Gas has been making lots of headlines throughout this election campaign and both major parties agree it’s an important part of our energy system.
The Coalition has made it the centrepiece of its plan to bring down electricity prices, promising more gas, making it cheaper, and keeping more of it in the country.
As we enter the final week of this election campaign, there are a few things to know about the role of gas in Australia.
We will step through how much we actually use, how it plays into our power bills, and what role it plays in the energy system of the future.
What do we actually use gas for?
In Australia, gas is used both directly in households for cooking, hot water and heating, as well as generating electricity that then powers homes and businesses.
Some 3 million Australian households are still connected to gas. In Victoria, it’s 90 per cent of homes, although that figure is dropping (more on that later).
Gas is also used in businesses and by large industrial manufacturers.
Gas currently plays an important role in the electricity mix in Australia because it can turn on at short notice and quickly provide power to the grid.
Despite this critical role, gas only makes up 6 per cent of the overall electricity mix in the National Electricity Market.
Increasingly, batteries are taking that role in the grid, and in places like California, are already pushing out gas at those peak hours.
Even in a renewables-dominated grid, gas is forecast to play a small but ongoing role for decades to come.
Australia has lots of gas
You might have heard of a looming “gas crunch” in Australia, but there’s more to unpack.
The gas fields off the coast of Victoria that traditionally supplied the southern states are running out, and there have been warnings of a looming gas crisis in recent years, prompting both sides of politics to tussle with this issue.
We have plenty of gas, it’s just that we send most of it overseas. This gas is mostly produced in northern Australia, adding the challenge of how to transport it to the south where supplies are dwindling.
In 2021, Australia was the world’s largest exporter of LNG (gas that has been condensed to move around by ship), and 75 per cent of the gas produced in Australia was exported.
That’s where a domestic gas reservation policy comes into play. The Coalition is proposing to keep in Australia some of the gas that would be sent overseas, but as yet hasn’t been sold in long-term contracts.
“This will secure an additional 10 to 20 per cent of the east coast’s demand — gas which would otherwise be exported,” Opposition Leader Peter Dutton said.
“Gas sold on the domestic market will be decoupled from overseas markets to protect Australia from international price shocks.”
As part of it, the Coalition is also supporting new gas projects, but there isn’t a lot of detail about how these policies would work.
While many energy experts support a reservation policy in theory, they have questioned whether the plan will deliver on lower power prices, or how quickly any new gas projects could come online.
But it would be almost impossible to bring gas prices down to make them cheaper than renewables, which the CSIRO and other researchers have found to be the cheapest form of electricity.
Loading…Gas is expensive in Australia
Australia used to have cheap gas, but gas prices have more than tripled since Australian gas started being exported overseas.
Then, Russia’s invasion of Ukraine led to a boycott of Russian gas, which sent gas prices spiking even further.
Gas often ‘sets the price’
When it comes to gas-fired electricity, gas isn’t used much overall in the National Electricity Market (which doesn’t include the Northern Territory or Western Australia).
In fact, it’s being used less than it was a few years ago.
It usually comes online at peak times when demand is high, especially in the evening when the sun goes down, solar power fades just as people arrive home from work.
Throughout the day, the wholesale cost of electricity changes depending on how much power is being used and what’s providing that power. Every energy provider sells their power in the market at different prices to cover their costs.
Gas generators usually sell their power at a higher price than renewables for a couple of reasons: they often come online for a short time and have to cover the cost of the gas that’s being burnt.
But here’s the catch: every power generator selling electricity to the grid at that time is paid at the rate of the most expensive generator, so everyone will get paid the gas price.
That is what’s meant by “setting the price”.
This has resulted in gas pushing up the wholesale power prices in recent years. Wholesale prices aren’t the same as the price you pay for electricity on your bill, but it is a significant factor.
The Clean Investors Industry Group, which represents renewables investors, recently crunched the numbers on Australia’s electricity prices and found that without any renewables, prices would have been between 8 and 22 per cent higher last year.
How much gas do we use in Australia?
The chart below looks at all the different areas where gas is used in Australia.
As you can see, the largest chunk of Australian gas is sold overseas.
The LNG industry — that is, the gas export industry — is the largest single user of Australian gas, burning gas to compress and process more gas to send overseas.
Outside of the LNG industry, gas use in Australia is going down in homes, businesses, and power generation.
The agency that oversees the energy market, AEMO, said the reduction is because of high gas prices, as well as more households moving to electric appliances and cutting their gas use.
Large industrial manufacturers have been hit hard by the high gas prices, and some have been forced to close, again reducing the demand for gas.
In the electricity sector, although gas is expected to still play a role in the decades to come, big batteries will increasingly push down gas use by dispatching their power at those key moments in the evening when people are using lots of power.
Energy market analyst BloombergNEF recently predicted that Australia is on the cusp of a big battery boom and they could increase eightfold, so this will undoubtedly change the role of gas in the future.
Gas is a fossil fuel driving climate change
All of this talk about gas in the current Australian election doesn’t change this critical fact: gas is one of the fossil fuels driving climate change, causing hotter global temperatures and more extreme weather.
For a long time, gas was touted as a “cleaner” option than coal, and therefore a useful “transition” fuel on the journey to a green grid.
But a groundbreaking study conducted in the United States last year found that American LNG was worse than coal when it came to emissions.
Gas industry reels as study finds it’s ‘worse than coal’
The peer-reviewed study by Robert Howarth, a professor at Cornell University, found that greenhouse gas emissions from LNG were 33 per cent greater than those related to coal over 20 years.
And while Australia’s LNG industry maintains its emissions are far lower than US counterparts largely due to different extraction methods, gas is responsible for high levels of methane, a far more potent greenhouse gas than carbon dioxide over a short timeframe.
“As a greenhouse gas, methane is more than 80 times more powerful than carbon dioxide when considered over a 20‐year period and so even small methane emissions can have a large climate impact.”
According to the study, methane leaked into the atmosphere at every point along the chain of gas production.
To reach our climate goals, and to stop catastrophic warming, fossil fuel use needs to go down.