Natural gas’s increasingly prominent role in the future energy mix is likely to hinge on its cleaner emissions profile than the likes of coal and diesel fuel. The reality isn’t quite as straightforward as it seems; however, with market dynamics extremely sensitive to slight price movements and technological innovations potentially giving coal an edge over natural gas.
Mr Cann says the falling price of oil makes natural gas an attractive fuel in the transportation sector because this allows it to displace diesel fuel in many applications.
“Low gas prices can trigger a conversion in the liquids market, but it won’t happen until there is typically a very large variance between diesel and natural gas. Gas has a high tax and diesel has a low tax and that keeps the spread wide.”
Low oil prices could also trigger a conversion from coal to gas – although this is not as clear-cut as it may first appear. The problem, Mr Cann explains, is that if you have widespread conversion from coal to gas, coal prices fall and that will make the conversion uneconomical.
Mr Cann says many gas companies are rallying for a carbon price because that would keep the price of coal higher than the price of natural gas. Further, coal technology may see innovations that reduce its high-emissions profile.
“Very high yield furnaces which burn coal at super high temperatures can reduce coal’s carbon footprint. These furnaces can remove the greenhouse gas (GHG) effect, which will make the differences between coal and gas imperceptible,” Cann says.
Industry commentator and director of Coolibah Consulting, Keith Orchison, echoes Mr Cann’s sentiments and says there is continuing research and development in many fossil fuel sectors.
“What technology advances can be achieved in highly efficient, low-emissions coal generation – pursued vigorously by the Chinese, Japanese and South Koreans – should not be lightly dismissed.”
Mr Frydenberg says natural gas’s growing prominence in the energy mix will happen over time.
“A transition is already underway in both Australia and around the world as countries adopt more renewable sources of electricity generation. This does not mean that demand for coal will end. As the International Energy Agency notes, by 2040, more than 30 per cent of the world’s electricity will still be sourced from coal.”
However, in the same time frame, the global demand for gas is predicted to increase by 50 per cent.
“With gas-fired power station emissions around half that of a typical coal-fired power station, the gas industry has a strong role to play going forward.”
Increased uptake of carbon capture and storage
Dr Fatih Birol, the Executive Director of the International Energy Agency (IEA), forecast carbon capture and storage (CCS) technology to play a crucial role in future gas production – a sentiment that has been mirrored by many in the local gas industry in their efforts to adhere to COP21’s target to limit global warming to below two degrees.
CCS prevents large amounts of CO2 from being released into the atmosphere. The technology involves capturing CO2 produced by large industrial plants, compressing it for transportation, and then injecting it deep into a rock formation at a carefully selected and safe site, where it is permanently stored.