Securing Australia’s domestic gas supply: issues paper

22 August 2022

Department of Industry, Science and Resources
Industry House
Canberra

Via: ADGSM@industry.gov.au

Energy Networks Australia’s response to Securing Australia’s Domestic Gas Supply

Energy Networks Australia (ENA) welcomes the opportunity to respond to the issues paper related to
Securing Australia’s domestic gas supply (the ADGSM review).

Energy Networks Australia is the national industry body representing Australia’s electricity transmission and distribution and gas distribution networks. Our members provide more than 16 million electricity and gas connections to almost every home and business across Australia.

ENA supports the seven principles that are guiding the ADGSM review. Gas plays an important role in energy security, reliability and affordability for both power generation and the direct use of gas in industry and homes for heating and cooking.

Both electricity and gas networks are decarbonising. Electricity networks are facilitating the continued build out of renewable generation, while ensuring safe and reliable supply. While the focus to date of decarbonisation has been on the electricity sector, gas networks are also on their own decarbonisation journey. Customers tell us that they are seeking a clean energy future and are engaged in achieving emission reductions from gas use.
New renewable fuels, such as hydrogen and biomethane, have the potential to become mainstream and complementary energy solutions that will repurpose existing energy infrastructure. Renewable gas provides a new supply of gas that can be used to complement projected gas shortages. Our gas networks are leading the development of renewable gas projects and blending renewable hydrogen in the Adelaide and Sydney gas distribution networks, with further projects under development in Victoria, Western
Australia and Queensland. Attached is the latest Gas Vision 2050 progress report that illustrates the progress made in renewable gas developments in Australia.
Supportive policy developments such as a Renewable Gas Target and renewable gas procurement for government buildings will incentivise the development of additional renewable gas projects and markets, allowing it to become an additional large scale supply to address forecast shortfalls and reduce emissions.
ENA supports a market based approach to ensuring natural gas is provided to domestic markets under commercially competitive arrangements. Government intervention in the markets should only occur to address major market failures and/or in response to disruptive global events (e.g. gas prices in response to Ukraine invasion), or to engage in market development activities such as support for renewable gas initiatives and the development of a Renewable Gas Target (putting renewable gas on an equal footing with renewable electricity).

Energy Networks Australia www.energynetworks.com.au
Unit 5, Level 12, 385 Bourke Street Melbourne VIC 3000
P: +61 3 9103 0400 E: info@energynetworks.com.au
Energy Networks Association T/A Energy Networks Australia
ABN: 75 106 735 406
Should you have any queries please contact ENA’s Head of Renewable Gas, Dr Dennis Van Puyvelde, dvanpuyvelde@energynetworks.com.au. This submission can be published.

Yours sincerely,

Dominic Adams
General Manager - Networks

Attachment
Energy Networks Australia & Australian Pipelines and Gas Association (2022), Delivering the pathway to net zero for Australia – 2022 Outlook.

2

Gas Vision
2050
Delivering the pathway to net zero for Australia
– 2022 Outlook
April 2022

H2
Gas networks and pipelines readying to
deliver renewable decarbonised gas

H2

Hydrogen Bio and renewable
methane

Features of renewable and
decarbonised gas

All pathways Blending renewable require hydrogen gas into the networks
can build supply and or a similar lower costs renewable fuel

Biomethane offers early
emission reductions
H2 CH4 opportunities
H2

Utilising gas Customer infrastructure with hydrogen can achieve choice remains decarbonisation at half at the centre of reducing the additional cost of emissions full electrifications

The long term
H2 transition needs
CH4 policy support
Foreword

Gas Vision 2050 is the gas industry’s The gas industry is taking practical steps commitment to lowering carbon emissions towards net-zero emissions by: in line with the aims of the Paris Agreement • Engaging with customers to better on climate change. The recently held climate understand their energy needs and conference in Glasgow (COP26) in late 2021 aspirations, continues to show global support for rapid decarbonisation. • Investing in research and development of
new technologies,
Repurposing existing pipelines and networks with the use of renewable hydrogen and • Building projects to demonstrate how methane is the best solution to reaching renewable gas can meet customer needs, net-zero emissions. and

Actions across all sectors of the economy are • Advocating for the development of required. Natural gas provided 17.4 per cent technology-neutral policies.
of Australia’s total energy consumption in
As seen in the electricity sector, transitioning
2019-20. It is used in 49 per cent of homes
to fully renewable energy is a multi-decade across Australia for heating, cooking and
process. Similarly, early progress in renewable hot water. Gas also supports Australia’s
gas is creating a pathway to reach net zero commercial sector, and in high-temperature
emissions.
industrial processes and feedstock. Gas provided 21 per cent of Australia’s electricity Targeted policies and incentives are needed generation in 2019-20 and is enabling a to drive major cost reductions for renewable growing level of wind and solar power gas technologies that will enable the generation. overall energy sector to reach 100 per cent
renewables in the coming decades.
Gas infrastructure businesses are adopting internal targets to reach net-zero emissions Gas pipeline and distribution network by 2050 or earlier and major progress has businesses are on a pathway for a transition been made towards providing renewable gas towards renewable gas, focusing on hydrogen to customers. For the purposes of this report, and renewable methane. We have worked we are adopting a national renewable gas with DNV GL to identify key actions required target of at least 10 per cent by 2030 and a this decade to successfully transition to net
100 per cent renewable gas target by 2040 to zero emissions in line with global targets.
2050. Individual businesses are setting their Our assessment shows we are making strong own more ambitious targets. progress towards renewable gas in Australia’s
gas pipelines and distribution networks.

Andrew Dillon Steve Davies
Chief Executive Officer Chief Executive Officer
Energy Networks Australia Australian Pipelines and Gas Association

Deloitte Access Economics analysis (2016) based on Australian Bureau of Statistics data.
1
Foreword 1
Contents
Why gas is changing 3

Technology pathways 4

Purpose of this report 6

A supportive policy environment 9

Cross cutting actions 10

Bio and renewable methane pathway 13

Hydrogen pathway 17

Progress against key hydrogen actions 20

Learn More 22

Contact Us 23

2
Why gas is changing?

Natural gas supports Australia across Australian gas pipelines and distribution many parts of the economy. networks businesses are actively identifying
It is used as a feedstock and fuel in and completing the actions they can take to industrial processes to support the contribute to these commitments, with most agricultural and manufacturing sectors. It already having adopted net zero targets.
is used in businesses and homes to provide These businesses are working to make gas services such as heating, hot water and networks and pipelines ready to accommodate cooking. While natural gas is already a low any form of renewable and decarbonised gas emission fuel, the global move towards to reduce emissions.
net zero emissions means that we need to reduce emissions from gas even more.
All Australian states and territories have set themselves net-zero emission targets All Australian states by or before 2050 and many businesses are also making similar commitments. and territories have set
Prior to COP26, the Australian Government themselves net-zero adopted a commitment to achieve net zero emissions by 2050. emission targets by or
before 2050 and many
businesses are also making
similar commitments.

Box 1: Gas pipeline and distribution network businesses that have adopted net zero emission
ambitions and targets (April 2022)

3
Technology pathways

There are many technologies to reduce Due to the size of the transformation of the
emissions including energy efficiency and energy sector, and especially when considering
carbon offsets. But to reach net-zero, the the totality of electricity supply, gas supply
fuel itself needs to be replaced by renewable and liquid fuel supply, all of these pathways will
and decarbonised gases or could also contribute towards reaching net zero emissions.
potentially be replaced with renewable The challenge is to find the right mix of these
electricity. pathways to reach net zero emissions while
The three available pathways are: ensuring energy security and minimising the
overall cost of the energy system.
• Bio- and renewable methane, which
provides a carbon neutral equivalent to The Gas Vision 2050, Delivering a Clean Energy
natural gas and includes biomethane and Future1, showed that a decarbonised energy
synthetic renewable methane. system that continues to utilise existing gas
infrastructure is a cheaper option than full
• Hydrogen, which produces no greenhouse electrification and decommissioning the gas
gases when used as a natural gas network. Gas networks and pipeline businesses
substitute. are preparing to be ready to deliver renewable
• Direct electrification, which substitutes and decarbonised gases to contribute towards
natural gas use with electrical alternatives, Australia’s emission reduction goals.
can result in lower emissions when the In this report, we explore the pathways for
electricity grid is decarbonised. decarbonising gas using either hydrogen or
bio and renewable methane. We identify key
actions that need to be addressed, as well as
note progress against these. There are also
cross cutting and interrelated policy issues that
need to be addressed to develop a renewable
and decarbonised gas market.

Figure 1: Decarbonising pathways for natural gas.

Hydrogen H2

Bio and renewable methane

Electrification of gas services

1 Energy Networks Australia (2019), Gas Vision 2050: Delivering a Clean Energy Future, available from
www.energynetworks.com.au/projects/gas-vision-2050

4
An orderly transition, underpinned by a Reaching 100 per cent renewable and level playing field across decarbonisation decarbonised gas requires ongoing actions pathways, will work in the best interests of by gas pipelines and distribution networks consumers. businesses, customer representatives,
Whilst the need to transition is unified government agencies, market bodies, across all Australian states, the pathways appliance manufacturers, energy retailers and will likely differ between jurisdictions. the emerging renewable and decarbonised
The pathways described in this report gas production industry.
are generic in nature and can be used by individual gas pipelines and distribution networks businesses to inform their own decarbonisation plans. Three goals are An orderly transition, used to provide structure to the bio- and renewable methane and hydrogen underpinned by a level pathways. These are: playing field across
• Enabling blending of at least 10 per cent
renewable and decarbonised gas by
decarbonisation pathways,
2030; will work in the best
• Enabling a 100 per cent renewable interests of consumers.
and decarbonised gas supply to new
residential developments by 2030; and
• De-risking conversion to 100 percent
renewable and decarbonised gas supply
by 2050 across all networks.

5
Purpose of this report

This report provides a high-level summary • Security of Supply: A renewable and
of the detailed action plan2 that was decarbonised gas network needs to
developed by DNV GL on behalf of Energy maintain the high security of supply
Networks Australia and the Australian standards that currently exist, with very
Pipelines and Gas Association. rare unplanned interruptions, including
That plan was designed to identify the range through ensuring sufficient physical
of actions to deliver the three goals outlined network capacity, efficient and safe
above. Actions were reported for each of system operation, and access to sufficient
those goals across five tenets and four end renewable and decarbonised gas
uses, as noted in Figure 2. The tenets are: production and storage capacity.

• Customer Focus: Consumers today • Market Development: To achieve net
benefit immensely from cost-effective zero, the gases in the network need to be
and convenient gas supplies, and rely certified as genuinely renewable and low
on gas for a range of services, including carbon, enabling producers to produce
cooking, hot water, space heating, renewable and decarbonised gases at a
power generation and industrial heat competitive price, with customer contracts
and feedstock. The transition must forming the basis for project and long-
support consumers in the residential and term operational financing, together with
commercial, industrial, power generation appropriate market incentives.
and transport sectors to decarbonise • Supply Chain: The supply chain and skilled
in a cost-effective and convenient way, workforce needs to be available at the
keeping disruption to a minimum. right scale and with sufficient agility to
• Safety: The high safety standards that deliver the renewable and decarbonised
exist for the current gas networks need to gas transition on time, including the
be maintained, through the development provision of enough appliances and
of the best technology and procedures for other equipment, and to carry out the
renewable and decarbonised gases across installations, connections, and asset
the Australian gas system, including the upgrades safely and smoothly.
high-pressure transmission pipelines, the
low-pressure distribution network, and
end-user appliances.

2 DNG GL (2021), National Gas Decarbonisation Plan – Decarbonising Australia’s gas pipelines and networks, available
from www.energynetworks.com.au

6
Figure 2: National Gas Decarbonisation Plan Structure (Source: DNV GL).

National Gas Decarbonisation Plan

Renewable and 1. Blending of up to 10% by 2030 Net zero
decarbonised gas 2. 100% supply to new residential developments before 2030 gas network
objectives 3. De-risk a full 100% network conversion by 2050 in 2050

Delivery tenets Residential and Industry Power Transport
and end use commercial generation and
sectors sector coupling

Customer Focus Actions for Pipelines, Networks and Outside Organisations

Safety

Security of Supply

Market Development

Supply Chain

The detailed actions identified in the The metrics used are:
Plan have been aggregated and Figure 3: Qualitative assessment metrics used.
reported here as either cross cutting actions applicable to all renewable and Flag Definition decarbonised gases, or specific actions
Good progress has been made to for bio- and renewable methane or date and a solid forward work plan hydrogen. Significant progress against is underway.
these actions is reported in the tables below and a traffic light system is used to make a qualitative assessment of Some progress has been made this progress. to date and increased focus on a
forward work program is needed.
It should be noted that more work will be required in all the areas identified to reach to goals of a 10 per cent
Limited work has been completed blend or 100 per cent renewable and and a major focus on this area is decarbonised gas. The metrics provide required.
an indication of current progress and planned work to reach the goals.
A green metric indicates good progress to date and a solid work program is This report focusses on the main activities to underway to reach the goals. Orange progress renewable and decarbonised gas in and red metrics reflect a lower level of pipelines and distribution networks but is not a progress compared to areas marked with detailed stock take of all the activity underway a green metric. The intention is to draw across research organisations, government attention to these areas and to develop agencies, regulators and industry.
new activities to progress those areas.

7
Figure 4: High level roadmap to reach 100 per cent renewable gas by 2040 to 2050.

100%
RENEWABLE GAS
2040-50

2050
100% HYDROGEN
VILLAGE - 2030

AT LEAST 10%
NETWORK
BLEND - 2030
2030
HYDROGEN
HOUSE
2025-30
BLENDING
IN TOWN
2023

BLENDING FOR
INFRASTRUCTURE
& TECHNOLOGY INDUSTRY 2022

CUSTOMER
& COMMUNITY
ENGAGEMENT

BLENDING
IN PUBLIC
MARKETS NETWORK
& POLICIES
2021
ENABLING R&D

2020
BLENDING
IN PRIVATE
NETWORK
2018

8
A supportive policy environment

To reach the 10 per cent blend target by Governments need to continue to
2030 and the 100 per cent renewable and support the decarbonisation of gas through decarbonised gas target by 2040 to 2050 the following range of complementary will require ongoing support and focus no-regret policies, many of which are across industry and from governments, already in place.
businesses and customers.

For renewable and decarbonised gases, comprising both hydrogen and
bio and renewable methane:
• Continue supporting demonstration and commercial scale projects.
• Encouraging market development via renewable and decarbonised gas targets, certification
schemes and incentives.
• Enter into “reverse auctions” or “gas purchase agreements” for renewable and decarbonised
gas to encourage its take up in the market, similar to actions undertaken via the Victorian
Renewable Energy Target and local council actions.
• Enable gas networks to offer renewable and decarbonised gas opportunities in new
residential developments, which will fast-track the development of 100 per cent renewable
gas and ensure gas costs remain affordable for all gas users.
• Continue decarbonising electricity supply, which will be needed to produce renewable
hydrogen.
• Encourage technical regulators to work collaboratively with industry in developing safety
cases for demonstration projects, similar to the process adopted by the Health and Safety
Executive in the UK, which is an enabling regulator that works with industry to ensure
renewable gas projects can be safely deployed.

Hydrogen focussed policies. Bio and renewable methane focussed
• Support blending projects to gain
policies.
technical and regulatory experience, • Identify the resource potential of
customer acceptance and a pathway to biomethane, either from local biomass
commercial opportunities for hydrogen. resources, or from interstate resources
that can be shipped using existing
• Support the development of renewable
transmission pipelines.
hydrogen to support decarbonisation
of industrial processes. • Facilitate collaboration with gas
networks, technology vendors,
• Support local appliance manufacturers
and resource providers to develop
to provide accredited hydrogen
commercially viable biomethane projects.
appliances.
• Support policies to recognise the value of
• Enabling opportunities for network
circular economy benefits.
businesses to deliver hydrogen to new
residential developments.

9
Cross cutting actions

Significant progress has been made since the
launch of Gas Vision 2050 to develop renewable
and decarbonised gas options.

The transition to clean energy is complex While the final mix of these renewable
process that requires strategic and and decarbonised gases in each network
cross-sectoral thinking to consider the is yet to be determined, there are a
broad range of energy sources and their number of cross-cutting actions that are
diverse applications. critical, whatever the future gas mix or
Significant progress has been made pathway. Additional actions for the
since the launch of Gas Vision 2050 different pathways are described in the
to develop renewable and decarbonised following sections.
gas options.

Table 1: Cross cutting actions to decarbonise gas networks.

Action Progress Flag

Consumer Engagement All pipeline and network businesses are
undertaking consumer engagement on
Comprehensive public, property
renewable gases, including as part of their
developer and industry engagement
access arrangement proposals.
to build support for the renewable gas
transition and ensure that consumers FFCRC: 10 research projects focusing on
and the supply chain are ready. community engagement.

Joint planning Australian Hydrogen Centre prefeasibility
studies on blending.
With varying renewable electricity,
biomethane feedstock, CCS availability AEMO’s draft Integrated System Plan
and other factors in different regions, (2022) includes a hydrogen scenario
the mix of renewable hydrogen and and considers the impacts of electricity
methane in the transition will vary across transmission requirements.
networks. Joint planning, including with
The South Australian government has
renewable gas producers, electricity
developed a hydrogen modelling tool
generators and electricity networks, will
that considers other resources.
help to ensure the most cost-effective
https://hydrogenexport.sa.gov.au
and sustainable transition in each region

Business case Frontier Economics (2020), The benefits of
gas infrastructure to decarbonise Australia.
Ultimately, markets need to be
developed for renewable gases, as they Clean Energy Finance Corporation (2021),
have been for renewable electricity Australian Market Hydrogen Study.
generation. A joint business case
Australian Hydrogen Centre (2022),
should therefore be developed for both
Feasibility studies on 10 % hydrogen blend
renewable methane and hydrogen,
and 100% conversion for South Australia and
complementing the joint planning
Victoria.
described above, to demonstrate to
outside organisations how renewable Individual studies for 10 MW blending
gas can be developed and substantial projects in WA and VIC being progressed.
emissions reductions achieved cost-
effectively.

10
Action Progress Flag

Regulatory changes.
Removing regulatory roadblocks formed through historical regulation which didn’t consider renewable gases and setting in place regulatory frameworks within which a renewable gas economy can develop, will be key to forming a foundation from which renewable hydrogen and biomethane industries can grow.

Technical regulation FFCRC Regulatory mapping project
completed and identified gaps in technical,
Update gas quality regulations for
environmental and economic regulation for renewable methane and hydrogen and
renewable gases.
agree billing methodology for blends.
A hydrogen specification will be A new subcommittee on hydrogen needed, and policy decisions will need technologies has been established under to be made on new and converted Standards Australia.
100 per cent hydrogen networks,
Australian Standard AS/NZS4564-2018 – including mandating hydrogen-ready
gas distribution network management has appliances.
included scope to allow hydrogen blends.

Environmental regulation FFCRC Regulatory mapping project
completed and identified gaps in technical,
Develop environmental management
environmental and economic regulation for and land use regulations for renewable
renewable gases.
gas, including water supplies and bio feedstocks. National Greenhouse
Energy Reporting Scheme (NGERS) and other relevant schemes should also recognise renewable gases in energy and emissions reporting frameworks.

Economic regulation Johnson Winter & Slattery (2017), A report
on the injection of hydrogen and biogas into
Updates to the National Gas Law to
gas distribution networks.
allow it to cover renewable gases.
FFCRC Regulatory mapping project
completed and identified gaps in technical,
environmental and economic regulation for
renewable gases.
Australian Energy Regulator (2021),
Regulating gas pipelines under uncertainty –
information paper.
DISER and market bodies undertaking
reforms to the National Gas Regulatory
Framework to support renewable gas
blending – draft report published
March 2022.

11
Action Progress Flag

Market development.
A renewable gas market will be key to enabling the development of green gas uptake through gas
networks and pipelines.

Certification The Clean Energy Regulator is commencing
trials for a Hydrogen Guarantee of Origin
Green gas certification schemes are
(GO) scheme. (11 Dec 2021)
required to give customers confidence
they are purchasing a green product. GreenPower is progressing a certification
pilot scheme for biomethane, which is
expected to be running in 2022

Renewable gas target Oakley Greenwood (2019), Renewable gas
blending scheme.
A renewable gas target, similar to the
existing renewable energy target for NSW has established a 10 per cent
electricity, would help to underpin renewable hydrogen blend goal in networks
investment in renewable methane and by 2030, with regulations in place.
hydrogen and support the market
WA has an aspirational target of 10 per cent
creation renewable gases.
by 2030.
FFCRC: Renewable gas target modelling
project commencing in early 2022.

Market access Energetics (2021), Renewable gas
certification pilot design.
Market access is needed to enable
renewable gas demand to access Commercial arrangements between
supply through pipelines and networks. renewable gas production projects and
This includes the development of offtakers (eg Hydrogen Park SA and other
green gas standards and tradeable projects in various stages of development).
certificates.

Early asset financing ARENA has supported hydrogen R&D,
hydrogen demonstration projects and
Early market supply can be seeded
allocated $103.3 million towards three
through existing government financing
commercial-scale renewable hydrogen
frameworks.
projects with electrolyser capacity over
Access to lower risk financing will 10 MW (May 2021).
be key to enabling first supply into
ARENA funding of $33.5 million to further
potential renewable gas markets, after
support Australia’s bioenergy sector (Nov
which market forces can take over.
2021).
Clean Energy Finance Corporation -
$300 m Advancing Hydrogen Fund (2021).
Emission Reduction Fund methods being
updated for biomethane blending in
networks.
State government funding schemes
(e.g. NSW Hydrogen Strategy4).

Market incentives Australia’s technology roadmap sets a target
of $2/ kg for clean hydrogen production.
If the renewable gas market does not
take off in line with emissions reduction
targets, additional financial or retail
market incentives could be developed
to stimulate the market.

4 www.energy.nsw.gov.au/renewables/renewable-generation/hydrogen

12
Bio and renewable methane
pathway

Bio and renewable methane is the Alternatively, biogas produced from landfill renewably produced equivalent of or wastewater facilities which is either flared natural gas. or used to generate renewable electricity
It can readily be produced in biodigesters could also be processed to meet natural gas that convert organic feedstock to a mix of specifications and then blended into the methane, carbon dioxide and water5, or a networks.
synthetic process using hydrogen. Additional Synthetic renewable methane can also play a processing may be required to ensure role to complement the availability of organic that the final product meets the natural feedstock. This involves reacting renewable gas quality specification. This can then be hydrogen with carbon dioxide to produce odourised, compressed and blended into the synthetic renewable methane. This technology gas pipelines and distribution networks. is at early stages of commercialisation but
can complement the natural availability of
renewable methane.

Bio and renewable methane
Figure 5: Bio and renewable methane pathway

Organic Biodigestor
Waste

Clean up Biomethane

Landfill Gas capture

Gas pipelines
and networks

CO2

Seasonal
storage
H2

Green Process Renewable
hydrogen
methane

5 Some other components may also be present.

13
Replacing natural gas with 100 per cent A more recent estimate by ARENA7 found
bio and renewable methane can be achieved the total theoretical resource potential
by incrementally increasing the bio and across Australia is over 2,600 PJ pa.
renewable methane blend into the gas In comparison, gas networks provided
pipeline or distribution networks as new 166 PJ of natural gas to residential and
supply sources are developed. Bio and commercial customers in 2019/20.
renewable methane plants are more widely There is a significant difference between
distributed compared to traditional natural the theoretical resource potential and the
gas field and as such will require more resources that are technically, commercially
blending units into the gas infrastructure and sustainably accessible. More detailed
system. analysis needs to be completed for
Blending bio and renewable methane into individual regions.
the gas network is already widely practiced Given the broad range of feedstocks and
in Europe, and rapidly progressing in processes, the cost of producing biomethane
Australia. can vary significantly between regions. Future
The main advantage of this pathway is Fuels CRC has developed an assessment
that no changes are required to pipelines, framework for bio methane injection into gas
networks or appliances. But the biomethane networks and identified how cost parity with
pathway relies on supplying enough organic natural gas can be achieved (see Box 2).
feedstock to replace the current volumes
of natural gas. This requires an improved Developing the bio and renewable
understanding of the biomass potential that methane pathway
can be collected and processed. A high-level
Due to the similarity between natural gas
estimate by Deloitte Access Economics6
and bio and renewable methane, no changes
found potentially 371 PJ of biogas could be
will be required for transporting or using
produced per year from collecting organic
the bio and renewable methane. The same
feedstocks across Australia, including
safety measures as for natural gas can
municipal waste, food processing waste
continue to be used. Developing the bio and
and agricultural cropping waste.
renewable methane pathway requires focus
on the supply side, covering the availability
of organic feedstock and appropriate policy
and market developments to incentivise the
industry. The table below identifies the key
Blending renewable actions to progress the bio and renewable
methane pathway.
methane into the gas
network is already widely
practiced in Europe, and
rapidly progressing in
Australia

6 Deloitte Access Economics (2017), Decarbonising Australia’s gas distribution networks, a report for Energy
Networks Australia.
7 ARENA (2021), Australia’s Bioenergy Roadmap.

14
Box 2: Achieving cost parity of biomethane with natural gas

An assessment by Future Fuels CRC8 demonstrated combining resources into a single
larger facility compared to multiple smaller facilities achieves major cost savings for
biomethane production. This production cost can approach the price of natural gas in
Australia, when biogas plants can offset their operational costs with the other product
streams such as profits from the digestate used to produce fertiliser, or the inclusion of
avoided land fill “gate fees” for feedstock diverted to produce renewable methane.
Alternatively, or in addition, renewable heat incentives or carbon credits such as those
used in Denmark or the UK can also help achieve cost parity if applied in Australia.
Appropriate policy support for the development of the renewable methane industry
in Australia is a significant factor in achieving cost parity with natural gas and making
renewable methane a commercially competitive option.
The assessment demonstrates that renewable methane production can be commercially
competitive with natural gas when other revenue options or supportive policy
mechanisms are introduced.

Figure 6: Revenue options and policy schemes can reduce biomethane production costs to reach
gas price parity (Source: Future Fuels CRC, ENA Analysis)

30
Cost of biomethane production ($/GJ)

25

20

15

Sydney natural gas price
(2016-219)($/GJ)
10

5

0
Distributed plant Single plant $100 fertiliser Fertiliser profit and $40 UK Renewable UK RHI +
profit gate fee avoidance heat incentive Carbon credit

Plant configuration Revenue options Policy options

8 Future Fuels CRC (2020), RP1.2-03: Assessment framework for bio-methane injection in gas networks.

15
Table 2: Bio and renewable methane pathway actions

Action Progress Flag

Securing the biomass supply chain. The ARENA Bioenergy Roadmap indicated
a theoretical biomass potential of over
The feedstock needed for biomethane
2,600 PJ pa across Australia. This roadmap
production is diverse and variable
identifies assessing the economically
across the year. The quality of
recoverable biomass as a priority.
feedstock will depend on the process
adopted to produce biomethane. Jemena has completed an assessment of
biomethane potential in NSW and estimated
Any feedstock used should be
there is at least another 30,000 Terajoules
sustainable and not compete with other
of biomethane that has the potential to be
agricultural and forestry resources.
unlocked around NSW’s gas infrastructure.
Securing supply chains for appropriate That’s enough to supply current residential
biomass feedstock is one of the biggest customers in NSW with biomethane.
technical challenges.
Detailed project studies have been
completed by FFCRC for Griffith (NSW) and
Adelaide (SA).

Connecting a diverse range of FFCRC project: Integrated model for bio-
biomethane producers to the network. methane injection in gas networks
The introduction of smaller biomethane FFCRC project: FutureNet: Connecting and
producers coming into the market managing Renewable Gas projects across
will require a better understanding of Australian gas.
how pipeline network flows can be
FFCRC project: Regional case studies on
maintained to ensure reliable supply of
multi-energy system integration.
gas to customers.
Biomethane Injection guideline under
preparation by the Renewable Gas Alliance
of Bioenergy Australia.

Quality specification FFCRC project: Biomethane injection into
the gas network: impact of impurities on the
Some biomethane feedstocks may
performance of end use.
result in additional constituent
components compared to the natural
gas specification. Further work
is required to determine whether
these components create any safety
concerns.

Demonstration projects
• Jemena Malabar wastewater biomethane project, Sydney, operational in 2022.
• Southern Green Gas - Wallumbilla Renewable Methane Demonstration Project, operational in 2022.

16
H2 Hydrogen pathway

On its own, hydrogen creates In an electrification pathway, hydrogen will be opportunities to directly replace natural used as an industrial feedstock and to supply gas. But hydrogen has a broader role those very high temperature industries.
and an essential component in any of the The hydrogen pathway is much broader than decarbonisation options. In the renewable replacing gas with hydrogen in pipelines and methane pathway, hydrogen is a key distribution networks.
material to produce synthetic renewable methane to compliment biomethane.

Figure 7: Renewable hydrogen production.
Renewable hydrogen

Renewable
Energy H2

Electrolyser Hydrogen Gas pipelines
and networks

Seasonal
storage

17
The potential is that it creates opportunities Developing the hydrogen pathway
across many sectors of the economy, such as:
Reaching 100 per cent hydrogen in networks
• Improved utilisation of renewable will be achieved in two stages. The first one is
electricity generation by being able to use to blend at least 10 per cent into the network,
curtailed electricity to produce hydrogen, followed by a second stage of conversion of
• Supporting stability of the electricity grid the network to 100 per cent hydrogen.
through both long term storage and being The main objective of the blending stage is
a variable load that can be switched off about engaging with customers, building
quickly but also by being a fuel that can scale and preparing for a conversion
be used to generate electricity during low to 100 per cent including assessments
renewable generations (similar to the role of infrastructure suitability, scaling up
of natural gas peakers today), hydrogen production and developing a
• Being an industrial feedstock where local manufacturing capability for hydrogen
hydrogen can be used instead of appliances. The second stage would involve
natural gas, making modifications to infrastructure to
ensure safe operation, replacing natural gas
• Utilising geological energy storage to appliances with hydrogen appliances and
meet seasonal heating demands in colder replacing the fuel in pipelines and networks
regions, with hydrogen. Introducing the right policy
• Mobility options including freight and options at the right time will be important
passenger vehicles, to facilitate that conversion, for example,
• Replacing diesel in stand-alone remote enabling the introduction of hydrogen ready
power options, and appliances before the conversion is planned
to take place.
• Creating renewable energy export
opportunities for Australia. The hydrogen pathway will require actions
across the whole supply chain, supported by
There are a variety of technologies to market development settings and supportive
produce hydrogen. Renewable hydrogen is policy options.
created from splitting water using renewable
electricity and produces green hydrogen.
The process of electrolysis is well understood
but the cost of green hydrogen is not yet
competitive with the fuels it would substitute.
The Australian government9 has set a The hydrogen
production target of $2/kg hydrogen. At this
price point, hydrogen becomes commercially
pathway will require
competitive for a number of industries actions across the
where natural gas is used as a feedstock.
With further improvements in technology
whole supply chain,
and reductions in renewable electricity costs supported by market
(the main cost input for hydrogen), cost will
decrease further so hydrogen becomes a
development settings
commercially competitive option to displace and supportive
natural gas for heating (Box 3).
policy options.

9 Australian Government (2020), First Low Emissions Technology Statement - 2020

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BOX 3: Renewable hydrogen’s opportunity to become competitive with natural gas.

The present cost of renewable hydrogen production means it is only economically
competitive against incumbent fuels in a small proportion of industries. The Clean
Energy Finance Corporation10 (CEFC) found that remote power, line haul vehicles,
materials handling and return to base vehicles were the only opportunities that
represented a net economic benefit for hydrogen based on 2020 data. This primarily
reflects the high fuel costs of those industries. Reducing the cost of hydrogen
production through reductions in electrolysers manufacturing costs, bringing down the
cost of renewable electricity and optimising the capacity factors of electrolysis plants
makes the economic benefits of those sectors greater and creates new economic
opportunities for other sectors.

Using the CEFC data, there is an economic gap to replace natural gas with hydrogen
in gas networks. This is partly due to the much higher production cost on a $/GJ of
hydrogen compared to natural gas but also does not recognise the potential economic
benefit from reduction in carbon emissions when using renewable hydrogen. As
renewable hydrogen technology develops, the economic gap for hydrogen in networks
reduces to reach parity with natural gas in the early 2030’s.

Blending hydrogen in gas pipelines and distribution networks by 2030 will create
the background knowledge and establish the correct policy settings to support a
conversion to 100 per cent hydrogen. There will be a need for supportive policy
settings and short-term incentives during this blending phase as the technology
develops and the economic gap disappears.

Figure 8: Closing the economic gap for hydrogen to replace natural gas in networks.
2020 2030 2050
$1.50

$1.00
Economic gap ($/kg)

$0.90/kg
$0.50

$0.00
-$0.10/kg

-$0.50

-$1.00

-$1.50
-$1.50/kg

-$2.00

10 Clean Energy Finance Corporation (2021), Australian hydrogen market study – sector analysis summary

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Progress against key hydrogen actions

The next five years are critical to the Hydrogen is a different gas compared to
renewable hydrogen transition – this is methane and has some differing properties
when the 10 per cent blending trials and that need to be considered. There are
the preparatory work for 100 per cent concerns about the potential of hydrogen
trials in new property developments needs embrittlement in steel pipelines, and its
to take place. performance in appliances. There is extensive
work underway across a variety of projects to
test these issues. The table below identifies
the major actions that should be progressed
for hydrogen.
Table 3: Hydrogen pathway actions

Action Progress Flag

Safety: Gas distribution networks. Australia’s gas networks are being replaced 10% Blend
with plastic materials as part of an ongoing
The use of hydrogen in modern gas
safety program. These will make networks
distribution networks, which are
compatible with hydrogen.
mostly made of plastic materials, is
considered safe. Specific safety cases have been prepared for
hydrogen blending in the Hydrogen Park SA
Formal testing and safety cases need
project in Adelaide, and the Western Sydney
to be provided prior to blending up to
Green Hydrogen Hub (WSHH) in Sydney.
10 per cent hydrogen or conversion
to 100 per cent hydrogen. Other safety cases are under development 100%
for blending.
Active research and testing program
at Future Fuels CRC on plastic material
research. Test facility assessing the suitability
of network materials from all of Australia’s
gas distribution.
The Australian Hydrogen Centre is
completing feasibility studies of blending
and 100 per cent conversion in SA and VIC.

Safety: High pressure transmission Active research and testing program at 10 % Blend
pipelines. Future Fuels CRC for steel pipeline materials.
The use of hydrogen in steel GPA Engineering report completed on the
transmission pipelines has the potential potential to repurpose existing pipelines
to affect the ductility, toughness with hydrogen.
and fatigue life of the steel through
APA is completing a test program to enable
a process known as hydrogen
the conversion of 43km of the Parmelia
embrittlement. The National Hydrogen
Gas Pipeline in WA into a hydrogen ready
Strategy11 recommended not allowing 100%
pipeline.
any hydrogen in these pipelines unless
testing was completed. A new pipeline is being used for hydrogen
storage as part of the WSHH project.
Formal testing and safety cases need
to be undertaken before hydrogen is AGIG has completed a feasibility study
injected into transmission pipelines as of blending hydrogen into the Dampier
part of blending programs. Bunbury Pipeline in WA12.

11 COAG Energy Council (2019), Australia’s National Hydrogen Strategy, Action 3.15.
12 www.mediastatements.wa.gov.au/Pages/McGowan/2022/01/New-reports-help-power-Western-Australias-hydrogen-
future.aspx

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Action Progress Flag

Appliances Active research on hydrogen blend impacts 10% Blend
on gas appliances at Future Fuels CRC
The performance of existing gas
for residential, commercial and industrial appliances with a hydrogen blends
facilities.
needs to be confirmed for both residential, commercial and industrial Safety cases of using natural gas blends on appliances. existing residential appliances have been
completed as part of the existing blending
Hydrogen appliances have been
projects.
developed in other markets (e.g. UK) but are not yet available in Australia. A safety case for blending using industrial 100%
appliances is underway for Hydrogen Park
For 100 per cent hydrogen, new
Gladstone.
appliances need to be developed and tested in Australia.

Security of supply FFCRC has modelled the opportunity
for using curtailed electricity to produce
Hydrogen can be produced via a
hydrogen and to model a uniform blend number of pathways. Producing green
across the network.
hydrogen, from renewable electricity, will require growth in renewable Integration of electricity supply and electricity generation. The integration electrolyser operation considered in business opportunities and system wide benefits cases for blending projects.
for hydrogen to link the electricity and
The Australian Hydrogen Centre is gas infrastructure are one of the key
developing high level plans for rolling out advantages that increase the reliability
100 per cent hydrogen in South Australia of electricity while also meeting the
and Victoria.
seasonal energy load provided by gas.

Demonstration projects
• ATCO, Clean Energy Innovation Hub, Perth – operational since 2018
• AGIG, HyP SA, Adelaide – operational since 2021
• Jemena, Western Sydney Green Hydrogen Hub project, Sydney – operational since 2021
• AGIG, HyP Gladstone, QLD – under construction/ operational in 2022
• AGIG, HyP Murray Valley – prefeasibility
• AGIG & ATCO, Clean Energy Innovation Park, WA - prefeasibility
• APA – Parmelia pipeline conversion, WA – prefeasibility study

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Learn more

Energy Networks Australia and the
Australian Pipelines and Gas Association
commissioned DNV GL to develop a national
gas decarbonisation plan.
This plan sets out how Australia’s gas
transmission pipelines and distribution
networks will deliver the objectives outlined
in the Gas Vision 2050 document to transition
to renewable and decarbonised gases.
The report is available from
www.energynetworks.com.au/projects/
gas-vision-2050

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