Speech: APPEA CEO Samantha McCulloch addresses the 2022 Roundtable for Energy Resources in SA

APPEA Chief Executive Samantha McCulloch speech at the South Australian Government’s Department for Energy & Mining roundtable – Adelaide, SA, 20 October 2022

I’d like to begin by acknowledging the Kaurna (Garna) people and thank you Rosemary for the wonderful welcome to country this morning.

I confess my team wrote me an excellent speech for today but I’m not going to read it to you. Instead I’d like to use my 15 minutes or so to respond to some of the discussions today while framing the priorities for the oil and gas industry.

Everyone has a right to free speech and for protest as part of our great democracy in Australia. I found it somewhat ironic and deeply counterproductive to disrupt a conference that’s spent most of the day talking about our role in net zero and how we can support the transition.

I’d like to emphasise that our members at APPEA are firmly committed to net zero by 2050 and indeed many of our members have set more ambitious timeframes for decarbonisation. We are investing billions of dollars in the projects and the technologies that will deliver the significant emissions reductions that we need.

And while the industry is working to reduce emissions, we continue to deliver for the South Australian economy, enabling more than $38 billion in economic activity and employing around 11,000 people in the state and thousands more businesses that rely on the oil and gas industry.

Now today, gas has never had a more important role to play in the energy mix and we have been hearing this throughout the sessions today.

In the power system, we are seeing the reliance on gas increase as we move away from coal and ramp up renewables deployment. This is because gas is a natural ally for renewables. It has the flexibility and ability to come online quickly when renewable sources are not available.

On the east coast during the recent energy system pressures, the call on gas increased 55% in May versus a year earlier. This increased call on gas is one of the factors contributing to the higher prices that we are seeing across the system today.

Here in South Australia, renewables provided on average around 63% of power generation in the last 12 months. This is a great achievement. But during some time periods, gas was providing 70 or 80% of generation, emphasizing the importance of gas as a backstop for renewables.

And while there tends to be a lot of focus on the power system – and quite appropriately, because the electricity sector will need to be at the forefront of moving to reduce emissions to hit net zero – it’s not all of the energy future of course. The power sector only accounts for around one-third of Australia’s emissions and only one-third of our gas use.

So gas will continue to play an important role in terms of fuelling our manufacturing, fuelling our industry, and continuing to support new mining and mineral processing opportunities that we also heard about from the Minister today.  Australia wants to be a leader in producing and refining and processing lithium, rare earths, critical minerals – the minerals and materials we will need to support the energy transition, the batteries and the solar panels. This is likely to be fuelled by gas.

This morning Tony Wood from the Grattan Institute said that fossil-based methane – which we call natural gas – was not compatible with net zero. I have deep respect for Tony’s work and for the work of the Grattan Institute but on this point I would respectfully disagree.

Firstly, our experience today – and our observations here in Australia – are that we need more gas to support the transition to net zero as we are moving away from coal and as renewables are increasingly taken up.

The IEA net zero scenario – which as we know is often cited in claims about why we shouldn’t be investing in new fossil fuel supply – has an almost 9% increase in gas globally this decade. And again, that is to support economies transitioning away from coal and supporting the ramp up of renewable energy.

But this 9% is not evenly distributed. In a more targeted analysis earlier this year for the Southeast Asian region, the IEA found that Australian LNG exports to the region would need to almost triple this decade to support the region’s energy transition.

How realistic that is – the tripling by 2030 – is up for debate but it goes to show the importance of the role of our LNG exports in reducing emissions in the region. And the Federal Government itself has released analysis in a report that suggests our LNG exports are contributing to emissions reductions in the order of 166Mt of Co2 a year – which is close to a third of Australia’s annual emissions. This is a huge contribution we are making to reducing emissions in the region.

But I want to highlight that this role for gas is not just in the short term or the next decade.

By 2050, the IEA net zero scenario has around 20% of the global energy mix being met by fossil fuels. This is almost exclusively oil and gas. And some of it is tied to hydrogen production – and I will come back to hydrogen.

Looking more closely at our region, when we take Indonesia, for example, their net zero pathway could see them move from being a net exporter of LNG to an importer of LNG from 2030. And by 2050, Indonesia could be importing an estimated $10 billion worth of LNG in a scenario that’s compatible with their net zero pathway. That’s a $10 billion market – a new market – sitting on our doorstep in the middle of the century.

So the role of gas will be important on the path to net zero, and beyond.

Today we need more gas and increased supply driven by a policy environment that encourages investment.

South Australia is a leading jurisdiction in this regard. It is home to a robust and efficient regulatory system which is workable for industry and which gives assurances to governments and the community that we develop resources safely and responsibly.

But this is not necessarily the case everywhere. As an industry, we’ve committed more than $20 billion in new investments for new supply in recent years. But moratoriums and bans in some states are really hampering further efforts to increase supply.

And the industry itself is facing an increasingly uncertain investment environment. This includes increasing regulatory reforms and proposed market interventions, including reforms to the EPBC and Safeguard Mechanism alongside new and far-reaching powers for AEMO to intervene in the gas market.

As an industry, we will continue to work constructively with governments on these reforms while we continue to invest hundreds of millions of dollars in new exploration and appraisal to deliver the new supply that really will be critical for Australia’s energy security and our future emissions reductions.

But the role of the industry and our commitment to net zero goes beyond our traditional role of producing gas and oil. APPEA members are at the forefront of investing in the technologies and projects that will be critical for net zero – and that includes CCUS.

Today we’ve already heard from Santos, from Beach and from CO2CRC on the recent developments and projects for CCUS around Australia, including the world-leading Moomba project that will be one of the largest and least-cost storage projects in the world.

Australia is now part of this renewed global momentum for CCUS. I have just spent seven years at the International Energy Agency in Paris as head of CCUS, and I can tell you it’s extraordinary the momentum that we’re see globally for this technology.  My team is tracking at least two major projects being announced every week in the past 12 months. If you rewound five or six years ago, you would have been lucky to see two projects being announced.

This just goes to show the impetus around this technology and the importance of this technology.

It’s driven by three key factors. The first is around net zero commitments. We’ve heard from organisations like IECC and the IEA that for many years CCUS has been critical to achieve net zero, and in fact, achieving net zero without CCUS is virtually impossible.

As governments start to crunch the numbers and put some granularity around the pathways to meet their final commitments, CCUS is coming to the fore.

So, we’re seeing more support for CCUS, an improved investment environment – in the United States the Inflation Reduction Act has added very substantial to the very substantial support available for CCUS in the United States.

Now there’s a tax credit of $85 per ton for industrial CCS or $180 per ton for direct air capture, as well as billions of dollars of investment for infrastructure around Co2 transport and storage. Likewise in Europe, governments are investing directly in CCUS and we’re seeing those projects flow through.

Hydrogen is also another key factor behind the momentum around CCUS, and I’ll touch on this in a minute.

The oil and gas industry is at the forefront of developing these projects and these CCS technologies.

And the need for CCUS goes well beyond our sector. We need it for heavy industry – that includes steel, cement, chemicals; and just to cite an example, the cement sector accounts for around seven per cent of global CO2 emissions and we have virtually no technology options to address those emissions, which are process emissions – they’re not associated with combustible fossil fuels.

CCUS is the only solution we have for deep emissions reductions from cement.

Likewise, technologies like direct air capture, bioenergy and CCS can provide a carbon removal service  – providing the balance that we speak of when we’re talking about net zero.

So while this isn’t a technology exclusively for the oil and gas sector, it is a technology that the oil and gas sector can deliver for the rest of the economy and for other sectors, and is delivering for other sectors. We have the skills and the subsurface expertise to ensure that those C02 storage resources are being developed and operated safely and securely.

There’s a similar story as well for hydrogen.

We’ve heard a lot about hydrogen today and I have to commend the South Australian Government for their efforts and ambition on hydrogen. It is clear that South Australia is positioned to become a powerhouse for hydrogen through their commitment, ambition and the practical actions of the government.

Now, we hear a lot about blue vs green hydrogen – I’ve heard a lot about this since I’ve been back in Australia. But I want to emphasize that if we want to actually deliver on our hydrogen ambitions we are going to need both, and actually will probably need all of the colours of hydrogen.

Just to put some context around this: today the world produces around 95 million tons of hydrogen.

0.04 per cent of that is green hydrogen. 0.7 per cent of that is blue hydrogen. The rest is just hydrogen produced from gas or coal without any abatement. So, we have a long way to go here. We’re on the path to get there with the investments we that have heard about today and with global commitments. But, we need to be pragmatic in understanding that we will need all of the tools that we have in the hydrogen tool kit to get us where we want to be.

Just to highlight – by 2050 in the IEA’s net zero scenario, it’s about a 40-60 split between blue hydrogen and green hydrogen. If you wanted to make that entirely green hydrogen, the electricity needs would be equivalent to the global electricity generation today just to meet hydrogen demand. So, that’s an ambitious goal and again I’m saying that’s why we should be looking at a range of options.

And particularly blue hydrogen provides us with a cheaper (today) and readily scaleable pathway to bring new low emissions hydrogen to the market. It’s another area where Australia has a strong competitive advantage, including our excellent geological storage resources.

Before I close, I would like to acknowledge Barry Goldstein. He was a trailblazer and pioneer for the industry, particularly here in South Australia, and I do look forward to celebrating his enormous contribution to the industry at the commemoration this evening.

And just one final mention if I might, it’s a bit of a plug for our APPEA Conference next year, which will be held here in Adelaide in May under the theme of ‘Lead, shape, innovate – accelerating to net zero’.

This is the largest gathering of the oil and gas industry in the southern hemisphere. It attracts key thinkers and leaders from across the sector, and I really look forward to seeing as many of you as possible at the APPEA Conference next year.

Thanks very much.