulp)
20 Non-metallic mineral products
25 Furniture and other manufacturing
other
FIGURE 5

Victorian manufacturing electricity PJ/year
40.0

30.0

20.0

10.0

0.0

11-12 Food, beverages and tobacco
13 Textile, clothing, footwear and leather
Wood, paper, pulp and printing
18-19 Basic Chemical, Polymer, Rubber
201 Glass and glass products
202 Ceramics
203 Cement, lime, plaster and concrete
209 Other non-metallic mineral products
22 Fabricated metal products
23-24 Machinery and equipment
25 Furniture and other manufacturing
Categories NOT reported electricity

Manufacturing sub-sectors that do not report Victorian gas use publicly are shown below. These comprised 47% of manufacturing sector gas use in 2018-19. Several of these sub-sectors involve small numbers of sites, so individual decisions about their gas use could have significant implications for overall gas demand. Some industries do not report their electricity use publicly.

1701 Petroleum refining
1709 Other petroleum and coal product manufacturing
18-19 Basic Chemical and Chemical, Polymer + Rubber Product Manufacturing
22 Fabricated metal products
23-24 Machinery and equipment

Their contributions to the economy vary: some manufacturing sectors have high Value Added per unit of energy consumption, so they may have a small share of industrial heat and gas consumption but make a significant contribution to the economy.

Industrial and business transformation
Fundamental trends are transforming manufacturing and energy supply for manufacturing, including:

• Recent high and volatile gas prices are influencing decisions about future plans for industrial
consumers. For example, a recent article describes the survival struggles of some industrial
gas users (This will wipe us out: gas users face costs crisis Macdonald-Smith A, Australian
Financial Review 17-18 July 2021 p.23).
• Major export industries are under extreme pressure to cut carbon emissions to near zero.
This is likely to require them to shift rapidly to zero emission energy sources that have not
yet been built, pay a carbon price adjustment at the border of major customer countries, or
shut down. This could dramatically reduce industrial gas demand.
• Manufacturing technologies and business models are changing. Figure 6 highlights important
trends that are occurring as modular, distributed manufacturing technologies and integrated
business models are emerging. These alternatives may be implemented upstream or
downstream of traditional manufacturing, and often use electric technologies, not gas. This
means locations can be optimised for multiple factors, not constrained by access to a gas
supply. For example, microbreweries are being located at tourism destinations and in-store
bakeries are out-competing large centralised bakeries. These smaller, more flexible
processing facilities can often charge a premium for their products, integrate operating costs
with provision of other high value services such as tourism attractions, and may by-pass or
consolidate traditional supply chains so they capture a larger proportion of retail sale price.
• Process redesign combined with low cost renewable energy and various forms of energy
storage (including part-processed product, thermal, chemical) is allowing flexible, efficient,
modular electric technologies to replace traditional gas use, even for high temperature
processes. For example, in many breweries, steam now used to run pasteurising can be
replaced by heat pumps that also recover waste heat much more effectively. A smaller
electric induction furnace may replace an under-utilised and inefficient gas furnace.
• Recovery from the Covid pandemic is focusing more attention on local manufacturing and
flexible manufacturing that can adapt to manufacturing different products
• Virtualisation and digitalisation are replacing the need for physical products and
infrastructure by delivering tele-services and optimising all activities
• Circular economy and Industry 4.0 models and increasing focus on minimising waste and
recycling/reprocessing are transforming energy requirements, as reflected in Figure 18.
Recycling potentially introduces requirements for relocatable or transportable recycling
technologies, such as those being developed at UNSW SM@RT Centre for Sustainable
Materials Research and Technology.

FIGURE 6
We are in the early stages of an industrial revolution driven by transformations in business, production and energy models. Much of the energy transformation is being driven by business model and technology innovation, along with evolving consumer preferences: in many cases the energy impacts are incidental.

The reality is that energy efficiency in Australian and Victorian manufacturing is far from optimal.

My recent work with the Australian Alliance for Energy Productivity and the NSW government on compressed air illustrates the present level of inefficiency and the potential for substantial improvement. This experience is relevant to both gas and electricity use in industry, as it reflects broad business cultures and practices.

Compressed air systems (CAS) are believed to consume around 10% of manufacturing sector electricity. For a sample of 50 sites in a recent NSW DPIE program (in which over 100 sites were assessed) CAS comprised 16% of electricity consumption. Typical CAS efficiency was 10 to 20% - 80 to
90% losses! Few sites had regular leak detection activities in place, and few had energy monitoring: of those with monitoring, few made effective use of it. Assessments typically identified very cost- effective savings potential of around 50% (see https://www.a2ep.org.au/compressedair ).

My research into alternatives to compressed air found enormous potential benefits. Energy savings of 80% or more can be captured, and introduction of flexible, smart, connected electric technologies opened up significant productivity improvement potential (see Figure 7 and Compressed Air Systems,
Emerging Efficiency Improvements and Alternative Technologies: Review, background research and examples at https://www.a2ep.org.au/publications ).

FIGURE 7

Identification of alternatives to CAS was a challenging process, as CAS is used for many different purposes. Figure 8 lists some of the alternatives identified. Many of these are not recognised by CAS users or most energy consultants, and supply chains are non-existent or fragmented. Most CAS assessors focused on leak reduction, filter cleaning and compressor optimisation. Few assessments identified innovative alternatives or documented the financial and broader productivity benefits of
improving or replacing CAS. CAS users showed little awareness of the broad business benefits of transforming their approach to CAS.

Since this project was completed, a case study outlined in an A2EP webinar has demonstrated a 77% electricity saving from shifting most activities of a site from compressed air.

FIGURE 8

A closer look at energy data
Estimates of consumption and temperature of industrial process heat from the ITP 2019 report for
ARENA are shown in Figures 9and 10. The breakdown of energy sources for Australian industrial heat is shown in Figure 11: gas provides less than half of industrial heat at the national level. It may be possible for the Victorian government to work with the authors of relevant national reports to extract data and insights for Victoria.
FIGURE 9 Actual numerical data is provided in Figure 22 from ITP (2019).

FIGURE 10
FIGURE 11

In Figure 12, ITP’s (2019 p.31) allocation of industrial heat use by region across Australia is shown. It also includes a (fuzzy) blown-up part of ITP’s map, showing the major industrial sectors using heat in
Victoria. Clearly the nature of Victorian industrial heat requirements differs significantly from the national picture. It seems that much of Victoria’s demand for industrial heat is by ‘other’ industries, so the national data are not very useful in understanding Victorian industrial gas use. DISER energy data for Victoria provides useful insights, though it does not break down industrial gas use by activity, and data from some categories is confidential.

We need much improved data on Victorian industrial gas use before we can confidently plan a transition from gas, or even focus on improving energy efficiency.

FIGURE 12
Detail from ITP (2019) Figure 8

There is significant potential for improvement in industrial gas and electricity efficiency, as well as potential to manage demand and encourage energy users to contribute to demand response.

However, with limited data and weak policies, it is not possible to estimate the actual potential, or develop comprehensive targeted and appropriate policies. Nevertheless, past local, national and international experience provides a basis for rapid introduction of strong measures, and data monitoring and analysis could enable consumers to act and government to finetune policies quickly.

Western Australian gas consumption
The consultation paper shows that Western Australian gas consumption is very different from the rest of Australia. This distorts policies. WA has a very high proportion of gas-fired electricity and its mining and mineral processing industries also use a lot of gas.

WA has outstanding low cost renewable energy resources. The efficiency of gas use is poor, due to decades of low cost gas and high costs of gas monitoring and analysis. Many of its high consumers are exposed to international forces, such as EU border adjustments, that are pushing them towards decarbonisation. At the same time, increasing awareness of technologies such as Mechanical Vapour
Recompression (mature technology in other countries but almost unheard of in Australia) and even simple electric technologies such as electrode boilers and resistive heating are offering potentially attractive options to gas.

The future of WA gas faces serious disruptive change.

Concluding comments
The potential to cost-effectively cut carbon emissions, enhance equity and build a 21st century economy through an integrated gas transition and electricity efficiency/productivity strategy exists. It will require new perspectives and a lot of work, but it will be worth it.

The consultation paper reflects the scale of Australia’s problems. It ignores the fundamental issue that demand for energy is a ‘derived need’. It ignores the disruptive changes from radical technology change, reduction of astounding energy waste, and changes in community attitudes driven by the lived experience of climate change. It ignores the rapid changes in carbon accounting and understanding of the impacts of climate change based on lived experience. It reflects outdated thinking. It is part of our problem.

Submission Future Gas Strategy

Alan Pears AM 2/78 William St Brighton Vic 3186 email alan.pears@rmit.eddu.au 9 November 2023

Contents

Submission Future Gas Strategy1

My background1

Key points1

The realities of Climate Science4

Distortions in efficiency of gas use and temperatures of heat required for industrial processes5

Industry5

Western Australian gas consumption14

Concluding comments14

My background

I have worked in energy efficiency for over 40 years across all sectors. My work of relevance to gas includes:

Working for the Gas and Fuel Corporation of Victoria from 1980 to 1983, including managing the Energy Information Centre and spending some time at the industrial Energy Management Centre

Management, policy and program development roles in Victoria’s government energy department from 1983 to 1991

Involvement in development and implementation of a number of relevant programs, including the National Greenhouse Challenge, Energy Efficiency Best Practice, Energy Efficiency Opportunities and some state industrial programs, residential and commercial building energy regulation and rating schemes

Co-author of book chapters and resources on energy efficiency and use across all sectors

A leading role since 2017 in the Australian Alliance for Energy Productivity’s work on heat pumps (including co-author of the A2EP/EEC paper for the Commonwealth government on heat pumps), value chains (eg food and buildings) and digitalisation

Tertiary teaching in environment and engineering at RMIT and University of Melbourne. I am a Senior Industry Fellow at RMIT and a Fellow at the University of Melbourne.

Key points

I do not understand how a government agency can write a paper on the future of gas without seriously analysing how and why people now use gas, and how many disruptive forces might impact on attitudes to and usage of gas. Demand for energy is a ‘derived need’, which depends on the nature of demand and the technologies used to deliver services. Indeed, consumers don’t want energy (or technology) for its own sake – they want services they perceive to be valuable or necessary, whether it be to deliver the materials, products or services they sell or to support their lifestyles. In most cases, energy is a small proportion of input costs, even though it dominates Australian climate impacts, so much existing societal behaviour is ‘economically rational’, while the approaches of energy policy makers reflect ‘bounded rationality’. Publishing this paper before the demand-side studies are carried out inappropriately distorts the framing of policy-making.

Key points relevant to the issues raised and questions posed in the consultation paper are:

The need for strong carbon emission reduction is more urgent and far greater than recognised by most policymakers. IPCC and other studies show this: global heating is driven by the concentration of GHGs in the atmosphere. Further, impacts of fugitive methane emissions from gas production, supply and use (as well as coal and agriculture) have high short-term impacts that are understated by conventional carbon accounting. The paper should explore a range of contingency measures that can be implemented if climate policy is accelerated. It should also consider the probability that reporting and action on Scope 3 emissions will be an increasing focus for governments as well as business. And it should consider outcomes for Australia if Carbon Capture and Storage falls short of gas industry expectations. See later sections of this submission for more detail.

Gas use in Australia across all sectors is far less efficient than generally recognised, partly because of inadequate energy monitoring and analysis. Five decades of cheap gas has led to widespread inefficiency. The limited end use data available (eg ITS study for ARENA) assumes 80% efficiency of gas use and focuses on the temperatures at which heat is presently supplied, not the temperatures actually required for processes: this leads to over-estimation of future high temperature heat requirements. At the same time, gas has lost its image as a clean, cheap, reliable energy source. These factors mean that the Australian government and businesses may face serious economic and political challenges as gas demand falls short of expectations. See later sections of this submission for more detail.

The framing of questions for discussion is useful. However, a major gap seems to be the lack of questions focused on emerging business and service provider competitors to gas. This could help to clarify the competitive context the gas industry will face as disruptive innovation and powerful forces such as climate change transform our economy and society. Future gas sources such as hydrogen and biomethane will have to compete in markets beyond fossil gas to deliver energy services. More focus is required to understand the size and nature of markets for heat and the future potential of competitors. High efficiency electric industrial, commercial and residential technologies are developing rapidly, so they can deliver higher temperature heat at lower cost and more efficiently. This further reduces likely future demand for heat across a wider range of temperatures.

Even at present fossil gas prices, gas cannot compete in many industrial processes and almost all residential and commercial activities, which are the main drivers of southern state emerging winter supply shortages. The consultation paper states that some homes will save by electrifying: almost all studies show that most households and commercial businesses will be financially better off over time. See gbca.org.au regarding the commercial sector.

Effective energy efficiency, management and storage policies would reduce the need for gas-fired electricity generation for firming and to supply winter peak demand.

The market power of dispatchable electricity generators, including hydro, gas and, increasingly energy storage, drives high spot prices and, indirectly, overall electricity prices. Governments will have to address this through changes in market design if Australians are to benefit from lower electricity prices. Some owners of gas-fired generation capacity, especially gentailers, are able to adopt a ‘portfolio approach’ that maximises profits from high spot market prices at the expense of consumers.

Claims of pressure from customer countries such as Japan for long-term reliable LNG supply from Australia seem to be inconsistent with effective global climate response or likely future demand. The paper should analyse the extent to which Japanese (and other LNG customers) LNG demand forecasts are consistent with them achieving or outperforming emission reductions consistent with international obligations (which are likely to demand more rapid emission reductions over time). It is in the interests of LNG customer economies to encourage LNG producers to over-invest in supply capacity, and to discourage the Australian government from effectively taxing LNG, to drive down prices they pay.

In its recent Outlooks for gas markets and investment: a report for the G7, the International Energy Agency notes ‘….the NZE Scenario implies even more challenging economics for projects currently under construction. As LNG exporters jostle for diminishing market share, the utilisation rates of individual plants become uncertain; there is a case that only the lowest cost producers are left standing, but security of supply concerns may encourage governments to support higher-cost projects.’ Is it a responsible approach for Australia to encourage future gas production that will drive devastating climate impacts and create serious economic risks for our economy and the gas industry itself?

Carbon Capture and Storage that increases fossil fuel production should be excluded from consideration as an emission reduction measure, as it facilitates additional emissions of greenhouse gases from production and use of additional fossil fuels.

The report notes that 10% by volume of piped fossil gas can be replaced by hydrogen but fails to point out that this is only about 3% of energy content. This is a puzzling omission.

LNG import terminals in principle may help to manage supply shortfalls. However, reducing demand through energy efficiency and fuel switching is likely to be cheaper and more consistent with climate policy. LNG imports and related infrastructure would be relatively expensive, and have provoked community concerns about environmental impacts and safety.

The International Energy Agency, in its 2023 Review of Australia (p.15) has noted ‘Australia has also seen rising domestic gas prices, which are increasing in step with LNG netback prices. This is a unique situation for a producer and exporter’. Clearly, in comparison with other exporters, Australian governments have failed to capture substantial potential revenue from gas exports at enormous cost to the Australian economy. Surely correction of this failure should be considered in this consultation paper. Chronic failure of government policy and regulation has led to high local gas prices. Should this be allowed to continue? AiG may have an opinion on this.

Regarding labour force issues, there is a need to train and certify existing gas tradespeople in a wider range of activities including electrification. We must also redesign electric appliances to make installation less dependent on extra training.

While on page 34 there is reference to reducing demand, the consultation paper pays limited attention to consideration of options and potential for demand reduction and management. As noted earlier, much of the winter demand results from inefficient heating technologies heating thermally inefficient buildings. Competitors are rapidly improving performance and cost-effectiveness. Targeting high consumers via existing billing data could maximise effectiveness and equity of gas saving measures.

Given that southern Australian gas resources have been exported northwards for decades, it is puzzling that little consideration seems to be given to supplementing southern demand with reasonably priced gas from northern sources as the supply balance shifts. The consultation paper should discuss this issue.

The realities of Climate Science

Figure 1 in the consultation paper seriously misrepresents the realities of climate science in relation to fossil gas.

Fugitive emissions are having a much bigger impact on real world global heating than shown in Figure 1, from the consultation paper – see Figure 2. The short-term impacts of methane leakage are very significant, as shown by the IPCC in its 2022 Summary for Policy Makers. Over the past decade, methane has caused around 2/3 as much global heating as CO2, despite its much lower concentration in the atmosphere. This reflects its high short-term Global Warming Potential.

Increasing evidence from sources such as the International Energy Agency’s global methane monitoring system show that Australian fugitive emissions from fossil gas production, distribution and use have been significantly underestimated. This has serious implications for the coal and gas industries as well as agriculture. This requires serious analysis.

Present international carbon accounting methods only allocate Scope 1 and 2 emissions to Australian gas production. This means the emissions from processing and combustion of Australian gas exports are ignored when Australian policy is developed. Recent trends in international carbon accounting (eg the Science Based Target Initiative) and Australian government schemes such as ClimateActive show that scrutiny and action on Scope 3 emissions (including emissions from burning of Australian fossil fuel exports in customer countries) are becoming high priority issues in global climate policy and credible business action. Failure to respond to this creates extreme reputational and economic risk for Australia and the Australian fossil gas (and coal) industry.

Climate science shows that the timing of emission reductions is very important, as it is the concentration of greenhouse gases and their short-term Global Warming Potentials that drive global heating, not 100 year GWPs used in present international and Australian climate policy. Urgency of action to cut emissions is seriously understated when present international commitments based on Scope 1 and 2 emissions and 100 year GWPs are used as indicators. Gas policy must explore the implications of potential changes in international accounting as the lived experience of the consequences of climate change changes community priorities.

Figure 2 from the IPCC SPM shows that methane has been a major driver of global heating over the past decade. The Australian government must decide whether it will develop policy based on real-world climate science or outdated carbon accounting methodologies and poor data.

Figure 2. Real world global heating impacts 2010 to 2019 (IPCC SPM 2022)

Distortions in efficiency of gas use and temperatures of heat required for industrial processes

The following material is extracted and slightly modified from my submission to Infrastructure Victoria’s recent consultation on future Victorian energy infrastructure.

Industry

Overview and data context

In industry, we need to recognise that the temperature and amount of heat provided by gas systems is not necessarily how much heat, or the temperature, that is actually needed. But we have very limited, poor quality data on how much gas each process uses, and how efficiently that gas is used relative to fundamentals of physics and chemistry. This is an embarrassment. For example, the 2019 ITP report for ARENA that analyses industrial heat assumes heat is delivered at 80% efficiency. ITP 2019 (p.25) states that 2016-17 Australian process heat used 1279 PJ of input energy to deliver 1023 PJ of heat (assuming 80% efficiency) of which 730PJ was for industry, including 629PJ of fossil fuel. ITP (p.30) show that gas provided less than half of industrial heat.

The assumption of 80% efficiency for process heating is open to serious question. Figure 3 outlines the kinds of inefficiencies that can impact on steam system efficiency. Many of these inefficiencies apply to other industrial processes. I have observed such losses across a wide range of industrial sites. Lack of monitoring and failure to analyse the fundamental energy requirements of processes and ‘ideal’ system performance mean that realistic assessment of system efficiency is rare.

As an example, when I analysed energy use at an alumina refinery some years ago, I asked staff how much energy (mostly gas) per tonne of product was used: they answered ‘over 4 gigajoules per tonne’. I then asked them what the theoretical energy requirement was: no-one knew. My chemistry book suggested it was 1.7 GJ/tonne. In another industrial plant, a metal scrap remelting furnace was calculated to achieve under 28% efficiency – ignoring the potential to utilise the heat from the metal as it solidified and cooled. The same site ran a ‘backup’ gas boiler continuously, at substantial cost, for a process that operated at 65C and was a net source of heat. My recommendation to shut down the boiler and replace it with an instantaneous gas water heater was rejected. Instead of achieving 99% gas savings, they reduced losses by around 40% through incremental changes.

Economists and most engineers simply cannot grasp the scale of the energy waste in Australian industry. Our universities are failing to educate graduates on the scale of waste and the potential for energy savings and multiple business benefits worth far more. This is very costly, as well as driving unnecessary climate impacts and other business costs.

There is probably quite a lot of information around, but much of it would be in confidential consultant reports for individual sites that have never been consolidated.

Some key issues for considering an industrial gas transition include:

In industry, point of use or local heat pumps can (or will soon be able to) replace energy-wasteful steam distribution systems in many situations, reduce need for back-up boilers by using thermal storage, respond to changing production more flexibly and deliver heat at the temperature required. If actual energy efficiency of gas use is lower than 80% (which seems very likely, but we have very little data) then estimates of electricity use, capital costs and impacts on electricity grids due to conversion from gas will be over-estimated.

ITP (2019 p.22.) states that 39% of process heating in Australia is at temperatures over 800C. But Victoria is very different, as discussed later in this submission: state level data is needed. Even a basic state level breakdown is not helpful in identifying potential for electrification – much of Victoria’s industrial electricity use is for aluminium smelting at over 900C, which distorts perceptions. And, as noted earlier, neither national nor state level data on temperatures required for processes is available, as stated below.

FIGURE 3

ITP (2019, p.27) states with regard to its process heat temperature breakdowns:

The following graphs and discussion draw together some information on Victorian industrial energy and gas use to illustrate some of the issues. It should be noted that many high employment, high value adding industries need little high temperature heat.

Figure 4 shows recent Victorian gas consumption trends by industry sub-sector from DISER (Table F, 2020). Sub-sectors that do not publicly report their gas use are responsible for almost half of Victorian industrial gas use. This includes Exxon’s Altona facility that seems likely to close soon - ExxonMobil closes Altona oil refinery after review finds it is not economically viable - ABC News .

Figure 5 shows Victorian industrial electricity use by sub-sector. This is relevant, because efficiency improvements and structural change may influence industrial electricity demand (and supply), influencing availability and pricing of electricity for industries shifting from gas.

FIGURE 4

FIGURE 5

Manufacturing sub-sectors that do not report Victorian gas use publicly are shown below. These comprised 47% of manufacturing sector gas use in 2018-19. Several of these sub-sectors involve small numbers of sites, so individual decisions about their gas use could have significant implications for overall gas demand. Some industries do not report their electricity use publicly.

1701 Petroleum refining

1709 Other petroleum and coal product manufacturing

18-19 Basic Chemical and Chemical, Polymer + Rubber Product Manufacturing

22 Fabricated metal products

23-24 Machinery and equipment

Their contributions to the economy vary: some manufacturing sectors have high Value Added per unit of energy consumption, so they may have a small share of industrial heat and gas consumption but make a significant contribution to the economy.

Industrial and business transformation

Fundamental trends are transforming manufacturing and energy supply for manufacturing, including:

Recent high and volatile gas prices are influencing decisions about future plans for industrial consumers. For example, a recent article describes the survival struggles of some industrial gas users (This will wipe us out: gas users face costs crisis Macdonald-Smith A, Australian Financial Review 17-18 July 2021 p.23).

Major export industries are under extreme pressure to cut carbon emissions to near zero. This is likely to require them to shift rapidly to zero emission energy sources that have not yet been built, pay a carbon price adjustment at the border of major customer countries, or shut down. This could dramatically reduce industrial gas demand.

Manufacturing technologies and business models are changing. Figure 6 highlights important trends that are occurring as modular, distributed manufacturing technologies and integrated business models are emerging. These alternatives may be implemented upstream or downstream of traditional manufacturing, and often use electric technologies, not gas. This means locations can be optimised for multiple factors, not constrained by access to a gas supply. For example, microbreweries are being located at tourism destinations and in-store bakeries are out-competing large centralised bakeries. These smaller, more flexible processing facilities can often charge a premium for their products, integrate operating costs with provision of other high value services such as tourism attractions, and may by-pass or consolidate traditional supply chains so they capture a larger proportion of retail sale price.

Process redesign combined with low cost renewable energy and various forms of energy storage (including part-processed product, thermal, chemical) is allowing flexible, efficient, modular electric technologies to replace traditional gas use, even for high temperature processes. For example, in many breweries, steam now used to run pasteurising can be replaced by heat pumps that also recover waste heat much more effectively. A smaller electric induction furnace may replace an under-utilised and inefficient gas furnace.

Recovery from the Covid pandemic is focusing more attention on local manufacturing and flexible manufacturing that can adapt to manufacturing different products

Virtualisation and digitalisation are replacing the need for physical products and infrastructure by delivering tele-services and optimising all activities

Circular economy and Industry 4.0 models and increasing focus on minimising waste and recycling/reprocessing are transforming energy requirements, as reflected in Figure 18. Recycling potentially introduces requirements for relocatable or transportable recycling technologies, such as those being developed at UNSW SM@RT Centre for Sustainable Materials Research and Technology.

FIGURE 6

We are in the early stages of an industrial revolution driven by transformations in business, production and energy models. Much of the energy transformation is being driven by business model and technology innovation, along with evolving consumer preferences: in many cases the energy impacts are incidental.

The reality is that energy efficiency in Australian and Victorian manufacturing is far from optimal.

My recent work with the Australian Alliance for Energy Productivity and the NSW government on compressed air illustrates the present level of inefficiency and the potential for substantial improvement. This experience is relevant to both gas and electricity use in industry, as it reflects broad business cultures and practices.

Compressed air systems (CAS) are believed to consume around 10% of manufacturing sector electricity. For a sample of 50 sites in a recent NSW DPIE program (in which over 100 sites were assessed) CAS comprised 16% of electricity consumption. Typical CAS efficiency was 10 to 20% - 80 to 90% losses! Few sites had regular leak detection activities in place, and few had energy monitoring: of those with monitoring, few made effective use of it. Assessments typically identified very cost-effective savings potential of around 50% (see https://www.a2ep.org.au/compressedair ).

My research into alternatives to compressed air found enormous potential benefits. Energy savings of 80% or more can be captured, and introduction of flexible, smart, connected electric technologies opened up significant productivity improvement potential (see Figure 7 and Compressed Air Systems, Emerging Efficiency Improvements and Alternative Technologies: Review, background research and examples at https://www.a2ep.org.au/publications ).

FIGURE 7

Identification of alternatives to CAS was a challenging process, as CAS is used for many different purposes. Figure 8 lists some of the alternatives identified. Many of these are not recognised by CAS users or most energy consultants, and supply chains are non-existent or fragmented. Most CAS assessors focused on leak reduction, filter cleaning and compressor optimisation. Few assessments identified innovative alternatives or documented the financial and broader productivity benefits of improving or replacing CAS. CAS users showed little awareness of the broad business benefits of transforming their approach to CAS.

Since this project was completed, a case study outlined in an A2EP webinar has demonstrated a 77% electricity saving from shifting most activities of a site from compressed air.

FIGURE 8

A closer look at energy data

Estimates of consumption and temperature of industrial process heat from the ITP 2019 report for ARENA are shown in Figures 9and 10. The breakdown of energy sources for Australian industrial heat is shown in Figure 11: gas provides less than half of industrial heat at the national level. It may be possible for the Victorian government to work with the authors of relevant national reports to extract data and insights for Victoria.

FIGURE 9 Actual numerical data is provided in Figure 22 from ITP (2019).

FIGURE 10

FIGURE 11

In Figure 12, ITP’s (2019 p.31) allocation of industrial heat use by region across Australia is shown. It also includes a (fuzzy) blown-up part of ITP’s map, showing the major industrial sectors using heat in Victoria. Clearly the nature of Victorian industrial heat requirements differs significantly from the national picture. It seems that much of Victoria’s demand for industrial heat is by ‘other’ industries, so the national data are not very useful in understanding Victorian industrial gas use. DISER energy data for Victoria provides useful insights, though it does not break down industrial gas use by activity, and data from some categories is confidential.

We need much improved data on Victorian industrial gas use before we can confidently plan a transition from gas, or even focus on improving energy efficiency.

FIGURE 12

Detail from ITP (2019) Figure 8

There is significant potential for improvement in industrial gas and electricity efficiency, as well as potential to manage demand and encourage energy users to contribute to demand response.

However, with limited data and weak policies, it is not possible to estimate the actual potential, or develop comprehensive targeted and appropriate policies. Nevertheless, past local, national and international experience provides a basis for rapid introduction of strong measures, and data monitoring and analysis could enable consumers to act and government to finetune policies quickly.

Western Australian gas consumption

The consultation paper shows that Western Australian gas consumption is very different from the rest of Australia. This distorts policies. WA has a very high proportion of gas-fired electricity and its mining and mineral processing industries also use a lot of gas.

WA has outstanding low cost renewable energy resources. The efficiency of gas use is poor, due to decades of low cost gas and high costs of gas monitoring and analysis. Many of its high consumers are exposed to international forces, such as EU border adjustments, that are pushing them towards decarbonisation. At the same time, increasing awareness of technologies such as Mechanical Vapour Recompression (mature technology in other countries but almost unheard of in Australia) and even simple electric technologies such as electrode boilers and resistive heating are offering potentially attractive options to gas.

The future of WA gas faces serious disruptive change.

Concluding comments

The potential to cost-effectively cut carbon emissions, enhance equity and build a 21st century economy through an integrated gas transition and electricity efficiency/productivity strategy exists. It will require new perspectives and a lot of work, but it will be worth it.

The consultation paper reflects the scale of Australia’s problems. It ignores the fundamental issue that demand for energy is a ‘derived need’. It ignores the disruptive changes from radical technology change, reduction of astounding energy waste, and changes in community attitudes driven by the lived experience of climate change. It ignores the rapid changes in carbon accounting and understanding of the impacts of climate change based on lived experience. It reflects outdated thinking. It is part of our problem.