EL: Matthew, can you tell us about the early origins of gas in Australia?
MC: In the past, a lot of the gas we originally used in Australia was called ‘town gas’, ‘syngas’ or ‘coal gas’. This was a blend of hydrogen, carbon monoxide and methane that was produced from coal using a process called the ‘Lurgi process’, named after its inventor in Germany. Incidentally, one of the pipelines in Victoria is still called the Lurgi Pipeline because this pipeline was built to supply town gas from the brown coal gasification plant in Morwell.
During the 60s and 70s, natural gas was discovered in Queensland, South Australia, Victoria, and Western Australia. Pipelines were built to supply the major cities and towns, enabling town gas to be replaced by the natural gas we use today.
EL: Where is gas produced and extracted in Australia?
MC: In Australia, there are two sources of natural gas – conventional natural gas and coal seam gas. Conventional natural gas, which is mainly methane with some ethane, was historically the only source of natural gas in Australia. It is produced from onshore and offshore gas wells in Victoria, South Australia, Queensland and Western Australia.
Usually the production of this natural gas is accompanied by the production of LPG (liquefied petroleum gas) and condensate, which is sent to a refinery to produce petrol. In some cases crude oil is also produced from these oil and gas fields.
More recently, natural gas has been extracted from underground coal seams in Queensland, hence its name, coal seam gas. This natural gas is mainly methane and is used to supply domestic Australian demand and to produce LNG (liquefied natural gas at -160 degrees Celsius) for export.
EL: Generally speaking, what do we use gas for these days?
MC: There are three main uses: For domestic and commercial heating, including space heating, hot water and cooking. In industrial processes, including everything from milk processing and growing hydroponic tomatoes, to paper, chemical and plastics manufacturing, oil refining, and glass and steel production. And finally, as a fuel for gas-fired power stations.
EL: Has this changed over the years?
MC: Some industrial users of natural gas such as the car industry have closed, but many others continue to operate. Much of the decline in the use of gas has been offset by population growth, particularly during winter when there are more homes to heat.
The closure of coal fired power stations in Victoria and South Australia, together with the rise of renewable energy, has seen an increasing dependency on gas for electricity generation in gas-fired power stations, especially when renewable energy production is low.
Natural gas usage for power generation typically increases during periods of peak electricity demand, which is during hot summer weather when air conditioning use increases. Natural gas is also used for power generation during winter to supply domestic and commercial customers that use electric heating including reverse-cycle air conditioners (also called heat pumps in Tasmania).
EL: Why are we forecasting a shortfall in gas production in Australia?
MC: Australia is a very large producer of gas. As I have mentioned earlier, gas is a key source of energy for heating and industrial processes and it has become critical for maintaining electricity supply in Australia.
While there is plenty of gas being produced here, production from offshore Victoria in particular, is reducing. Victoria also supplies gas to Tasmania, New South Wales, ACT and South Australia. If Victorian and South Australian gas production is less than the gas use in Victoria, Tasmania, New South Wales and South Australia, additional gas would need to come from Queensland or from some other source. If supply from Queensland is increased, eventually the supply pipeline from Queensland would need to be expanded or another pipeline built.
LNG import terminals in Victoria and New South Wales have also been proposed as an alternative source of supply. The reasoning for LNG imports is that this may have a lower overall cost compared to building new pipeline capacity if it is mainly used to supply winter peak demand (Victoria’s monthly winter gas consumption is almost triple the typical monthly consumption during summer).
EL: Is this related to the increasing price?
MC: Yes. Unfortunately, most of the easy to extract, cheap gas has been used. As reported by the Australian Competition and Consumer Commission (ACCC), the three large gas fields that supply the Longford Gas Plant in Victoria are nearly empty – they have been producing since the late 60s and early 70s. Gas production in Port Campbell, Victoria is also forecast to reduce by around 80 percent over the next five years.
These fields have provided gas that was available for $4–5 per gigajoule (GJ) in the wholesale gas market (a gigajoule is 1,000 megajoules).
Gas is being produced from other fields to supply the Longford Gas Plant, but these fields are smaller and it costs more to develop these wells compared to the 60s and 70s. Some of this gas also contains impurities such as mercury and carbon dioxide, which needs to be removed with more expensive equipment so that the gas is safe to pipe to homes and factories.
These new fields contain no crude oil and less condensate, so natural gas sales need to be high enough to pay for the cost of developing a new gas field. Some gas fields could cost more to develop than the gas can be sold for, so the field is not developed.
The current wholesale market gas price is $8–9 per GJ. Transmission and distribution pipeline costs need to be added to this. There may also be additional costs if an industrial customer uses more gas in winter due to the cost of winter gas contracts and gas storage.
A higher gas price is expected to make additional sources of gas supply economic to produce, so supply would be increased, which could ultimately help stabilise gas prices. As I said earlier, higher prices may make other sources of gas such as larger pipelines or LNG imports more attractive, resulting in competing sources of gas supply.
EL: What does the future hold for gas in Australia?
MC: Natural gas will continue to play an important role in Australia for many years to come. Sometime into the future though, hydrogen may begin to supplement and replace natural gas. This is likely to be in other countries before Australia.
Some companies are now looking at generating hydrogen from excess supplies of renewable energy. Those who remember their high school chemistry might recall that when you use electrolysis on water, you can create hydrogen - hydrogen was the gas that went pop in the test tube in the lab.
On an industrial scale, the hydrogen could be produced when there is an excess supply of electricity from renewable energy. This hydrogen can be stored in pipelines and blended into natural gas distribution pipelines at a concentration of up to 10 percent.
There is a study that is currently investigating converting Leeds, the third largest city in the UK, to have a pipeline supply of hydrogen instead of natural gas (it is called Leeds 21). I initially questioned the safety of hydrogen pipelines until it was pointed out that town gas used to contain a lot of hydrogen, and cities like Singapore and Hong Kong still use piped town gas. In a way this is back to the future – obviously with some significant technical challenges along the way!
To view AEMO's update to the Victorian Gas Planning Report please click here.More resources: