In the new, lower carbon intensity economy, gas is in; coal is out. Renewable energy will be in – one day. In the meantime, with less than half the emissions of coal-fired power, gas-fired power generation is expected to make a major contribution to reducing Australia’s carbon emissions. Even when technology, which is still being developed, allows for wind and solar energy to provide base load power, gas will still have a significant role in providing peaking power. Australia has plenty of gas – and it must be transported.

When proponents decide where to place new gas-fired power generation, the extent to which gas and electricity transmission will be used is often made based on relative cost. While some industry participants will consider locating their gas-fired power as close as possible to the gas fields and then use electricity transmission infrastructure to move the power, this is not the most efficient outcome for Australia.

Gas transmission pipelines are arguably the most efficient method for transporting energy. In 2007–08, 1,249 petajoules (PJ) of natural gas was consumed in the Australian economy. In transporting this natural gas from the gas fields to demand centres, Australia’s gas transmission pipelines reported losses of 1.6 per cent of the total product transported. The amount of gas lost from gas distribution networks ranges from 0.055 – 2.2 per cent throughout Australia.

In 2007, the International Energy Agency determined the total transmission and distribution transportation energy losses in the Australian electricity network to be 7.3 per cent. That is a significant amount of energy, and the conclusion should be that it is desirable to transport energy as natural gas rather than as electricity.

But, due to differences in electricity and gas transmission markets, this is not always what happens. In general, if a gas user wants a supply of gas, the user will pay for the gas transmission services directly, whether on an existing pipeline or as a foundation customer on a new pipeline. Most observers would say that this is an appropriate outcome; if space is needed on a pipeline, it is paid for.

In the electricity transmission market, charges are incurred differently, because electricity is not a physical, tangible substance like gas. If a generator wishes to supply electricity into the national electricity market, all it has to do is pay directly for its connection to the grid. Any congestion that is created in the electricity transmission network as a result of the connection is paid for by the users of that network. This creates an inappropriate and distorted price signal.

Due to the difference in transportation efficiency, the best outcome from an economic and environmental viewpoint is actually to place the new gas-fired power station as close as possible to electricity demand, rather than at the source of the gas. Gas transmission is more environmentally efficient than electricity transmission. Also, underground pipelines are less aesthetically intrusive than miles of overhead electricity transmission wires.

The Australian Energy Market Commission is conducting a review of energy market frameworks in light of climate change policies, and has identified transmission use of system charges as a key area for reform. Not surprisingly, most electricity interests disagree. In the current climate of emissions reduction, every little bit helps, and the increased use of gas transmission has the potential to make a significant contribution.