The country must generate enough power to keep the lights on but, at the same time, our politicians must keep their eyes open. David Williams reports

It’s an industry under pressure.

Following the Government’s ban on new oil and gas exploration in 2018, gas industry websites and TV ads have promoted ideas like “gas is changing”, and the “love affair with gas isn’t over”.

One website conjures the image of “toasty winter evenings” at a “luxuriously comfortable” home connected to gas. Another flag-waving promise says Aotearoa has plenty of gas for Kiwi homes. Gas “is here to stay”, it says, and “will help us get to 100% renewable energy”.

Added pressure has come from the Climate Change Commission which suggested the Government ban new fossil gas connections to residential, commercial and buildings. (Industry types like to call it “natural” gas, but the commission prefers fossil gas.)

Reassuring messages from the gas industry say pipelines can be repurposed for low- or zero-emission gases, like hydrogen and biogas.

Blending trials of “future gas” are expected to begin as early as the end of this year, with the goal of blended gas starting by 2025. But a complete switch to 100 percent hydrogen might not happen until 2050 – the year that, by law, New Zealand’s greenhouse gas emissions must be net-zero.

Last week, in response to the Government’s consultation document on the country’s first emissions reduction plan, GasNZ chief executive Janet Carson declared: “Gas is a fuel in transition, and the New Zealand gas sector plans to be very much a part of carbon-zero gas supply. It just needs the opportunity – and time – to do so.”

In the meantime, the narrative goes that existing gas supplies will ensure energy is affordable and reliable.

But serious questions are being raised about the future of fossil gas – the economics, the reliance on untested technology, and even the motivation for claims about a “transition”.

“We have to look at weaning ourselves off gas,” says analyst Bruce Robertson, from Australia’s Institute for Energy Economics and Financial Analysis (IEEFA).

“Extending the life of gas by greenwashing it with a small amount of hydrogen just doesn’t cut it. It’s not going to reduce your emissions significantly, and all it’s doing is encouraging more gas, and embedding the fuel for longer in the energy system.”

Mark Jacobson is a professor of civil and environmental engineering at Stanford University, in the United States, and an expert in air pollution and clean energy.

“No gas used for combustion is good, whether it is biogas or natural gas – they both pollute when burned,” he says.

On the other hand, green hydrogen is only useful for long-distance heavy transport, like shipping and aircraft, as well as some steel manufacturing, he says – “not for home heating or regular passenger vehicles”.

Jacobson is surprised New Zealand’s even talking about prolonging the gas industry, especially for providing electricity, a sector dominated by hydro-electric dams. “You have so much wind and solar and hydro – you can power the whole country for everything at a much lower cost than paying for gas.”

Yet we’re not.

New Zealand is importing shiploads of Indonesian coal to burn at Huntly’s power plant.

And messages from the gas industry about reliability might resonate more strongly in the wake of August’s electricity system failures that caused power cuts to thousands of households on their coldest night of the year.

The gas giants say they want certainty from government, saying that without it the industry might shrink, and tight gas supply situations might become more frequent.

“Affordable gas is needed to bridge the gap and keep our exporters internationally competitive,” argues John Carnegie, chief executive of industry lobby group Energy Resources Aotearoa (formerly the Petroleum Exploration and Production Association, or PEPANZ).

“Renewable energy and new energy technologies have huge potential, and the world needs a lot more of them. But until they are ready, something has to keep the lights on.”

Critics will say that’s a facetious argument; that renewables and some new technologies are “ready” but there’s just not enough of them. (Also, the electricity market’s very structure appears to be working against lower prices, and the most reliable way of generating power.)

It’s certainly a shuddering message ahead of the Glasgow climate summit, COP26.

Methanol-producer Methanex is a big user of non-energy fossil gas. Photo: Supplied

Energy-rich fossil gas is methane formed from ancient organic matter trapped beneath the earth’s crust, subjected to huge pressure and heating over millions of years. When released into the atmosphere it’s 28 times more potent as a greenhouse gas than carbon dioxide over 100 years.

Gas contributes to warming when it escapes directly into the atmosphere, or is deliberately vented by the industry – known as “fugitive emissions”. When it’s burned, as a fuel or industry “flaring”, it emits CO2. The gas can also be cooled into LNG, or liquefied natural gas.

The New Zealand gas industry is big business, sitting on huge infrastructure investments. Its “regulatory asset base” is estimated to be $1.85 billion.

The high-pressure transmission pipelines, owned by First Gas, span some 2500km, delivering gas to Huntly and throughout the North Island. Distribution pipelines extend almost 18,000km.

Three companies – Vector, First Gas and Powerco – distribute gas to 280,000 residential customers, through various retailers. But the residential side accounts for only 4 percent of annual consumption.

The big users last year were industrial (about 35 percent), electricity generation (30 percent), and non-energy users (26 percent), like methanol-maker Methanex, and Ballance Agri-Nutrients, which has an ammonia-urea production factory.

Oil and gas is embedded in parts of New Zealand – not just physically but mentally. The onshore Kapuni gas field was discovered in Taranaki in 1959, and the offshore Maui field was discovered in 1969.

“New Zealand has traditionally been seen as a gas country,” says the website of NZ Petroleum & Minerals, a branch of the Business Ministry, MBIE. That is, until the discovery of the McKee oil field in 1979, and, later, the offshore Maari and Tui discoveries.

Gas has been an economic development dream – an energy source, a feedstock for chemicals like methanol, a valuable export, as well as being a source of well-paid jobs and government revenue.

But it’s also a nightmare for a country now known as being a laggard on reducing greenhouse gas emissions, which is now wrestling with how to reduce emissions sufficiently to meet its Paris Agreement climate target.

Industry analyst Robertson, of IEEFA, says gas in his country and ours has historical incumbency. “People have gas in their homes because they have gas in their homes. If you were to build a house today in New Zealand there’s no logical reason to put gas into it.”

Climate Change Minister James Shaw, right, congratulates members of the Climate Change Commission, including its head, Rod Carr, left. Photo: Lynn Grieveson

Carnegie, of Energy Resource Aotearoa, says policy uncertainty is making future investment difficult. Before the Climate Change Commission’s final advice landed, the sector’s planned capital spending over the next decade was more than $1.1 billion.

Unsettling policies include Government moves to phase out fossil gas from the electricity sector and industrial heating, the proposed ban on new gas connections, and “extreme” decommissioning requirements. Carngie also points to the pledge to make the country 100 percent renewable by 2030, perhaps through a pumped hydro scheme at Lake Onslow.

But that’s simply a Government responding to the global climate emergency, and the recommendations of its own Climate Change Commission.

In August, the latest Intergovernmental Panel on Climate Change (IPCC) report called for “immediate, rapid and large-scale reductions” of greenhouse gas emissions to try and limit warming to 1.5°C or even 2°C.

To even have a 50 percent chance of holding warming to 1.5°C – on average, global temperatures are already 1.1°C above pre-industrial levels – the production of coal, oil and gas must drop sharply before 2030.

Ralph Sims, professor emeritus of sustainable energy and climate mitigation at Massey University, says New Zealand has to stop coal-burning as quickly as possible, “but we also have to get out of gas as well”.

Penny Sackett, a former chief scientist of Australia who is now an honorary professor at Australian National University’s Climate Change Institute, says the climate science is clear.

“What has been lacking is political resolve to take the steps that this crisis – and this opportunity – provide to benefit all of society, and respond to the majority voicing its desire for faster, effective action on climate change.”

Carnegie argues the Government should move away from climate-friendly policies and rely more on the emissions trading scheme – “because it encourages people and business to the changes in relative prices, and to find the most effective and efficient ways of cutting emissions themselves”.

However, the scheme has been totally ineffective to date, as excludes the agricultural sector and gives away millions of carbon units. It’s no wonder the country’s gross greenhouse gas emissions have increased 26 percent since 1990.

It’s not an award-winning argument, either, to say gas is a better fuel than coal.

“It’s a bit like the light cigarettes argument of the tobacco industry when I was a kid,” says Robertson, of IEEFA. “In the end, light cigarettes killed you; they may kill you just a little bit slower but they still kill you.”

After all, lower emissions are still emissions. As the IPCC says, every tonne of CO₂ emissions adds to global warming. In the same vein, every dollar spent on fossil fuels is another dollar not spent on renewables.

Jacobson, of Stanford University, says natural gas is not sustainable: “You have to keep drilling for it.” He says there are 29 million abandoned oil and gas wells worldwide – and about two-thirds of them leak.

The best way to lower greenhouse gas emissions is “to electrify everything”, he says. “Twelve percent of all the energy worldwide is used to mine, transport, and refine fossil fuels … If you electrify everything you’re reducing your energy consumption substantially.”

Carnegie points out some high-heat applications of gas, like steel-making, don’t have immediate replacement options. But that somewhat undermines the idea that “future gases”, like hydrogen and biomethane, are going to make much difference.

If bigger users take longer to give up gas, that leaves blended gases to the residential and small commercial users, which only account for a small proportion of the country’s gas consumption.

Billions of dollars are being spent on hydrogen research right now, including overseas trials adding hydrogen to existing gas lines. But it’s early days.

“It’s not easy to do because hydrogen tends to find the leaks and go through the pipe walls and such like, being a small molecule,” says Sims, of Massey University.

Battery technology, however, is well advanced.

Tesla’s so-called “big battery”, made of lithium-ion, is already working as a shock absorber to South Australia’s electricity grid. (Although not always.)

Australian analyst Robertson, who lives in New South Wales, says battery technology marks a shift in electricity generation. “The next fuels are technology-based not commodity-based, so in time they’ll come down in price. That’s what’s been happening with solar and wind, and with batteries it’s even steeper.”

As a sign of its own commitment to change, how much is the gas industry investing in R&D to explore alternatives? “There is no official figure,” Carnegie says. “But many companies are diversifying. For example, Todd Energy is investing in solar energy, and around the world OMV is investing into recycling plastic waste for oil.”

‘Substantial reduction’ required

Concerns about affordability and reliability of gas are real, as many remote and rural communities, and small businesses, rely on it.

But the Climate Change Commission is adamant a low-emissions path Aotearoa needs to avoid locking in new fossil gas assets, and it recommends the Government decides how to eliminate fossil gas use in residential, commercial and public buildings.

A shift to unproven technologies, such as hydrogen and biogas, raises uncertainties, the commission warns.

“Low emissions gases are currently more expensive than fossil gas. Putting new, low emissions gases through pipelines is also likely to require some reinforcement or replacement. The costs of the gas network are spread across users through their bills, as the network is a regulated asset base. This means that the same costs need to be recovered, no matter how many users there are.”

It continues: “Until there is substantial evidence that blending or fully converting the gas network to low emissions will not increase costs to consumers, expansion of the fossil gas network to serve residential, commercial and public buildings should not be permitted.”

A valid concern for climate activists will be Government delays and further inaction.

As veteran environmentalist Guy Salmon told North & South: “We have built into our culture an unwillingness to take responsibility for these things and have a very strong deference to vested interests.”

Former Environment Minister Simon Upton, now the Parliamentary Commissioner for the Environment, told the magazine after signing the Kyoto Protocol the country spent 25 years “doing virtually nothing”.

Of course, there has to be transition to lower emissions. Nobody is suggesting the gas taps be turned off tomorrow.

The industry still expects fossil gas to be used past 2050 because, after all, the emissions reduction target is net-zero.

There are all sorts of ways to achieve that, including offsets like forestry and international carbon units. Carnegie adds: “Natural gas can be used with carbon capture and storage to prevent emissions.”

Wait, what?

For years, even gas industry analysts have said capturing emissions and pumping them underground is uneconomic in New Zealand, mainly because there aren’t sites big enough to warrant such a huge investment. But it was a prospect raised in two gas-related reports released last week.

The Gas Infrastructure Future Working Group says carbon capture and storage (CCS) “is considered to be an option” for reducing emissions from big gas users like the steel, cement industries, although high costs mean the “economies are challenging”.

The other report came from Gas Industry Co, the Jim Bolger-chaired, industry-owned organisation which recommends industry governance arrangements. During its “market settings” investigation, a number of unnamed parties raised the idea of “broader emissions capture”.

Rather than filtering and sequestering CO₂ emissions only, all emissions are captured and stored. “The economics are improved without the need for the additional filtering processes that pure CCS requires, and steadily increasing carbon prices further increase the desire to find solutions to address CO₂ emissions that cannot be otherwise reduced.”

Sims, of Massey University, says a lot of work has gone into CCS but it needs a high carbon price, of between $150 and $200 per unit, to make it viable.

Robertson, of IEEFA, notes New Zealand’s history of earthquakes, and the fact CCS usually uses old gas wells plugged with cement and steel. “We all know what happens in an earthquake – cement cracks and steel breaks.”

CCS might be sold to the public as being green, but it often leads to more oil or gas production, he says. “The vast majority of these projects globally are for enhanced oil recovery.”

In sum, the future of gas looks expensive.

Prices are already relatively high and promise to get higher through punitive costs from the emissions trading scheme. Add to that the extra cost of making hydrogen gas, especially if it relies on newly built renewable energy.

Blending hydrogen will cost more, too. And then there’s the possibility of carbon capture and storage – which is not only costly, but, overall, leads to higher emissions.

“All of these things are adding to the cost, at the very time your competing technologies are falling in cost,” Robertson says.

In that context, the arguments for ‘keeping the lights on’ start to look like the self-serving pleas of a sunset industry.

Robertson says reality is catching up with gas. “They will use the politics to try and embed the fuel but economically speaking it is a fuel leaving the energy system.”

David Williams is Newsroom's environment editor, South Island correspondent and investigative writer.

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