Deloitte Sustainability Services partner Paul Dobson

Deloitte Sustainability Services partner Paul Dobson

Deloitte Sustainability Services partner Shailesh Tyagi

Deloitte Sustainability Services partner Shailesh Tyagi

By Paul Dobson and Shailesh Tyagi

With the ink on last year’s historic Paris Climate Agreement barely dry, attention has turned to how these ambitious goals (curbing increases in global average temperatures to well below 2 degrees celsius above preindustrial levels and reaching zero net global greenhouse gas emissions by the end of the century) will be achieved.

There are a number of questions for Australian business (including gas operators) that need to be addressed to provide necessary clarity on the trajectory of the country’s transition to a clean energy economy. These include:

  • What sense of urgency are we likely to see from government around introducing or amending policies and regulations to meet these commitments?
  • What are the future prospects for the pricing of carbon and market mechanisms in Australia?
  • How should business be proactively preparing for such changes?
  • What does the transition to carbon neutrality mean for Australia’s traditional fossil fuel sector?

Australia’s new climate commitments include:

  • An economy-wide target reduction in emissions by 26-28 per cent below 2005 levels by 2030
  • A pledge of $1 billion per year to the Green Climate Fund run by the United Nations to assist neighbouring developing nations with shifting to clean energy.

Not surprisingly, these new commitments have been welcomed by some, found to be less than ambitious by others, and come under fire from others again – and it remains to be seen whether Australia’s current Direct Action Plan approach to climate change mitigation and adaptation is likely to undergo significant change in response to these commitments.

Implications for Australia’s gas sector?

While there’s nothing in the agreement that specifically endorses any one fuel over another, the direction of travel is clear – greenhouse gases (GHGs) have to come down, and fuel sources that emit less GHGs will be favoured over those that emit more.

We believe the agreement will give gas a solid medium term boost, but that longer term outlook is cloudy – and that there is time to prepare for both.

Of all the fossil fuels, gas has the smallest GHG footprint, is a proven and easy substitute for coal and is a great companion when it comes to quickly making up for any energy supply shortfalls caused by renewable intermittency problems. Micro generation technologies small scale gas fired power plants for industry) also look ready to help expand gas consumption in the power field.

As a result, we would expect energy planners who have to deliver enough reliable energy in the short to medium term but with a lower GHG footprint to turn to gas to bolster a growing reliance on renewables.

It’s an easy, safe and directionally positive choice.

In the case of developing countries, achieving sustainable development while balancing fuel availability, reliability and affordability remains a key challenge.

Gas is being increasingly viewed by the governments of these nations as an attractive option, given its ability to provide cleaner back-up for quick start-ups of renewable energy power generation units,  a critical role in renewable energy growth, while also providing highly efficient cogeneration and trigeneration power generation options.

Of course, a zero GHG future is not currently possible (and the 2100 timeframe for this is going to be more than heavily reliant on some serious technological advances) and fossil fuels remain the building blocks for so many industrial products, and we still need coal to make steel.

In any race between fossil fuels and technologies, the technologies will eventually win, so gas companies need to keep a sharp eye on a number of developments that could disrupt gas’s future prospects, such as cleaner coal, carbon capture and storage, developments in battery storage and the continuing fall in the productivity, yield, manufacture and installation costs associated with renewables.

As far as the longer term is concerned, hope can’t be a strategy, and gas operators should:

  • Take stock of holdings – only the best and lowest cost gas assets will be exploited, and any assets on the books with no plan to exploit for a decade or two should probably be abandoned or sold off
  • Review assets – countries will have different emissions targets, so country-by-country reviews will be required to identify more valuable assets, and merger and acquisition plans should be updated
  • Prepare for transparency – there will be pressures to reduce carbon and opportunities to capitalise on carbon (via trading), and markets and analysts are likely to favour those making net positive contributions
  • Update the risk register – new considerations include the likelihood of stranded resources, the pace of technology developments, and lawsuits
  • Rethink lobbying and advocacy agendas – gas will need to be positioned as renewables’ best friend
  • Step up business model changes – future models will need to feature more direct renewables investments, micro or direct power generation, carbon and gas trading, and gas-fuelled transportation.

Paul Dobson and Shailesh Tyagi are partners in Deloitte’s Sustainability Services practice. They are based in Sydney.