APPEA 2016

Transport a new gas frontier

WHILE natural gas' role in Australia is likely to remain relatively stable over the next 30-40 ye...

Transport a new gas frontier

McKinsey & Co's Christiaan Heyning said in 2014 energy demand was around 4000 petajoules, and increasing demand will see demand increase by around 21% to 2030 on a business-as-usual case, servicing the needs of a population of some 30 million.

McKinsey believes power demand will go up, but the primary energy demand could go down, because renewables will make greater inroads, with solar likely to be the cheapest source of energy.

The majority of energy use is likely to remain in the transportation sector, and while that is dominated by liquid fuels, there is a huge market for gas that could also help reduce emissions.

McKinsey estimates that Australia, under its modelled scenario, has no chance of meeting its international obligations under the COP21 agreement, and will blow past its targets despite a 19% improvement in emissions intensity.

It has modelled a business-as-usual approach to energy supply suggests that the amount of renewables in the power sector would increase, while in other sectors the supply mix would remain largely unchanged.

Heyning told APPEA 2016 in Brisbane that the role of natural gas in 2030 was expected to be unchanged, as both a source of heat and feedstock for the industrial sector, however a large increase in gas consumption is expected to power Australia's expanding LNG production.

Demand is likely to increase from 36 billion cubic metres to 41Bcm, still around one quarter of Australia's energy demand.

But, if Australia seeks to break away from the business-as-usual scenario, adopting gas in more industries such as mining sector transport it could lower energy costs by $US900 million per annum and cut greenhouse gas emissions by a further 10 million tonnes pa by 2030.

While McKinsey sees that the industrial, residential and commercial sectors are unlikely to see significant changes, adoption of gas as a transport fuel could increase demand from 100 million cubic metres today to 3.7Bcm, making gas responsible for around 30% of transport demand,

Gas is cheaper than liquid fuels, and so there is an obvious argument made that it could be an ideal transport fuel, and McKinley says if changes are made then there could be savings worth up to $US1.4 billion per year saving 2.7MMtpa CO2-e.

He suggested that CNG or LNG could be used for road trucks, LNG could find a home in mining fleets, rail and shipping, while buses switching from diesel to CNG could result in total savings of US$1 billion annually by 2030. There would also be an emissions benefit. CO2 -e emissions could reduce by 1.7MMtpa.

Beyond road transport, Woodside is already making inroads into using LNG as a bunkering fuel in the offshore space, and there is a real opportunity in Australia to convert the rail network, he said.

While much of the city rail systems have been electrified, that is not the case for regional rail, especially the 1500 locomotives that use diesel to transport bulk commodities such as coal and iron ore. Switching half to LNG would save up to $US100 million in fuel costs and allow abatement of 200,000 tonnes per annum of CO2-e.

There have been just a few trials so far, but McKinley said the potential savings were worth further investigation, particularly as there may be potential infrastructure cost synergies with switching mining haul trucks to LNG, as energy could be supplied for both purposes from one LNG liquefaction facility.

In the power sector, using gas instead of oil for supplying electricity during times of peak demand and for captive off-grid electricity generation could save a further $US40 million annually by 2030, while at the same time reducing CO2 -e emissions by one million tonnes per year.

While not all of the options for new gas markets may be worth pursuing as additional infrastructure would be required to supply remote areas with gas, limiting the scope, there are likely to be take-ups in urban areas where the cost of development can be justified.

Heyning said increasing the utilisation of existing efficient gas plants in the power system, at the expense of more CO2-e emissions-intensive technologies could reduce CO2-e emissions at a cost of $US60/t of abatement.

"While this option comes at a cost, it could be worth considering as part of the overall approach to further reduce carbon emissions in the economy," he said.

Heyning said these changes will not be captured automatically, and there needs to be a drive from industry and government to drive the shift in the fuel mix towards natural gas - something that has not been successfully undertaken to this point, with CNG and LNG really failing to make in roads, even where LNG highways have been tried, such as on Tasmania's West Coast.

"The oil and gas industry, together with the power and transport industries, must jointly muster the required will and capital to invest.

"The reward is the potential dual pay-off of a stronger economy driven by a lower cost fuel mix, alongside lower CO2-e emissions," he said.

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