Climate change

May 4, 2010

Santos chief’s gassy vision Part 1 – Australian natgas reserves

Santos (South Australia Northern Territory Oil Search) is an Australian energy company that’s a commercial icon in my home state of South Australia. It’s a local economic dynamo, with a $2B/year turnover. Its principal focus — today and into the future — is on the exploitation of Australia’s natural gas reserves. In late September 2009, David Knox — Santos’ Chief Executive Officer and Managing Director — gave a speech to the Australia Israel Chamber of Commerce, entitled “Natural Gas: 40 years on and leading the way to a cleaner future“ (transcript and slides here). In it (see pg 13), he criticised an article I’d written for the Adelaide Advertiser newspaper:

The Advertiser titled “Why nuclear power is the answer” stated that “We recognize the fact that our natural gas supplies are limited.” … Australia is blessed with enormous gas potential, one that will take us well into the next century and probably one or two well beyond that. There is nothing ‘limited’ about it. And there is certainly no fact to the contrary. We, in the gas industry, believe there is ample and affordable natural gas in Australia to meet both growing domestic and export requirements.

You can read the article here was referring to here. For context, I later followed up with this, also in the Advertiser:

The UK is now paying dearly for their dash for gas, following the coal mine closures of the 1980s. Their once-abundant North Sea fields are rapidly depleting. Again, Australia should take note of this warning. We must not go down the natural gas-for-coal substitution route. It would be long-term economic suicide. Also, gas is a carbon-based fossil fuel, releasing 600kg of carbon dioxide per megawatt hour. Unlike the situation for uranium power, the electricity price is strongly tied to the fuel price for gas. A spike in the gas price means big jumps in power prices. Cheap uranium energy is a much more secure proposition. Gas is best reserved to meet occasional peak power demands, not baseload needs.

The other point of note made by David Knox was this (see pg 11, bold emphasis mine), which also refers back to my article:

Let me cut to the chase. We all share the ambition of zero-emission baseload – but it simply is not available in Australia and it will be many years, possibly decades, before there is sufficient commercial confidence about such a technology,its affordability and widespread deployment. Nuclear power I hear you thinking. Right now, it’s illegal in this country. I don’t know anyone who seriously thinks that is going to change any time soon or that we are going to have nuclear power in our energy grid within the next decade at a very minimum. One thing I would note about advocates of nuclear is that they often ignore natural gas and its role in power generation. Often, they gloss over the existence of gas and simplistically abbreviate the debate to one of ‘if renewables fail, then we have to go nuclear’ as was reported in last week’s Advertiser. Gas already delivers close to 70% of the carbon intensity reduction that a shift from coal to nuclear would achieve in eastern Australia, but at far less expense and with none of the sociopolitical challenges. In short, the real competitor to nuclear power in Australia will be natural gas.

This is a 2-part post. Here, in part 1, I’ll briefly analyse Knox’s first fundamental argument — that Australia has abundant natural gas that will carry us through the 21st century and beyond. In Part 2, on Wednesday, I’ll critique the second argument — that gas will deliver almost as much emissions reductions as a shift from coal to nuclear would.

Natural gas reserves in Australia

Australia has large reserves of natural gas. Let me first explain by citing this article:

At the moment, Australia has the 14th largest known gas reserves on the planet. Dr. Bethune reckons that when you add up proved, possible, and probable gas reserves along with other potential resources, you get a reserve figure of around 200 trillion cubic feet (tcf) of gas. This is quite a generous use of the word “reserve,” which is typically reserved for well-drilled, well-defined resource or ore body that you know you can produce (capital spending and operating costs) economically. You wouldn’t typically use the word “reserve” to describe resources that haven’t even been drilled yet. But the point about Australia’s growing gas status is well taken. Australia will never compete with countries like Russia (1.5 quadrillion cubic feet of reserves) or Iran (981 tcf), or Qatar (904 tcf).

So whilst we’ve got a lot of potential gas, the big boys of the Middle East and Siberia still trump us many times over. What’s a “tcf”? It stands for a trillion cubic feet of gas, which has the energy content of 1,055 petajoules (PJ). More on that below.

Let’s look a little deeper. In a 2008 report to the Australian Parliament, Australia’s natural gas: issues and trends, it is stated:

As at 1 January 2005, Australia’s Category 1 and 2 reserves totalled just over 4 000 billion cubic metres (bcm) or 144 trillion cubic feet (tcf). Australia’s natural gas consumption for 2005–2006 amounted to 1 184PJ (equivalent to around 1.12 tcf). Exports in that same year amounted to 12.495 million tonnes (Mt) of LNG equivalent to 684.73 PJ.

The category 1 and 2 reserves are often called “2P”, which stands for “proven plus probable” reserves. The question of the probable part is how economic it is to extract the stuff. At some point, without a carbon price, we’ll probably end up getting most or all of it, because beyond energy generation, gas is also valuable as a versatile chemical feedstock.

Australia also has some large concentrated reserves. For instance:

Gas sources in Australia are North West Shelf, Northern Australia, Timor Sea, Gorgon fields and Browse Basis with reserves of 100 trillion cubic feet. (1 tcf equals 19.4 million tonnes of gas or 1 petajoule). The north west shelf alone has reserves of 40 tcf more than enough to maintain current production for 30 years. Scott Reef/Breakneck at 21 tcf, Greater Gorgon at 28tcf plus the nearby Chrysaor field.

Then there is coalbed methane (also called ‘coal seam gas’ or CSG), something David Knox talked a lot about in his speech (see slide above). Our “world class potential’ for CSG is speculated to be ~250 tcf, in addition to 2P/3P reserves of 184 tcf — versus domestic consumption of just over 1 tcf per annum.

Natural gas production and export in Australia

Okay, so how much natural gas does Australia currently produce, and how much does it export? Here, I refer to a recent EIA report:

Natural gas production in Australia/New Zealand grows from 1.7 trillion cubic feet in 2006 to 4.4 trillion cubic feet in 2030 in the reference case, at an average rate of 4.2 percent per year—the strongest growth in natural gas production among the OECD countries. In 2006, Australia’s production was far larger than New Zealand’s, at 1.5 trillion cubic feet and 0.1 trillion cubic feet, respectively. Australia continues to dominate production in the region throughout the projection, given its large resource base and plans for expanding production of natural gas both for domestic use and for export.

The Carnarvon Basin—located off the Northwest shelf in Western Australia—is one of the country’s most important natural gas producing areas, holding an estimated 62 trillion cubic feet of probable reserves. In addition, new development in the deepwater Timor Sea at Browse Basin is expected to bring even more natural gas to market in the future. There also has been considerable interest in developing Australia’s coalbed methane resources, especially as a fuel for LNG production. Five projects to produce coalbed methane for conversion to LNG currently are planned or under development in Australia, with LNG production from the first project (the 1.5 million metric ton Fisherman’s Landing project in Queensland) scheduled to begin in late 2012.

So, in 2006 Australia produced 1.7 tcf, and this is expected to rise to 4.4 tcf in 20 years time. What about LNG (liquefied natural gas) exports? Below I reproduce figure 2 of the parliamentary report I referred to earlier, which plots historical and projected rates of domestic consumption and exports:

As you can see, exports are projected to rise sharply, such that by 2030, about 2,700 PJ (2.56 tcf) will be exported, versus a domestic consumption of 1,750 PJ (1.66 tcf). That means 60% of our natural gas production will be going to exports within two decades. For projects like the huge Gorgon gas field development, the majority of production will go into LNG exports.

Can natural gas provide a energy security for Australia?

Finally, let’s consider the argument put forward by David Knox — that Australia has centuries of gas reserves, and that my statement “We recognize the fact that our natural gas supplies are limited” is incorrect. As I explained in the previous post on BNC, Australia’s total energy consumption is ~5,500 PJ/a, including 900 PJ/a of electricity production. Let’s convert this to gas:

5,500 PJ / 1055 = 5.2 tcf (easy enough)

Let’s take it one more step of sophistication, and say that 4,600 PJ could be supplied by direct combustion of the gas (for vehicles, industrial heat, etc.), and the other 900 PJ of electricity was supplied 80% by advanced combined cycle gas turbines (CCGT – gas and steam turbine) and 20% by open cycle gas turbines (OCGT). A CCGT like this runs at about 55% conversion efficiency, whilst a typical OCGT runs at 35%. This puts our current annual requirement — if natgas was to meet all our energy needs — at:

{(4600+([900*0.8]/0.55)+([900*0.2]/0.35)}/1055 = 6.1 tcf

Under these conditions, our current 2P reserve of 144 tcf would last for 24 years. The higher estimate of 200 tcf would give 33 years of energy. If we add in all of the CSG potential, of 250 tcf, we take the figure up to 65 years. (For just current electricity use of 900 PJ/a, the 144 tcf of 2P would last 83 years).

Now, what if we became a 50% electrified society, based on gas turbines, with the other 50% used for vehicles fuels etc.? Without further growth demand (thanks to efficiencies + wishful thinking), the 5,500 PJ/a would require 7.9 tcf/a of gas, which means 18 years of supply based on our 2P reserves or 50 years if we add in our CSG potential. But hang on, we’ll be exporting 60% of it by 2030, so let’s revise those figures accordingly. That would leave 7 years of domestic supply from the 144 tcf of 2P reserves, or 20 years for 2P+CSG.

Suddenly, David Knox’s vision of a few centuries of gas supplies for Australia doesn’t look so great. More like a few decades — at least if gas is really going to be the ‘game changer’ that he claimed in his talk.

Now I’m sure David wasn’t thinking of a complete energy replacement scenario like I’m talking about here — I reckon he just had his Santos business hat on, and was probably thinking on the basis of healthy growth in gas use over the next few decades, embedded within the pragmatic reality that coal would still be the baseload mainstay. But I do think the numbers above back up my statement wholeheartedly — if we ‘dash for gas’ in a major way, in a short-term bid to cut back on our greenhouse gas emissions compared to business-as-usual, then we’ll run out of fuel far sooner than we’d care to imagine. Add to that the inevitability that, well before the wells are bled dry, gas prices (for heating, cooking and electricity) will skyrocket, as demand outstrips supply and the hungry export market continues to demand ever greater proportions of our production.

Next post, I’ll explore the GHG emissions implications of the above scenarios, and look at the comparative performance of the nuclear alternative that David so flippantly dismissed.

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