The body representing Australia’s upstream oil and gas industry has called on the federal government to back carbon capture, utilisation and storage (CCUS) to help the nation's nascent hydrogen industry.

In its 2022-23 budget submission, the Australian Petroleum Production & Exploration Association (APPEA) claimed Australia needed “low-cost abatement to maintain its position as a leading energy exporter and ensure international competitiveness in a lower-carbon future”.

APPEA believes Australia has the potential to become a world leader in CCUS, which could help pave the way for hydrogen exports, with the technology essential to produce lower emission blue hydrogen from natural gas.

Green vs Blue

Blue hydrogen is produced from natural gas feedstocks, with the carbon dioxide by-product from hydrogen production captured and stored. However, the process is not emissions free.

Green hydrogen is made using electrolysis powered by renewable energy to split water molecules into oxygen and hydrogen, creating an emissions-free fuel.

The industry group claims Australia has a natural competitive advantage when it comes to CCUS given its high quality, stable geological storage basins, along with its existing upstream oil and gas infrastructure, technical expertise and regulatory regimes.

Investment allowances

In its budget submissions, APPEA recommended the government introduce investment allowances specific to new energy activities and projects.

In particular, it stated tax write-off periods for new energy technology projects of national significance, such as low emissions technologies like hydrogen and CCUS, should be shortened to ensure they are globally competitive.

APPEA also called for front-end engineering and design costs for new energy projects to be treated as immediately deductible for tax purposes, as opposed to being capitalised and depreciated over time. It added that similar treatment should be extended to the cost and operation of pilot facilities.

It also wants a targeted uplift in the Research and Development Tax Incentive (R&DTI) for new energy activities, while the scope of what constitutes as R&D under the R&DTI should be expanded to include “demonstration” activities, such as the trialing of new pilot facilities, according to the submission.

APPEA also wants Australia’s Offshore Petroleum and Greenhouse Gas Storage Act 2006 (OPGGS Act) to allow for reservoir testing to occur for the examination of CCUS use.

While acknowledging the government’s recent announcement marking out five new areas in Commonwealth waters for exploring greenhouse gas storage opportunities, APPEA also wants the government to commit to a programme of work that includes consistent onshore and offshore acreage releases that target CCUS opportunities.

“With more experience, more gains in technology and larger areas of waters to work with, the cost of CCUS will fall and that means we can deliver not just competitive, large-scale abatement for industries in operation now, but we can create new industries based on hydrogen and ammonia,” APPEA said in its submission.

“When combined with natural gas, CCS can lead to a large-scale hydrogen industry, resulting in more jobs and more export dollars for Australia – a more prosperous economy. Creating a new hydrogen industry will help cut Australia’s emissions, will help lower the cost of energy and can help create new manufacturing opportunities.”

The recommendations come as Australia is looking to establish itself as one of the largest global hydrogen suppliers by the start of next decade.

A recent report showed Australia's hydrogen capacity could reach 100 megawatts by 2025, while gigawatt scale projects have been announced and are expected to come online over the second half of the decade, if they reach a final investment decision.

Data from Norwegian consultancy Rystad Energy last year revealed Australia had a total of 69GW of planned green hydrogen projects in the pipeline, while there are also plans for blue hydrogen production to take advantage of the country’s abundant gas reserves.

Allowances for oil and gas

In addition to calling for more support for CCUS and low emission technologies, APPEA also recommended in its budget submission the immediate deductibility of wages and salaries, as well as the removal of barriers to oil and gas project restructuring. It also called for investment allowances to apply to large-scale capital intensive oil and gas projects.

APPEA believes the introduction of an investment allowance would create an environment that incentivises investment and encourages domestic spending on oil and gas developments.

It also claimed the allowance could stimulate growth in capital availability, wages, employment opportunities and gross domestic product, while also raising national income.

APPEA chief executive Andrew McConville said the oil and gas industry was key to securing Australia’s global competitive advantage through its work ensuring energy supply and decarbonising for a clean energy future.

He added that APPEA’s plan outlined in its budget submission would help deliver cleaner, secure energy supplies while lifting the Australian economy out of the Covid-19 pandemic.

“Australia and its government have a massive, once-in-a-generation opportunity to make policy decisions to provide foundations for the future growth of our economy,” McConville said.

“A recent Ernst & Young report found national economic output could rise over A$350 billion (US$246.2 billion) and create over 220,000 jobs in the next 20 years – but only if the settings are right. And, of course, our industry will continue to deliver taxation revenue that helps to build the nation’s roads, schools and hospitals.”

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