Securing Australia’s domestic gas supply: issues paper

22 August 2022

Department of Industry, Science and Resources
Via online submission: ADGSM@industry.gov.au

To whom it may concern,

Securing Australia’s domestic gas supply issues paper
Australian Gas Infrastructure Group (AGIG) appreciates the opportunity to make this submission to the
Securing Australia’s domestic gas supply issues paper.
AGIG welcomes the focus on improving the security of supply of gas in Australia and supports the seven principles that guide this consultation.

In particular, AGIG supports the Department’s (DISR) assessment that natural gas is important to industry and manufacturers, businesses and households, and to the electricity grid via the support Gas
Power Generation provides the National Electricity Market (NEM) when coal-fired or variable renewable electricity (VRE) generation are unavailable. Today, natural gas is lower emissions than grid electricity and is a partner to the decarbonisation of Australia’s economy – not an opponent of it. It is key to delivering an equitable and secure transition to net zero, and should be utilised to its full potential as the energy mix contains less and less coal-fired generation.

AGIG agrees with the Department’s assessment that the tightening supply-demand balance is the primary cause of current market conditions, and supports directly addresses the need to ensure continued investment in new gas supply (Principle 1). This will in turn support the downward pressure on prices identified under Principle 2.

Furthermore, AGIG encourages the Federal Government to consider other complementary policies, in addition to the Australian Domestic Gas Security Mechanism (ADGSM) and state/territory measures, to address security of gas supplies over the short, medium and longer term. Securing sufficient supplies of gas for domestic use will be critical in managing the energy transition in a way that meets customer expectations on reliability and affordability.

While it is clearly important to explore ways to bring forward new natural gas supplies quickly to market, AGIG strongly believes it is also a critical time for the Federal Government to lead complementary policy development to scale renewable gas markets, both hydrogen and biomethane, in Australia. Alarming shortfalls in the electricity market this winter had material consequences for consumers, which could have been made much worse had gas plants not been able to compensate for the loss of coal generation. While renewable electricity will certainly form a key part of Australia’s future energy mix, in the short-term there are high costs involved in the transition and limitations of reliability and equity. Increasing natural gas supply in the short term, and supporting renewable gas as a future fuel, offers a reliable, affordable and more equitable transition alternative.

Renewable gases are a zero carbon energy option which hold great potential to increase energy security and reliability. Renewable gas market development can also occur relatively quickly with the right policy settings in place and will reduce pressure on traditional gas supplies while also making a greater contribution to decarbonisation goals through support of renewable electricity.

1
Renewable gas shows promising market potential in Australia

Renewable gases represent a significant opportunity for Australia to enhance energy security and achieve its emission reduction goals whilst also minimising costs. Since the publication of National
Hydrogen Strategy in 2019, the evidence in support of hydrogen has only strengthened. Independent evidence that cost-effective hydrogen is on the horizon includes the most recent analyses by the Clean
Energy Finance Corporation (CEFC)1 and the Energy Transitions Initiative.2

These analyses show that renewable hydrogen is likely to reduce in cost significantly over the next ten years; to the point where it is likely to be competitively priced against natural gas for a range of uses by around 2030. The CEFC analysis in particular forecasts that renewable hydrogen in networks will approach the price of natural gas by around 2030 (and already is cost-competitive in several other sectors).

The outlook for biomethane market development in Australia also has significant potential, with modelling from the National Bioenergy Roadmap3 indicating an important role for biomethane in decarbonising gas.

Renewable gas features strongly in recent international policy responses to energy security and decarbonisation challenges

Renewable gas market development is already an important feature in international responses to energy security and decarbonisation challenges. For example, in direct response to the hardships and global energy market disruption caused by Russia's invasion of Ukraine, the European Commission revised and presented its REPowerEU Plan.4 The REPowerEU is a plan for saving energy, producing clean energy and diversifying European energy supplies and is backed by financial and legal measures to build the new energy infrastructure and system.

Some key short- and medium-term measures to be completed prior to 2027 are set out in the
REPowerEU plan that have a focus on renewable gas market development include:

 rapid roll out of solar and wind energy projects combined with renewable hydrogen deployment to
save on gas imports;
 approval of first EU-wide hydrogen projects by the summer;
 increase the production of biomethane to save on gas imports;
 investments in an integrated and adapted gas and electricity infrastructure network, and
 a hydrogen accelerator to build 17.5 GW by 2025 of electrolysers to fuel EU industry with
homegrown production of 10 million tonnes renewable hydrogen

Looking a little further ahead to 2030 the European Commission’s targets for renewable gas in their
RePowerEU plan are to produce 10 million tonnes of hydrogen (and import another 10 million tonnes) and 35 billion cubic meters (bcm) of biomethane.

1 CEFC 2021 . See: https://www.cefc.com.au/media/nkmljvkc/australian-hydrogen-market-study.pdf
2 Australian Industry Energy Transitions Initiative 2021 See: https://energytransitionsinitiative.org/wp-
content/uploads/2021/06/Phase-1-Highlights-Report-June2021.pdf
3 ARENA 2021: https://arena.gov.au/assets/2021/11/australia-bioenergy-roadmap-report.pdf
4 European Commission 2022: https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal/repowereu-
affordable-secure-and-sustainable-energy-europe_en#clean-energy

2
In the United States, the recent passage of the Inflation Reduction Bill into legislation will establish tax credits of up to $3 per kilogram of green hydrogen. This stands to make it the cheapest form of renewable hydrogen in the world, and provides the framework to incentivise and scale low carbon hydrogen production to contribute to energy security and decarbonisation policy objectives.5

A Renewable Gas Target will harness the full benefits of renewable energy for Australians

Renewable gas plays a complementary role with renewable electricity both by further scaling generation capacity and creating greater efficiencies, but to do so requires active sources of demand in networks, transport and eventually hard to abate industries. The benefits and potential applications of renewable gas are broad and given that cost competitiveness is on the horizon, there is an urgent need to support market activation and scaling through targeted policy development.

We strongly believe that a Renewable Gas Target, will unlock a substantial new supply of renewable gas at a crucial time in the energy sector in Australia. Our analysis indicates we can deliver at least a
20% renewable gas supply to homes and businesses across Australia by 2030.

We consider a Renewable Gas Target and related policy will further support the decarbonisation of the electricity and transport sectors. For example, renewable hydrogen can be used to address the challenges that still exist in the renewable electricity transition, including by further driving down costs by providing a substantial new market for renewable electricity, providing grid-stability support and deep electricity storage.

Correcting the energy policy imbalance by providing support for renewable gas is also key to unlocking the above energy system synergies, supporting jobs (both direct and indirect in Australian industry) and positioning Australia to benefit from the large supply chains and thousands of new jobs required to deliver the new renewable gas sector.

Ultimately, using both electricity and gas while transitioning to renewable gas will deliver a low-risk, stable and affordable low carbon transition for Australians. Frontier Economics found that in Victoria using renewable hydrogen is significantly cheaper than electrification to replace existing sources of natural gas (excluding power generation) because “there are significant additional electricity network costs” associated with electrificiation. 6

Thank you for the opportunity to provide a submission on the consultation paper. Should you have any queries about the information provided in this submission please contact. Should you have any queries about the information provided in this submission please contact Rachel Cameron, Head of Corporate
Affairs (Rachel.Cameron@agig.com.au or 0425 199 184).

Yours sincerely,

Kristin Raman
Acting Executive General Manager Strategy and Sustainability

5 See: https://www.energy.senate.gov/2022/8/manchin-s-inflation-reduction-act-will-lower-energy-and-healthcare-costs-
increase-domestic-energy-production-and-pay-down-national-debt
6 Frontier Economics 2020: https://www.energynetworks.com.au/resources/reports/2020-reports-and-publications/the-
benefits-of-gas-infrastructure-to-decarbonise-australia-frontier-economics/

3
About AGIG

AGIG is the largest gas distribution business in Australia, serving more than two million customers through our networks in Victoria, Queensland, South Australia, and several regional networks in New
South Wales and the Northern Territory. Our transmission pipelines and storage facility serve a range of industrial, mining and power generation customers.

At AGIG, we are committed to sustainable gas delivery today, and tomorrow. Our Low Carbon Vision, targets 10% renewable gas in networks by no later than 2030, with full decarbonisation of our networks by 2040 as a stretch target and by no later than 2050.

We are now delivering on our vision by deploying low carbon gas projects. Our projects include:
 Hydrogen Park South Australia – A 1.25MW electrolyser to demonstrate the production of
renewable hydrogen for blending with natural gas (up to 5%) and supply to more than 700 existing
homes in metropolitan Adelaide. HyP SA is now operational, with plans to expand customer reach
to more than 3,000 customers by end of 2022.
 Hydrogen Park Gladstone – A 175kW electrolyser to demonstrate the production of renewable
hydrogen for blending with natural gas (up to 10%) and supply to the entire network of Gladstone,
including industry.
 Hydrogen Park Murray Valley (HyP Murray Valley) proposal – A 10MW electrolyser to produce
renewable hydrogen for blending with natural gas (up to 10%) and supply the twin cities of Albury
(New South Wales) and Wodonga (Victoria), with the potential to supply industry and transport
sectors.

4