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Feature Is Gas Still a Transition Fuel?By Victor Bivell As we move from fossil fuels to renewables, the phrase ‘gas as a transition fuel' has a strong attraction for many people and interest groups. But the phrase also oversimplifies a range of business and environmental issues that can be complex and have little in common with each other. While gas can assist the transition to clean energy, it can also entrench itself, slow the transition process, and compete with clean energy. So it is worth taking a closer look at where gas does and does not assist the transition process. When we apply an environmental analysis to the different uses of gas and to the different types of gas, we see that gas is very much a mixed bag. Some types of gas and some uses are positive for the environment, while others are a net negative both for the environment and for the transition. For investors, these conclusions can assist them to sort the range of listed gas investments into those that are environmentally positive and those that are not. The Uses of Gas Baseload Gas One area where gas is a negative for the environment is baseload power connected to the national grid. Australia's electricity consumption is falling so new baseload power is not required at present. If more were to be needed, new coal plants are the only option that would justify utilizing gas plants instead, but at this stage the building of new coal fired plants seems very unlikely. If more baseload power were needed, then from an environmental point of view, rather than using gas it would be more advantageous to first install renewables such as wind and utility and rooftop solar. Although these do not provide baseload power, solar and wind help reduce the demand on existing baseload plants, and augment the grid with additional power. Solar also provides power during the day when demand is high. In this situation, new baseload gas could impede the development of renewables and provide less environmental benefit than would the renewables. Peaking Gas Gas has an important role in peaking power plants for the grid. Gas peaking plants can vary their output more quickly than coal plants, and this responsiveness makes them more energy efficient to meet changes in demand on the grid, and to meet peak demand periods such as cooling on hot summer days and heating on cold winter days. Gas peaking plants can also smooth the variable or low output of renewable energy during periods of intermittent or low wind and sun. This back-up makes renewables more viable and better able to replace coal power. Thus gas fired peaking power plants, when replacing coal plants or augmenting renewables, can provide both environmental benefits and act as a transition fuel until storage technology is advanced enough for renewables to provide 24/7 power. Remote Gas Gas has a future powering towns, facilities and properties that are in remote areas and off the electricity grid. The main environmental benefit is through the displacement of diesel as a fuel. Diesel is more carbon intensive and polluting than gas, and financially and environmentally expensive to transport. Australia has two large electricity grids: the east coast network from Port Douglas in north Queensland to Hobart in Tasmania and Port Lincoln in South Australia; and the south west WA network from Geraldton to Albany and Kalgoorlie. These networks leave great swathes of Australia including a huge number of towns, rural properties and mining projects with no access to the grid. Outback Australia is a huge commercial and environmental opportunity to replace diesel power with gas and renewables. The opportunities for gas are where potential clients are close to a pipeline or have a local supply such as a well, landfill gas, biogas or waste gas. It is still early days for remote solar, and even earlier for tidal energy, small wind and small hydro, but the small solar market is developing and the outback already hosts many small solar systems. At this stage gas is the prefered choice for larger commercial projects due to its reliability and cost. But solar has benefits over gas and has now targeted the larger remote markets as seen with the announcement last month of Australia's first large off grid solar farm to supply a large mining project. Rio Tinto Alcan, with help from the Australian Renewable Energy Agency, will build a 6.7 MW solar photovoltaic farm for its remote bauxite operation in Weipa and for the surrounding community in western Cape York. Stage two will add battery storage so that up to 100 per cent of the diesel-generated electricity can be replaced with solar power. The proponents also hope the project will increase awareness and knowledge in the mining sector about utility scale off-grid solar energy on remote mine sites. Thus gas has an important environmental role to play in displacing diesel and also a transitional role while renewables find their feet in rural and remote Australia. After that, gas and the variety of renewables will need to compete between themselves to provide the most cost effective solutions for the wide range of situations in rural and remote Australia. Overall, a long term role for gas in remote applications seems likely. Household Gas In households, gas is used for hot water, cooking, and space heating. Space heating would seem to have the least environmental benefit as there are now many energy efficient airconditioners and these can be run on green energy offered by energy retailers. As well as emitting greenhouse gases, gas heating can lower the oxygen in a room. Space heating is an instance where gas is inefficient and competes with renewables rather than acts as a transition fuel. Gas used to be an efficient way to cook compared to smokey wood and diminishing forests, but the development of electric cooktops and particularly energy efficient electric induction cookers means cooking can now be done more cleanly with green electricity. Cooking with gas is still more aesthetic for some and the amount of gas used is small. But gas is now a competitor to clean electric cooking. Hot water is perhaps the trickiest to work out. Despite advances in technology, gas storage heaters and gas instantaneous heaters are not as efficient as solar hot water systems. However, there is a role for gas in boosting solar heaters, with gas boosted solar heaters among the most energy efficient on the market along with electric boosted solar and heat pumps. Where gas comes off second best is if an electric boosted solar heater or a heat pump is supplied by green energy from the grid or the householder's own residential photovoltaic system. Where these are not options, gas boosting is a sound environmental choice if the household is already connected to the gas grid. But it may need a serious study to determine if the benefits justify extending the grid or even connecting to the grid just to have gas boosted solar hot water. Over all, it seems the environmental benefits of gas to the household are few and declining over time.
Industrial Gas The gas grid also supplies natural gas to industry. Users can vary from small to the very large and they often have specific needs so it would require a case by case analysis to see if there are more energy and cost efficient alternatives to gas. That would be a task probably best left to academic studies and the individual businesses. Where the gas is used for heat or power, it would need to be determined if green electricity or another input is a viable alternative that could be supplied in sufficient volume and reliability and at an appropriate cost to replace gas. If not, gas can be seen as a transition fuel. Many industries also use industrial gases, which are usually bottled. These are often ingredients or catalysts for other products so have a different role to gas as an energy source. Export Gas Australia is a major and growing exporter of liquefied natural gas (LNG), but the environmental benefits of that gas depend on the uses it is put to in the importing countries. In so far as the LNG displaces energy from coal, nuclear or oil sources, it is positive. Australia's biggest markets are Japan, China and South Korea, but we also export to many other countries in SE Asia. Japan certainly has need of gas. The US Energy Information Administration says "Japan is the world's largest liquefied natural gas importer, second largest coal importer, and third largest net oil importer" and that "the Fukushima [nuclear] disaster spurred greater demand for LNG in the power sector since 2011". The biggest consumer of LNG is the power sector at about 64 per cent, then the industrial sector at 21 per cent and the residential sector at 9 per cent. Japan was a pioneer of the global LNG trade, and it was environmental
concerns that led the government to encourage natural gas consumption.
The government also chose LNG as its first fuel-of-choice for power generation
to substitute for the lost nuclear generation after Fukishima, says the
US Energy Information Administration. China is well known to have too many coal fired and polluting power stations and it is also a large energy importer. Last month, for example, it signed a massive 30 year gas import deal with Russia. Thus Japan, Korea and China appear to be countries where gas plays the role of a transition fuel while cleaner and less expensive sources are developed. However, it is possible to envisage that at a micro level, there may be situations within these countries where renewables and distributed energy may be better options. Similarly, every export country would need to be looked at individually to see if gas is the best option or whether it is being used for other reasons such as to lengthen the life of existing gas infrastructure, to appease vested interests, or to compete with renewables. But overall, for energy poor countries such as Japan and Korea and for poor-quality-coal countries like China, gas can be seen to be acting as a transition fuel. But this needs to be reviewed periodically as renewable energy technologies develop. The problem for investors is that Australian suppliers of natural gas for export are either also involved in oil production, or utilize coal seam gas which is environmentally and socially contentious. The Types of Gas Another key part of the how-environmental-is-gas question is the type of gas that is used. Environmentally, gas is not gas - a single uniform product. There are different sources of gas, each with its own environmental profile, benefits and issues. Biogas The key difference between biogas and natural gas is that biogas does not add to the carbon dioxide in the atmosphere. Because biogas comes from organic matter, it draws its carbon from the atmosphere and earth where the carbon is part of the Earth's carbon cycle. In contrast, fossil fuels including natural gas release additional carbon that used to be part of the carbon cycle but has been bio sequestered by nature for millions of years. Although this does not necessarily mean that all biogas is positive, most is as it is made from waste organic matter. This gives it an additional positive role in waste management as well as in fossil fuel substitution. The main forms of biogas are landfill gas and what is called digested gas where organic matter is produced in a digester or biogas plant. Capturing landfill gas utilizes greenhouse gases, including the particularly potent methane, that would otherwise vent to the atmosphere. Likewise, digested gas would also eventually make its way to the atmosphere through natural decomposition, but as with landfill gas, utilizing it first can also help to offset the use of fossil fuel. Biogas can be used as a transition fuel but it is more than just a transition fuel. While in some scenarios it could compete with renewables, it can also complement renewables, such as in rural areas. And its role in waste management means better waste management techniques would need to be found to supercede this aspect of its environmental benefits. From an environmental perspective, if bio gas is used correctly it can have a long term role in sustainable energy. Waste Coal Mine Gas Waste coal mine gas is a methane byproduct of coal mining. It is an environmental issue as the mining process releases the otherwise naturally sequestered gas into the atmosphere, increasing the level of greenhouse gases. The methane can be explosive and thus dangerous and so it is also a safety issue. As coal mining will occur anyway, the capture and conversion of waste coal mine gas to energy is more environmentally beneficial than allowing it to vent to the atmosphere, as burning it substantially reduces its intensity as a greenhouse gas. Coal mine gas can also offset the use of other fossil fuels. Thus waste coal mine gas can act as a transition fuel, but it is more than that and is likely to continue to have a role while coal mining is practised. Natural Gas Natural gas is the most commonly used source of gas at present. It is sequestered naturally in the earth and its release though mining and burning adds to the level of greenhouse gases in the atmosphere and in the Earth's carbon cycle. So it's long term use in large quantities is not sustainable. But done properly it is less greenhouse gas intensive than coal and can play an important role in transiting to renewables So far, natural gas has avoided the large scale environmental and social issues engendered by coal seam gas, mainly because it is found in remote areas such as the Cooper Basin and offshore in the Bass Strait and North West Shelf. But it is not without some controversy. One example is the siting of a Woodside Energy LNG processing plant close to prehistoric and unique Aboriginal rock art at the Burrup Peninsula project in WA. But compared to coal seam gas and shale gas, natural gas is the least environmentally damaging, least controversial and most socially accepted of the fossil fuel gases. Coal Seam Gas Coal seam gas has major environmental and social acceptance issues in many place where it is found and sourced, including in Australia. Environmental issues vary from site to site but centre around the siting of wells on already developed agriculture and tourism properties, potential contamination of the water table and drinking water, the use of dangerous chemicals in the hydraulic fracturing or ‘fraccing" process, the large number of wells required, and leakage during extraction. Under the right management, it is possible for some coal seam gas projects to be developed in a safe and acceptable manner. But given the many uncertainties around environmental and safety issues, and the poor track record of some operators, coal seam gas is best avoided until it is proven safe. A conservative approach would be to allow exceptions only for specific projects that are proven to be safe, do not cause local environmental damage, have local social acceptance, are developed in a responsible manner, and are for a use that is demonstrably as a transition fuel. Shale Gas Like coal seam gas, shale gas is a relatively new gas on the commercial block. It is a natural gas found in shale rock, which is made up of mud, clay and various minerals. It is found in many countries including Australia, where the industry is in the early stages of development. Shale gas can be controversial due to the manner in which it is extracted from the shale rock. This can involve hydraulic fracturing and land use issues, and thus can give rise to the same issues that affect the coal seam gas industry. For these reasons, Eco Investor will not cover shale gas companies. In Australia, shale gas is mostly found in remote and desert areas, with exceptions being the Gunnedah Basin in northern NSW and the Perth Basin. While remote shale gas may prove itself to be safe and positive, Eco Investor will wait until this happens and see if specific projects meet the high standards of responsible development and if the gas is used only as a transition fuel. Is Gas Used as a Transition Fuel in Eastern Australia?The three largest uses of gas on the east coast are large industry, gas powered electricity generation, and residential and commercial demand. Large industrial use such as manufacturing and mining is the largest component and accounted for 43 per cent of demand in 2012, says the Eastern Australian Domestic Gas Market Study by the Department of Industry and the Bureau of Resources and Energy Economics. Gas-powered generation accounted for 30 per cent of demand, most for base load generation in Queensland and South Australia with a small amount of peaking demand in summer. Residential and commercial demand was 27 per cent of the total useage. Most of the gas is consumed in Brisbane, Sydney, Canberra, Melbourne and Adelaide, says the study. How much of this gas is used as a transition fuel is difficult to answer precisely, but it appears most is used for inefficient space heating. Essential Energy, a NSW Government corporation that builds and operates Australia's largest electricity network, says "In our homes, over 60 per cent of gas is used for space heating, over 30 per cent for water heating and less than 10 per cent for cooking. In the business sector, 90 per cent of gas is used for space heating and 10 per cent for water heating. Almost all sectors of industry use gas, including the chemical, rubber, paper, metal, milk, plastics and vehicle industries." The predominance of space heating in the residential and business sectors, where more environmental options are available, is a concern and suggests that gas is not used as a transition fuel. Also, this may not change quickly as the study says "consumers are relatively slow in switching from gas to electricity appliances" and "the residential and commercial sector will experience relatively steady demand". In regard to gas for electricity generation, the use of gas in established baseload power stations is transitional as it is likely in lieu of black or brown coal. Peaking power is also transitional, as discussed above. As might be expected, gas for electricity is declining. The study says this is due to "consumers' responses to rising electricity prices, energy efficiency measures, and installation of residential solar photovoltaics. Factors including gas prices and the Renewable Energy Target (RET) will affect the amount of gas-powered generation in the NEM [National Electricity Market]." Industrial use is the hardest to work out. The study says that "major industrial users who use gas for on-site electricity generation and space heating (for example various industrial complexes and processes; hospitals and large public buildings) have a low dependence on gas and a high potential for fuel switching." In these instances gas is not used transitionally as there is an alternative in green electricity. The study says users "who use gas for heat and steam raising activities (for example cement and lime production; alumina refining; non-ferrous metals refining; bricks, tiles and masonry production; pulp and paper production; ethanol production; glass production and food and beverage production) have an average dependency on gas and an average potential for fuel switching." In these instances there is some possibility of switching. The study says "Fuel substitution or switching options (e.g. electricity) are available for space heating, low-temperature heat and low-pressure steam generation. However, this may require large capital expenditure and therefore, be difficult to justify when energy prices are highly uncertain." But for a third group, the study says those who "use gas as a feedstock (for example ammonia synthesis; fertiliser production; methanol production; explosives production; polymer production; and chemical production) are highly dependent on gas and have a low potential for fuel switching." So in these instances gas does not have a transitional use. Where does that leave us? We have power generating gas (about 30 per cent of gas) that is transitional for existing baseload and peaking power plants, and residential and commercial gas (about 27 per cent of gas) that is mostly not transitional because it is for space heating, cooking and some forms of water heating. Industrial gas can be divided into three: transitional, non transitional, and non-energy related. Very broadly, that means that something like about half of energy related gas is used as a transitional fuel and half is not. So it cannot be said that gas is unequivocally used as a transition fuel. But it gets more complex. Current government policy is also not directed at transitioning from gas to clean energy. The Federal Coalition government is not encouraging the change from gas to renewables but instead seems to be acting to entrench gas as a fuel. The gas companies are doing the same, as evidenced by their opposition to the Renewable Energy Target. So it can be argued that in eastern Australia at present only about half of energy related gas is used as a transition fuel, and that government and the gas industry are not using gas as a transitional fuel but as an ongoing industry and a competitor to clean energy. That leaves the environmental credentials of gas in eastern Australia very much open to doubt, question and challenge.
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space heating is environmentally inefficient compared to reverse cycle
air-conditioning with green electricity.
