INSIGHT

Decarbonising Victoria's natural gas sector: Mission possible

By Anne Beresford, Sarah Birrell, Tim Tabalujan
Hydrogen Oil & Gas Renewables

Gas infrastructure in a zero emissions economy

The Victorian government has taken the first steps in one of its toughest 2050 net zero emissions challenges; how to decarbonise the Victorian natural gas supply industry, while maintaining a vital and affordable energy source.

In December 2020, the Victorian Government requested advice from Infrastructure Victoria (IV) to help identify the decisions needed to be made to optimise Victoria's gas infrastructure under a range of 2050 net zero emissions scenarios.

In July 2021, IV published its Interim Report Towards 2050: Gas infrastructure in a zero emissions economy (the Interim Report). The Interim Report sets out preliminary analysis and findings that will underpin IV's final advice to the Victorian Government on how Victoria's existing and planned gas infrastructure can be best transitioned to a net zero emissions future. Notably, the Interim Report outlines the implications for Victoria's gas infrastructure under four net zero emissions scenarios. While the scenarios are not intended to be definitive or reflect an optimal scenario, they illustrate the varying impact of different energy mixes and emissions reduction mechanisms on Victoria's gas infrastructure.

Victoria's gas networks

With around 17% of Victoria's total greenhouse gas emissions coming from natural gas in 2018, natural gas emissions will need to fall significantly in the coming decades for Victoria to meet its legislated target of net zero greenhouse gas emissions by 2050.1 As Victoria's carbon emissions are reduced and technology develops in areas such as clean hydrogen and biomethane, decisions will need to be made regarding the use and adaptation of Victoria's gas network – which comprises nearly 34,000km of gas pipelines and an asset base of $6 billion – to support cheap and clean energy in Victoria.


Key takeaways from the Interim Report

  • Gas players and other stakeholders should consider submitting feedback on the Interim Report during the public consultation period. The deadline for submissions is 5pm on 16 August 2021.
  • Transitioning gas infrastructure is a long-term commitment – international jurisdictions expect to take at least 30 years to upgrade or decommission gas infrastructure and complete their transition to net zero gas.
  • Gas sector decarbonisation will require a diversified approach. No single technology is a silver bullet and not all technologies are ready to be deployed at scale. To achieve Victoria's 2050 and interim emissions reduction targets, an immediate scaling up of reliable and relatively low-cost solutions – including energy efficiency, electrification and biogas – will probably be required.
  • Under all four net zero scenarios, the opportunity to re-purpose existing natural gas infrastructure over the long term (i.e. beyond 2040) is limited. Some existing infrastructure is reaching end of life, limiting its potential for re-use. While the successful development of some of the technologies contemplated by the scenarios may allow for re-use of some existing pipeline infrastructure, this will be limited to the short to medium term, given the physical impacts that substances such as hydrogen may have on pipelines designed for gas transportation. Further detail regarding the impact on Victoria's gas network under the four scenarios is provided below.

The four scenarios

Each of the four scenarios in the Interim Report is designed to achieve net zero emissions for gas use in Victoria by 2050, though they differ in respect of: (i) the technology mix (ie electrification, natural gas, hydrogen and biogas); and (ii) the mechanisms by which net zero emissions are achieved, ie whether emissions are eliminated or managed using carbon offsets and/or carbon capture and storage (CCS). Notably, only one of the scenarios (Scenario B) contemplates natural gas being consumed in Victoria beyond 2050.

IV purposely used fairly extreme scenarios for its initial modelling, and is seeking to refine these through public consultation. The Interim Report notes that the scenarios are not intended to be definitive or reflect an optimal scenario. Rather, they are a means of illustrating the performance of the key variables listed above.

The key features of the four scenarios are summarised in the following table:

Scenario A: Full electrification, no natural gas by 2050, no CCS
  • No natural gas by 2050
  • Almost full electrification using renewable sources, utility-scale battery storage and some pumped hydroelectric
  • High reliance on renewable electricity to replace fossil fuels by 2050
  • Biogas and green hydrogen to eventually replace natural gas and meet gas demand
  • No CCS
Scenario B: Partial electrification, limited natural gas in 2050, limited CCS
  • Continued use of a limited amount of natural gas to support the renewable electricity system and some industrial uses
  • Extensive electrification with renewable sources, significant small-medium battery storage and limited pumped hydroelectric
  • Achieves net zero before 2050, but requires some CCS to account for limited natural gas use beyond 2050
Scenario C: Green and blue hydrogen with offsets, electrification, no natural gas by 2050, no CCS
  • No natural gas by 2050
  • Most comprehensive energy mix of all scenarios, reducing the risks associated with newer technologies
  • Hydrogen using renewable sources takes off as a substitute for natural gas
  • Some waste to energy, biogas and renewable electricity sources with some battery storage
  • No CCS
  • Achieves net zero significantly earlier than 2050 due to the relatively high proportion of zero and negative emissions electricity and gas 
Scenario D: Large-scale brown hydrogen, large-scale CCS, no natural gas by 2050
  • No natural gas by 2050
  • Hydrogen using both renewable sources and coal with CCS
  • Some waste to energy and biogas and renewable electricity with some battery storage
  • Features a very large-scale CCS and significantly higher capital expenditure
  • Export potential for brown hydrogen produced by gasification of Victoria's large brown coal reserves
  • The slowest of the four scenarios to reach net zero, achieving it just in 2050, and most expensive

The impact on gas infrastructure under the four scenarios 

  • Scenario A: use of existing natural gas infrastructure will be limited given the low proportion of gas (including hydrogen and biogas) in the overall energy mix. However, the gradual replacement of natural gas by biogas may enable some infrastructure to be retained. Decommissioning of the gas distribution network will begin before 2030 as users begin to switch to electricity. Around 40 percent of existing gas infrastructure will be decommissioned by 2040, rising to 80 percent by 2050. The remaining infrastructure will be used mainly for biogas, though the relatively low proportion of biogas in the energy mix may not warrant its retention. Natural gas use will cease entirely by 2050 when all Victorian gas plants are expected to reach their end of life.
  • Scenario B: a phased blending of hydrogen, natural gas, biogas and/or biomethane may allow a small amount of existing gas infrastructure to be used during the transition to net zero and beyond 2050. By 2050, the use of gas infrastructure will be limited to supporting peak electricity supply, using gas fired power plants. It is anticipated that one of the Otway gas plants and the Iona storage facility will be operational in 2050. Given that over half of Victoria's onshore pipeline infrastructure is already more than 40 years old, a careful assessment will need to be made of the relative costs of replacing existing gas assets beyond their current life against installing new hydrogen infrastructure. By 2050, it is anticipated that 90 percent of existing pipeline infrastructure will have been decommissioned following a phased transition to allow for the construction of a new hydrogen network.
  • Scenario C: this scenario has the greatest potential to maximise use of existing natural gas infrastructure during the transition to net zero, given the relatively high proportion of gas (biogas, biomethane and hydrogen) in the energy mix. However, re-use of the existing gas network beyond the initial transition will be limited, given the potential for pipeline embrittlement once hydrogen levels in the gas stream reach a high level. Under this scenario, new hydrogen infrastructure will need to be in place by 2030 and further expanded through to 2050. As new hydrogen infrastructure becomes operational, existing gas infrastructure will be more rapidly decommissioned.
  • Scenario D: given the emphasis on hydrogen, re-use of existing natural gas infrastructure will be limited due to the risks of pipeline embrittlement associated with transporting hydrogen. It is also unlikely that existing pipelines will be able to be re-used for carbon capture at the pressure required to support offshore locations, such as the CarbonNet project in the nearshore area of the Gippsland Basin.

What are other Australian jurisdictions doing?

Different approaches are being taken by the states and territories as well as at the federal level. All Australian states and territories have emissions reduction targets and have committed to net zero greenhouse gas emissions by 2050. However, the Australian Government has consistently declined to commit to net zero emissions by 2050, committing instead to reduce emissions by 26–28 percent below 2005 levels by 2030.

The Interim Report notes that an area for further examination is Victoria's gas production and links with other states. Given that Victoria's gas network is interconnected with other eastern states, significant coordination will be needed to achieve net zero gas emissions while maintaining energy security across Australia. Notably, the Australian Government continues to support a national gas-fired recovery as part of its energy plan. Moreover, with the exception of the ACT, no state or territory has explicitly committed to phasing out natural gas.

It remains an open question as to what effects these policy differences will have on Australia's emissions reduction strategy as a whole, including the approach to natural gas infrastructure.

What happens next?

IV is now seeking feedback from the community, industry and other stakeholders on all aspects of the Interim Report to inform its final advice and recommendations to the Victorian Government, which IV will deliver by 31 December 2021. IV has also invited feedback on specific questions set out in section 3.1 of the Interim Report. The deadline for submissions is 5pm on 16 August 2021. To view, and provide feedback on, the Interim Report, please visit the Engage Victoria website.

Footnotes

  1. The target of net zero emissions by 2050 is established under the Victorian Climate Change Act 2017 (Vic).