Opportunities for the Gippsland Basin and Australia’s energy transition

ExxonMobil Australia Commercial Director, David Berman speaks at the Australian Domestic Gas Outlook Conference 2022

Speech

Opportunities for the Gippsland Basin and Australia’s energy transition
22 March 2022

~Check against delivery~

Good afternoon, it’s great to be back with everyone at ADGO. 

Let me begin by acknowledging the Gadigal people of the Eora Nation, the traditional custodians of this land and by paying my respects to Elders past, present and emerging.

I also draw your attention to the note on this chart concerning forward looking statements.

At Esso we are proud that all the gas we produce on the east coast is sold into the domestic market, where it is used to power Australian homes and businesses.

At this conference last year, I shared what it will take to ensure Australians on the east coast can continue to access reliable and competitively priced gas. And the ways in which producers, consumers, government and regulators need to work together to achieve this shared objective.

A lot has happened over the last 12 months, so now is a good time to reflect on the progress made and the challenges that remain. I will share an update on the investments Esso is making to help ensure reliable and competitively priced gas is available when and where consumers on the east coast need it.

I will also share some thoughts on the energy transition and the opportunities and challenges for our industry.

Following the presentation this morning outlining the Victorian government’s energy transition aspirations, I also need to make a few additional comments about policy risks to near term gas supply and how policy decisions over the coming months may change the outlook I share with you today.

When the gas we need is produced here in Australia it benefits all Australians, supporting the local economy, creating jobs and raising tax revenue. We are fortunate that the cheapest gas is the gas that is produced locally, close to where consumers need it, because that keeps transportation and infrastructure costs low, which ultimately lowers the price paid by gas consumers.

Over the past 12 months, our industry has stepped up again to meet the ongoing gas needs of Australians. Last month the Australian Competition and Consumer Commission Gas Inquiry concluded, for the eleventh consecutive time, there is no shortfall in the east coast domestic gas market. In addition our industry often fills the gap when other energy sources fail and I will share some examples to further illustrate this point later.

Delivering reliable and competitively priced domestic gas

Although the Gippsland Basin has been producing energy for more than 50 years, it remains today the largest single source of gas supply to the east coast domestic market. This is because Esso Australia and our joint venture partners have led investment in exploration, resource development and infrastructure. Through these investments, we have done the heavy lifting to deliver reliable and competitively priced gas to the east coast domestic market, helping to maintain the energy security that Australians depend on.

As shown on the left side of this chart the Gippsland Basin Joint Venture and Kipper Unit Joint Venture have the potential to continue supplying one third of south east Australia’s domestic gas demand through to the end of this decade.

Last year I highlighted West Barracouta as the largest east coast domestic gas project to come online this decade. As you can see on the right hand side of this chart, West Barracouta alone will produce more gas this decade than that anticipated from either Narrabri or the Beetaloo basin.

This year we are announcing our intention to invest up to $400M to develop and produce additional gas from the Kipper and Turrum fields over the next five years. On the left side of the chart, the outlook I shared last year is shown in green. The 200 petajoules of additional production we announced on Thursday is shown in blue and will be included in the Australian Energy Market Operator’s 2022 Gas Statement of Opportunities.

And just like West Barracouta, the additional production we are announcing this year will produce more gas this decade than that anticipated from either Narrabri or the Beetaloo basin and it will be produced in the next few years, when it is needed most. This is a significant contribution to the energy security of Australians on the east coast.

It is important to appreciate that half of the Gippsland Basin Joint Venture and Kipper Unit Joint Venture gas forecast to be produced in 2026 is not online today. Therefore, supportive Government policy that backs the valuable contribution gas makes to Australia’s way of life today, and recognises the important role gas will play in our energy transition, is crucial to maintaining energy security on the east coast.

And so it is encouraging to see continued federal bipartisan support for the development of our gas resources.

The Commonwealth Government and Minister Taylor in particular, should be congratulated for the leadership required to conclude the voluntary gas market code of conduct. Developed through extensive consultation between gas producers and users, the code will ensure consistent standards of business conduct and build and sustain trust and cooperation between gas suppliers and gas customers. 

But at the end of the day, gas is a commodity and commodity prices tend to be more volatile than the price of many other products. When we gathered at this conference last year, domestic gas prices were at their lowest level since 2016. Through 2021, the ACCC netback price increased by 438% while domestic wholesale gas prices measured by the ABS over the same period increased by only 30%. It is simply a fact that Australian gas customers pay significantly less than customers in export destinations.

Conclusion of the code of conduct will help alleviate the uncertainty of the past two years, which has contributed to a shortening of contract terms and discouraged the investment required to bring new supplies to market. If this uncertainty had continued it would ultimately have led to higher, rather than lower, gas prices and, in the southern states, it would have accelerated the transition to pricing based on LNG import parity.

Throughout the low domestic gas price years of 2020 and 2021 Esso continued to offer gas supply with terms beyond the middle of the decade and over the past 3 years contracted 70 petajoules of gas directly with Australian industrial and manufacturing customers. We place a high value on the relationships we have with all our customers which are constructive and mutually beneficial.

Natural gas supports energy security

Investments in gas today will play a key role in Australia’s transition to a net-zero emissions future. Not just because gas results in fewer emissions than coal when used to generate electricity. And not just because it is vital in parts of the economy that are more difficult to electrify. But because, as Daniel Westermann has pointed out, gas firming is incredibly flexible and valuable as it can be called on for short or long periods, and in this way allows more renewables to be integrated into the grid.

This is not a hypothetical point. The unplanned coal plant outages at Callide and Yallourn in the second quarter of 2021 provided very real examples of the essential role gas plays in keeping the lights on over an extended period.

As a reminder, on the 25th of May last year multiple generators and transmission lines in Queensland tripped following an incident at the Callide Power Station. Just weeks later in mid-June flood damage at the Yallourn mine severely curtailed the Yallourn Power Station’s operation.

Gas markets responded at a scale and over a period of time way beyond the capability of any battery, with price signals drawing more gas to power generation from industry gas storage and the Longford Gas Plant.

Storage at Iona fell from a record high of 24.5 petajoules on the 10th of May to 14.3 petajoules at the end of the quarter. Output from the Longford Gas Plant for the second quarter of 2021 was 8.8 petajoules higher than the year before, making it the highest second quarter production from Longford since 2017.

It is important to note the additional production to fill the gap in May and June was only possible because the Esso operated West Barracouta field had been commissioned in the month before, in April 2021. There can be no clearer demonstration of how ongoing investments in gas are critical to maintaining the reliability, resilience and stability of the grid.

Gas will perform this same, critical role in an electricity system increasingly transitioning to intermittent renewable generation. Not in competition with renewables, but as an essential source of flexible power generation that will be called upon over extended periods when other energy sources can’t fill the gap. Earlier this month, we saw the Victorian government announce its ambition to generate at least 2 gigawatts of offshore wind energy by 2032. As coal continues to exit and more wind and solar enters our energy mix, there will be a larger role for gas in keeping the lights on.

The flexibility, reliability and affordability of gas means that in Victoria, Southern NSW and the ACT, it is essential for providing heating to households during winter. More than 80% of homes in these regions are connected to the gas network and gas delivers more energy to these homes than electricity. This infrastructure supports reliable and affordable gas today and can support the transition from gas to alternative fuels at the right time, with minimal disruption to consumers.

Esso operates a large industrial footprint extending over 300 kilometers across south east Australia. The offshore fields in Bass Strait are connected to the Longford Gas Plant and the gas network. Our operated onshore pipelines connect 400 hectares of industrial land to our operated deep-water port at Hastings, which in turn is connected through pipelines to Altona, Geelong and Melbourne airport.

This is a valuable set of assets not replicated in most parts of the world, with the potential to play a key role in Australia’s energy transition. We are actively working with multiple parties to ensure these valuable assets continue to be an important part of south east Australia’s energy system and support Australia’s medium to long-term emissions reduction goals.

Esso Australia is reducing emissions

In the meantime we are reducing our emissions by improving the efficiency of our operations and actively identifying alternative uses for our emissions.

Since 2018 our Gippsland operations team has reduced flaring by 44% and the use of gas as fuel by 24%. This has been achieved by minimising the equipment operated to meet gas demand, determining optimum purge rates to flare and completing targeted equipment maintenance and efficiency upgrades to reduce fuel gas usage.

These modest changes and many more have made a big difference - the gas we’re now saving each year at Longford is enough to supply more than 80,000 households and has contributed to a reduction of greenhouse gas emissions by around 31% since 2018 across our Victorian operations.

We are also working to identify and commercialise beneficial uses for our emissions, helping to further reduce the carbon intensity of Gippsland gas. Last year we signed a long-term carbon dioxide supply agreement with Air Liquide to capture and reuse carbon dioxide from the Longford Gas Conditioning Plant in a new facility that Air Liquide will construct adjacent to the Longford Gas Plant. The carbon dioxide will be processed and used in food and beverage products and in water treatment, desalination, manufacturing and medical industries. This is a great example of different industries working together to create new regional construction and manufacturing jobs, creating value added products and delivering improved environmental outcomes.

The next significant opportunity for emissions reduction is Carbon Capture and Storage or CCS. CCS is one of the few proven technologies that will allow some industry sectors to decarbonise, such as manufacturing and heavy industry.

ExxonMobil has a unique set of competitive advantages to advance the types of CCS projects needed to meet society’s climate goals with more than 30 years of design, construction and safe operation of CCS facilities around the world.

Today ExxonMobil is the world leader in carbon capture and storage, with a capacity of 9 million metric tons per year - that’s equivalent to planting 150 million trees or taking 2 million passenger vehicles off the road. We have an equity share in about one-fifth of global carbon dioxide capture capacity, and we have captured approximately 40 percent of all the captured anthropogenic carbon dioxide in the world.

Again, the Federal Government should be congratulated for making CCS projects eligible to generate ACCUs and providing grant funding to accelerate the deployment of CCS in Australia. Australia has the opportunity to become a global leader in CCS with favorable geology backed by growing policy support and an established regulatory framework that is more developed than other countries in our region.

Closing

So as we look back over the past 12 months; industry stepped up with additional gas supply into the southern states, the significant coal outages we experienced are clear examples of the essential role of gas in maintaining energy security, and gas producers such as Esso have already achieved significant emissions reductions to improve the emissions intensity of gas.

However, there remains work to be done. To keep market prices down and ensure supply over the next several years to the millions of homes and businesses that rely on gas, more investment is required.

And that brings me to the Victorian Gas Substitution Roadmap.

In 2021 the Victorian Government lifted the moratorium on onshore gas exploration and development. That was a good first step because today Victoria imports gas from Queensland to meet winter demand.

However, the Victorian Government is currently modelling a 25% reduction in gas demand by the middle of this decade and a 50% reduction by 2030 across multiple scenarios. 

The magnitude and timing of these demand reductions means the Victorian Gas Substitution Roadmap is a significant risk to the gas investments that will be needed in the State, and is the single largest threat to near term gas supply for the 80% of Victorian households that rely on gas for heating, hot water and cooking.

The investments I described today, if they all go ahead, will deliver more of the gas Victorians rely on. However as I noted earlier, half the gas required in 2026 is not online today. Last week, we announced our commitment to additional gas from the Kipper compression project. No such commitment has yet been made to additional investment at Turrum or any other field.

As coal continues to exit and more wind and solar enters our energy mix, there will be a larger role for gas. If we take the time to look at the bigger picture and consider the needs of the community and businesses who depend on a reliable energy supply, then I expect we will find a common appreciation for the valuable role of gas in our energy system. However in the meantime we will carefully evaluate whether to proceed with those additional investments considering any policy decisions related to the Victorian Gas Substitution Roadmap.

I would like to thank the conference organisers for inviting Esso Australia to share our perspective on the eastern Australian gas market.

Thankyou.