Energy Security Through the Energy Transition

Energy Security Through the Energy Transition

That’s the title of the National Press Club talk given by Woodside’s CEO Meg O’Neill on 19th?April 2023.

Whilst responding to that talk in the spirit of “an honest conversation” it is important to acknowledge common ground on energy objectives:

1. Energy security – now, during the transition and into the future;
2. Affordability - for every Australian;
3. Environmental impacts – we need to decarbonise whilst minimising further damage to the environment during the transition.

Woodside sells Oil & Gas products and sees this as a continuing business model, even in a rapidly decarbonising world. That is what you’d expect the board and senior management to do in serving shareholders’ short-term interests. Hence in their view the more gas Woodside sells for longer the better.

As a society we place little value on the future and future generations. Climate change impacts by business such as Woodside have been largely accounted for, up to now, as uncosted ‘externalities’. Woodside has come late to the decarbonisation agenda, driven by public opinion and regulation. They would lead you to believe they didn’t support the coalition climate change position despite nine years of political donations, lobbying efforts and being continuing beneficiaries of the climate wars and policy malaise.

The rhetoric of the Oil & Gas companies is constantly keeping up with changing public opinion to maintain their all-important social licence. The fossil fuel industry has for years stymied climate change science. They have slowed the clean energy transition through clever use of their significant resources and political power. The energy transition is about the politics of power and winners and losers - not technology.

Meg cited the International Energy Agency, not for their clear messaging on no new Oil & Gas developments but on “the first truly global energy crisis” – which the industry can solve for Australians by developing more gas supply. Very opportunistic.

It’s good to hear that “Despite all the challenges and the intensity of debate on these matters” Meg is an optimist. That is until you realise that’s not optimism about climate change, the clean energy transition and continued life on earth but optimism about Woodside’s business model selling gas.

Woodside are not totally shunning the renewables game and are looking into developing “lower carbon hydrogen” which is industry speak for selling more gas to make hydrogen and trying to capture the emissions using carbon capture and storage. Seems like Woodside might be having doubts on the efficacy of that technology and its commercial application with the caveat “only if they (co-investors) consider it a secure investment”. ?Woodside and their co-investors have enjoyed goods returns from their historical investment in Oil & Gas developments – renewables offer much lower returns so may not make that “secure investment” hurdle.?Market commentators have pointed out that Woodside doesn’t have the balance sheet to actively pursue renewables in addition to their gas business which is geared towards reserves replacement and monetisation of discovered reserves.

Hence Meg was keen to prepare the ground for Scarborough, Browse and Sunrise as a means for “keeping lights on” here and in “Asian mega-cities”. Meg later comments are straight from the industry playbook and are clearly positioning gas for the long term … “ gas has an incredibly important role to play as a partner to renewables as the world tackles climate change and as the world tries to decarbonise.”

If and when the LNG market shrinks, as you’d expect to happen in a rapidly decarbonising world, prices will drop steeply in an inelastic market. This will tend to favour low-cost producers who are primarily National Oil Companies. Woodside and their investors could be very exposed with expensive gas leading to ‘stranded asset risk’. Therefore, we’re not convinced that Scarborough, Browse and Sunrise would pass an informed “secure investment” hurdle – notwithstanding current and future legal challenges.?

Meg O’Neil outlined three goals for gas:

1. to provide affordable and reliable energy for Australians
2. to maintain strategic partnerships and energy security in our region and
3. to progress global decarbonisation

All three are self-serving half-truths.

Let’s look at each in turn.

Affordable and reliable energy can be achieved in the alternative manner:

1. Rapid build out of renewable energy capacity (wind, solar, storage and transmission) which even when firmed has the Lowest Cost of Energy of any form;
2. ?Electrification of home, business and transport to reduce the reliance on fossil fuels which are inflationary in nature – hence the title of the US Inflation Reduction Act;
3. Energy efficiency in homes, businesses and products;
4. In WA, without current access to adequate amounts of affordable long duration energy storage such as pumped hydro at scale, the firming of variable renewable energy during the transition will continue to rely primarily on gas. This reliance is significantly reduced over time from a firming role to one where gas is used as a back-up when renewable energy resources are not available for an extended period of time. Recent modelling by SEN and others indicates this is less than previously thought given the correlation of sun and wind, and the role of battery storage.

Therefore, gas is a fuel that will be used less and less as the energy transition progresses. That is not a very attractive proposition for gas companies who seek to monetise hydrocarbon reserves quickly and consistently to optimise the economic benefit to investors.

The Government is targeting raising the share of renewables in the electricity grid to 82 percent by 2030. Meg saw an opportunity to fill that gap, yes with gas - up from the 7 percent of the National Electricity Market that is currently gas-fired power. Switching from coal to gas is not going to materially help climate change at this stage nor help the energy transition. The 82 percent is a floor not a ceiling and coal will continue to ramp down and exit the market as renewables ramps up. If the transition is carefully managed and coal plants can limp along then gas usage will also ramp down. This undermines the gas industry’s clarion call for more gas supply. No doubt the industry would enjoy more gas supply, not least to meet the voracious needs of the LNG export industry which sucked up a lot of the East Coast domestic supply with resultant price increases.

Hydrocarbons are a valuable, useful and essential chemical feedstock. Future generations will be appalled we burnt hydrocarbons – it’s like burning money to stay warm.

Maintaining energy security is the number one priority for governments around the world with affordability and environmental impacts close behind. Countries in the region will need to move quickly to address these issues. They cannot continue to reply on unabated burning of hydrocarbons at anything like current volumes as the basis of a national energy policy. Any diplomatic will tell you that countries only have enduring interests not enduring relationships. When countries (or companies like Woodside) call upon relationships, they are in fact seeking to secure or further their own interests.

The idea that gas is clean and displacing coal with gas is a means to progress global decarbonisation is clever marketing by the gas companies that has firmly stuck in the national psyche. Yes, certain gas supply chains emit less harmful emissions than certain types of coal. However, that is not the choice to be made. The choice is actual between continue use of fossil fuels or switching to renewables and electrification. CSIRO gently pointed this out in a Woodside commissioned study.

We are living through a geological ‘carbon blip’ – it took billions of years for fossil fuels to form and we are very rapidly burning our way through them. Whilst this has created enormous economic development it has also created an existential problem for humanity to deal with.?Scientists have been telling us this for a long time and we need to question what “responsible development” of natural resources looks like in the context of the climate change and ecological crises.

Meg ends her speech with “If we can agree on our objectives for Australian gas, let’s see if we can agree on how to progress them and find the courage to work together to shore up Australia’s energy future”. The clear implication is that more gas is a means to “shore up” the energy future. This discounts the role of renewables and electrification which are lower cost, anti-inflationary, less harmful to the environment, insulated from international energy crises and ultimately more secure.

The answer is not more gas supply, more fuel on the fire - it is intelligent use of the resources we currently have.

That might not be in Woodside’s interest, it is however in our common interests.

About SEN

We are a grass-roots not-for-profit member based advocacy group promoting Sustainable Energy Now!

Supported by the best science and our own modelling and simulation, we advocate on how Western Australia can make a swift and orderly transition to clean renewable electricity safely, reliably, and affordably with commercially proven technologies.

https://sen.asn.au/