The International Energy Agency’s (IEA) call for an immediate end to new oil and gas developments would have a huge impact on the world’s largest liquefied natural gas exporter, Australia, meeting its supply contracts.
The IEA stated in a report this week that investment in new oil and gas developments needed to end immediately if the world was to reach its net-zero emissions ambition by 2050 and limit global temperature rises to 1.5 degrees Celsius.
Chief executive of Australian consultancy EnergyQuest, Graeme Bethune, told Upstream that ongoing investment was needed for Australia to meet its existing long-term supply contracts.
We're not going to shut down our coal industry or gas industry.
Australia’s Minister for Energy and Emissions Reduction, Angus Taylor
“Maintaining contracted LNG supplies to Asia requires ongoing investment, particularly in Queensland, so if you take what [the IEA says] literally, that would mean existing long-term contracts with North Asian customers couldn’t be met. You will recall the scramble for gas in North Asia last winter with prices at record levels,” he explained.
“As for new projects, it would mean Scarborough wouldn’t go ahead. So Australian LNG exports would certainly decline even faster.”
In addition to creating challenges for Australia in meeting its export contracts, Bethune noted that a lack of new gas developments would also create challenges for Australia’s domestic gas supply.
He also added another longer term issue the oil and gas industry would face without investment would be retaining skills and attracting new people “if the industry is seen to be dying”.
Australian gas giant Woodside Petroleum acknowledged the release of the IEA’s report, with a spokesperson telling Upstream it provided “valuable insight into how the world could accelerate its energy transition to net zero by 2050”.
“The direction of the transition is clear and Woodside is already investing in emerging technologies like hydrogen and carbon capture, where we are well placed to succeed,” she said.
“But the pace of the transition depends on government, business and societal action, with the new IEA pathway representing the most ambitious end of the range of Paris-aligned outcomes. For its part, Woodside is working with its customers, all of whom are in countries that have committed to net zero, to ensure we can supply them with the energy they are seeking in order to achieve their decarbonisation pathways.”
Woodside is set to take a final investment decision on its 8 million tonne per annum Scarborough gas development later this year.
In responding to how the IEA’s finding would play into the company’s investment plans, the spokesperson stated: "Scarborough FID will take into account a range of potential future pathways, critically including our customers’ actual demand for gas in their decarbonisation pathways.”
Industry takes findings 'with a grain of salt'
In its initial reaction on Tuesday, upstream industry body, the Australian Petroleum Production & Exploration Association (APPEA), claimed “the benefits of the oil and gas industry are writ large” in the IEA’s report.
However, in subsequent comments on Wednesday, APPEA chief executive Andrew McConville warned some of the report's findings should be taken “with a grain of salt”, noting it highlighted only one possible scenario.
“There are many ways to get to net zero and the IEA just looked at one narrow formula,” he said.
“The IEA report doesn’t take into account future negative emission technologies and offsets from outside the energy sector. Two things that are likely to happen and will allow vital and necessary future development of oil and gas fields.”
McConville added the Australian oil and gas industry was already on the path to meet some of the challenges highlighted in the IEA’s report.
“Our industry has the technology, skills, experience and commercial relationships to develop a world-scale hydrogen industry both domestically and for export and to significantly scale up carbon capture and storage activities,” he said.
“Australian gas is already helping reduce emissions in Asia and this will continue for decades to come. The Australian government estimates that our exports of liquefied natural gas help reduce emissions in importing countries by about 170 million tonnes each year — the equivalent of almost one-third of Australia’s total annual emissions.”
Government continues to back coal and gas
Australia’s Minister for Energy and Emissions Reduction, Angus Taylor, dismissed the IEA’s call for an immediate end to new investment in fossil fuels.
“Well, we're not going to shut down our coal industry or gas industry. I think they also said that oil has got to go too, straight away. Look, that's not what we're going to do,” he told Sydney radio station 2GB on Wednesday morning when giving his reaction to the IEA's report.
“We are bringing emissions down, they're 19% on our 2005 levels. We're one of the few countries in the world that has been absolutely smashing our targets. But we're going to do it in a sensible way and in a way that ensures that we've got that affordable reliable power that Australians need.”
The Australian government has been touting a “gas-led recovery” for the nation’s economy from the Covid-19 pandemic, looking to shore up additional investment in gas development and unlock reserves in the Beetaloo, North Bowen and Galilee basins.
Australia’s Minister for Resources, Keith Pitt, had been visiting LNG projects in Western Australia and talking up the future viability of the industry just hours before the release of the IEA report on Tuesday.
“Global gas demand is forecast to grow by 1.5% on average per year out to 2025, providing incentive to ensure our large gas fields like Scarborough and Browse are developed as soon as possible,” he said.
“Australia’s large upcoming offshore gas developments such as the Scarborough, Browse and the Barossa projects will create thousands of new high-wage jobs, including nearly 5000 jobs during construction and more than 1000 operational jobs.”
Green groups back IEA's call
However, climate groups called on the Australian government to heed the call from the IEA to put an end to new fossil fuel investment and increase investment in renewables.
Simon Bradshaw, the head of research at Australian non-profit climate change organisation Climate Council, said the IEA’s report added to the “growing body of evidence” the Australian government’s plan for a gas-fired recovery from Covid-19 was unnecessary.
“Instead of spending public money on gas, which will increase electricity prices and worsen climate change, Australia can and should be working towards net zero emissions by 2035, and capitalising on the benefits of leading the global transition to renewables,” he said.
“We need urgent emissions reductions this decade to curb dangerous climate change and acting fast has many benefits for Australia. By choosing to look the other way, the government is risking people’s lives and livelihoods.”