Victorian Gas

A few weeks ago the Commercial Director of ExxonMobil Australia (1) warned that the Victorian government’s goal (2) of reducing domestic gas usage by 50% by 2030 could stymie future investment and result in higher prices for consumers. The CEO of Environment Victoria responded (3) by highlighting the need to reduce gas consumption to meet greenhouse gas targets and also suggested that wind and solar are making electricity a cheaper alternative to gas.

This verbal byplay is obviously part of the ongoing climate discussion and readers might regard the contributions from both Exxon Mobil and Environment Victoria as familiar and predictable. Is there, however, an interesting backstory or two worth delving into?

Domestic gas use is an important source of GHG emissions. Many households, in Australia and indeed globally, use natural gas for cooking, heating and producing hot water. All three of these functions will eventually need to be converted to low carbon electricity or perhaps hydrogen to meet net zero targets. The conversion to electricity is pretty straightforward from a technical perspective – arguably more straightforward than making the power grid 100% zero carbon. Encouraging individual Australian households to move away from gas will, however, require different political and communication challenges compared with negotiating with large scale generating companies as the nation moves toward a zero carbon grid.

The figures below, from the Victorian Government’s “Gas Substitution Roadmap”(4), shows that 61% of Victorian gas usage comes from household and commercial consumption. In terms of the state’s overall carbon footprint this equates to almost 10% of the state’s total GHG emissions coming from domestic and commercial gas usage.

It is worth noting that this GHG calculation includes an allowance for methane leakage as well as the CO2 produced when gas is combusted. One imagines that tracking and repairing leaks on a residential reticulation system is more complex than that providing gas to a much smaller number of high volume industrial consumers. In other words, lots of small neighborhood gas leaks will have a meaningful GHG impact.

As shown in the figure below, space and water heating consume much more gas than cooking – a fact that might allow dedicated chefs to keep gas cooktops. For most of us and especially those building new homes, however, it seems likely that future regulations will make connecting to the gas a much less common occurrence.

Victoria homes use more gas than the rest of Australia. It is no surprise that this debate is happening in Victoria. For mostly historical reasons including the proximity to the Bass Strait field gas fields, Victorians homes and kitchens are less likely to use electricity than those in other parts of the country as shown in the figure below.

Despite the protests of Exxon Mobil, the Victorian initiative makes sense as the country slowly moves toward carbon free electricity. Some might argue that this could wait until the proportion of wind and solar generation is above some critical level but given the inevitable challenges of making millions of voters buy new heaters, cook tops and water heaters it makes sense to this blog to start the process now with policies that incentivises electricity over gas.

What about using hydrogen? Hydrogen may play an important role in decarbonisation – Australia in particular will be hoping that it can eventually produce lots of green hydrogen from its ample wind and solar resources and export these to countries like Japan and Korea who are unlikely to achieve renewable self sufficiency.

Does this mean Victoria should wait until a suitable green hydrogen supply has been established? The answer is probably not – for three reasons. Firstly an ample supply of green hydrogen means the electricity grid will have been decarbonised so encouraging as many homes as possible to go full fully electricity has the benefit of simplicity and use of off the shelf technology. Secondly hydrogen is highly explosive and while electricity also creates risks it seems prudent to use electricity in domestic settings and hydrogen for industrial applications capable of implementing appropriate safeguards. Thirdly there are plenty of industrial processes where replacing fossil fuels with electrical energy won’t work – generation of very high temperatures or energy inputs. This, rather than in the household, is the obvious application for hydrogen.

In summary, pushing Victorian homes away from gas toward electricity seems like a “no regrets” policy and if sometime in the future hydrogen becomes an option (once industrial and transportation applications have been satisfied) then the hydrogen industry can lobby their case with the government of the day.

The bigger question – how do we maintain fossil fuel supplies when demand starts to decline. If the current move by the Victorian government makes overall good climate sense, it nonetheless leaves a larger question, one that is hinted at by the Exxon Mobil spokesperson but ignored by Environment Victoria. How are fossil fuel supplies to be maintained as demand inevitably starts to drop?

This question goes far beyond Victoria and indeed Australia. Many jurisdictions rely on coal, gas and oil for electricity, heating, transport and hundreds of other critical activities. At some point fossil fuel producers will be faced with the realities of a terminal decline. This is already happening to thermal coal producers in the US and while it currently seems a distant scenario it will become more widespread as the use of wind, solar and electric vehicles continues to grow.

One needs to ask, what is the rational behavior for a fossil fuel producer who comes to the conclusion that necessary maintenance or safety expenditure will not be supported by future sales revenues? Logically they don’t make the expenditure and if this drives them to shut in capacity that is what they should and in many cases will do.

Exxon Mobil’s recent public comments can be dismissed as talking points aimed at influencing government policy but eventually fossil fuel producers will be mounting these arguments based on reality not posturing (if that accurately reflects the current Exxon Mobil statements). There will inevitably be requests for subsidies, revenue guarantees or payment for providing reserve capacity. Climate activists, such as Environment Victoria, who are encouraging banks and other investment groups to shun fossil fuel projects, are likely to see an increasingly unreliable fossil fuel supply chain as a positive and will be totally opposed to any financial support.

The political classes might not agree – they may see the logic in China’s President Xi recent comments that “ we cannot throw away our means of living first, only to find that our new livelihood has yet to arrive” (5).

Perhaps community attitudes to a weakened, declining but still necessary fossil fuel industry will be different to the current perception that assumes vast profits and in some cases – Exxon Mobil being a prime example – culpability for climate related damage.

Some may feel the need to worry about fossil fuel supplies being prematurely closed is an issue not yet worth worrying about. Perhaps this is right but there will be surprises on the transition to Zero Carbon and as US coal producers will attest, when things start to turn nasty a stable business can disappear very quickly. Hopefully governments around the world are thinking how they will respond when the local coal, gas or oil producer, distributor or end user announces it will close unless it is supported through the final period of declining demand. If Exxon Mobil is not just posturing, Victorians may find out in the next few years.