A question of balance: Australian Government announces Future Gas Strategy

On 14 May 2024, the Federal Budget provided further details of the investments and policies that will form part of the Future Made in Australia Act (FMIA Act). The FMIA Act forms part of the federal government’s package of initiatives to achieve net zero by 2050. It seeks to increase investment in clean energy projects and strengthen domestic manufacturing and innovation.

There is a significant focus on growing a competitive hydrogen industry and supporting investment in critical minerals. However, the government also recognises that gas is essential to a smooth and successful transition and is needed to achieve net zero.

On 9 May 2024, the federal government released its Future Gas Strategy, a framework mapping out Australia’s plan for how gas production and consumption will support the transition towards net zero by 2050.

The Strategy’s objectives are to:

• support the decarbonisation of the Australian economy;
  
  
• safeguard energy security and affordability;
  
  
• entrench Australia’s reputation as an attractive trade and investment destination; and
  
  
• help our trading partners on their own paths to net zero.

We have mapped out the key principles and actions that the government outlined in their Strategy.

Key to success, for both government and the industry, is balancing and aligning the priorities and investments outlined in the Future Gas Strategy with those in the FMIA Act, as well as environment and planning reforms occurring in each state and territory.

What principles underpin the Future Gas Strategy?

The Future Gas Strategy establishes six principles that underpin the government’s future gas policies and actions.

Principle 1 – Supporting global emissions reductions to reduce the impacts of climate change and reach net zero emissions by 2050

The Strategy acknowledges that decarbonising natural gas use in Australia requires a number of changes, including:

• increasing energy efficiency and electrification of processes that currently use natural gas;
  
  
• replacing natural gas with low-emission gases; and
  
  
• reducing any remaining emissions from natural gas use, ensuring they are as low as possible and, where not possible, fully offset.

This will be achieved through a number of initiatives. In particular, carbon capture and storage (CCS) is expected to play an important role in decarbonisation.

Principle 2 – Keeping gas affordable for Australian users throughout the transition to net zero

The government notes that to increase the resilience of Australia’s energy system and keep costs down throughout the transition, continued gas development and more flexible gas infrastructure is important. Government decisions on gas development rights are intended to prioritise timely development and discourage repeated delays to ensure supply and affordability.

Principle 3 – Finding new sources of gas supply to meet demand during the economy-wide transition

It is forecast that new sources of gas supply are needed to meet demand during the economy-wide transition. Government policies in relation to natural gas exploration and development are likely to focus on optimising existing discoveries and infrastructure in producing basins. Robust and improved environmental approval processes are also considered to be important and key to the industry’s social licence to operate. 

To address medium term supply concerns, location-specific solutions will be explored to address supply challenges. These will include:

• maximising production from existing resources and developing adjacent new gas fields supplying the domestic market;
  
  
• promoting demand reduction through net zero sectoral plans;
  
  
• expanding the supply of low emission gases such as hydrogen and biomethane – i.e. gas substitution;
  
  
• ensuring LNG producers make more gas available to domestic users; and
  
  
• expanding gas infrastructure, including pipelines and LNG import terminals.

Principle 4 – Gas supply will gradually shift towards higher-value and non-substitutable gas uses

In the industrial sector, gas use will continue beyond 2050 where alternatives are not available or are too expensive. In contrast, households will have a choice over how their energy needs are met. 

It is also expected that gas-powered generation will continue to play a role in electricity generation up to and beyond 2050, and will underpin Australia’s electricity supply in the transition to net zero.

Principle 5 – Gas and electricity markets must adapt to remain fit-for-purpose throughout the energy transformation

The government recognised that current gas storage and transmission infrastructure may not be suitable for gas needs in the future. Gas pipelines are a critical feature of Australia’s gas infrastructure but have capacity limits. Gas storage is also limited, but will play an increasingly important role, while LNG import terminals are also likely to have a future role, in order to offer flexibility. Another opportunity that is being explored is using existing gas infrastructure for low-emission gases. 

More broadly, the government will explore a range of options to support energy transition and ongoing security of supply.

Principle 6 – Australia will remain a reliable trading partner for energy, including LNG and low emission gases. Australia’s ambition is to become a renewable energy superpower.

A key government objective is for Australia to develop new low emission energy exports to support the energy security and decarbonisation efforts of its trading partners. 

The government’s vision is for Australia to become a low-carbon supplier of LNG and to grow clean exports. By maintaining trading relationships through the continued, reliable exports of LNG, Australia can secure incoming investment from those trading partners in new renewable industries such as renewable hydrogen, green metals, critical minerals processing, and manufacturing of power generation and storage technologies.

What can industry players expect to see next?

The Future Gas Strategy includes an ‘Action Plan’, outlining six key actions for Australia to focus on based on the above principles. The actions provide for a range of government initiatives that will be adapted and refined over time. These include:

Action 1: Preventing gas shortfalls

• continuing to invest in pre-competitive geoscience data;
  
  
• updating Commonwealth retention lease policies to promote the timely development of existing gas discoveries, and adopting a firmer ‘use it or lose it’ policy;

Action 2: Reducing gas-related emissions

• working with regulators and the gas industry to reduce and eliminate (where possible) gas venting and flaring, unless required for safety purposes;
  
  
• considering gas demand reduction measures in the government’s six sectoral decarbonisation plans, including a Resources Sector Plan;
  
  
• leveraging the FMIA Act agenda to decrease gas emissions in certain sectors;

Action 3: Supporting households and businesses through the transition to net zero

• working with gas producers under the Gas Market Code exemption framework to increase domestic supply commitments;

Action 4: Empowering First Nations people to benefit from the transition to net zero

• clarifying consultation requirements for offshore petroleum and greenhouse gas storage activities as part of a broader three-year review of the offshore environmental management regime;
  
  
• pursuing an appropriate level of benefit sharing that ensures First Nations people are partners in the transition to net zero;

Action 5: Promoting geological storage of CO_2, and supporting our region’s transition to net zero

• continuing to release offshore acreage for greenhouse gas storage;
  
  
• establishing a new Transboundary CCS Program to provide options for energy security and carbon management solutions for regional partners

Action 6: Updating the strategy as needed

• reviewing and updating policy levers such as the Gas Market Code and Australian Domestic Gas Security Mechanism.

Each of the initiatives will create opportunities for industry players to participate in an energy transition that is underpinned by a clear strategy on energy security.

Is there a counterbalance?

The government’s ambitions rely on a number of changes being implemented – as well as cooperation among a broad range of stakeholders. Many of the initiatives outlined in the Future Gas Strategy are in their early stages of development. In particular, some of the initiatives will need to align with environment and planning reforms occurring across the board in each state and territory. This includes a review of the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) and associated regulations.

This review aims to recommend improvements to the environmental management regime for offshore gas to ensure it:

• is fit for purpose in a decarbonising economy;
  
  
• reflects best practice for offshore environmental management; and
  
  
• is consistent with Australia’s international obligations for emissions and sustainable development.

The Future Gas Strategy initiatives will also need to be consistent with the broader Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act) reforms proposed under the Australian Government’s Nature Positive Plan. In particular, all future projects pursuant to the Future Gas Strategy will still need to ensure:

• they contribute to a nature positive future;
  
  
• all offsets can and are fulsomely implemented;
  
  
• implications of climate change form part of all environmental assessments; and
  
  
• all stakeholder engagement is undertaken in accordance with the new proposed national environmental standards under the EPBC Act and all other applicable state-based requirements.
  

Achieving a delicate balance

The government has outlined several pathways towards achieving net zero by 2050, and the Future Gas Strategy is one of them. However, in their future planning, organisations across the industry should consider the full scope of regulation as they manage a complex legislative environment and evolving government initiatives and priorities.