By Tina Soliman-Hunter and Madeline Taylor, Macquarie University
The world is currently dependent on oil and gas. Since the Industrial Revolution, society has been reliant on secure, affordable, and accessible petroleum to develop economies, trade and wider socio-economic growth. Our centuries- long reliance on petroleum is being fundamentally challenged by the pressing need to decarbonise as the oil and gas sector accounts for nearly 15 per cent of energy-related global emissions. Shifting from a petroleum-centric global economy is one of the greatest challenges of our time, requiring nothing short of an entire supply chain overhaul and radical technological advances to decarbonise and allow states to meet their Paris Agreement and net zero emissions commitments.
The Research Handbook of Oil and Gas Law examines these critical and complex challenges of how to regulate and facilitate the energy transition in a petroleum-dependent world. It provides a timely critique of the associated emerging challenges and opportunities using representative case studies across several states, industries, technologies, and legal frameworks across the world.
The uptake and roll-out of renewable energy and storage is rapidly increasing globally. Australia has commited to reduce its greenhouse gas emissions by 43 per cent below 2005 levels by 2030, achieving net zero emissions by 2050, and reaching 82 per cent renewable energy by 2030.
The decarbonisation of our electricity sector is a fundamental and crucial step on the path to securing the net zero target. However, transitioning away from emissions-intensive petroleum will require diverse and complex technological solutions beyond electrification.
Decarbonising hard-to-abate sectors presents a formidable and complex task. This includes creating low-carbon iron and steel, alumina and aluminium, and other metals including lithium, copper and nickel, liquified natural gas and chemicals including plastics, fertilisers and explosives, as defined by ARENA.
Appropriate policies, regulatory frameworks, technological solutions and community benefits are all crucial for a successful energy transition. Without this coordination, carbon-intensive sectors dependent on petroleum production cannot be effectively transitioned to low-emissions alternatives satisfying the Energy Quadrilemma of energy security; energy equity; environmental sustainability; and social acceptance.
The global economy requires energy security on our path to decarbonisation. Energy security, as the first pillar of the Energy Quadrilemma, remains fundamental to energy policy and is still deeply linked to the global petroleum market. International Energy Agency (IEA) member countries have a collective obligation to hold oil stocks equivalent to at least 90 days of net oil imports.
Australia has been in breach of this collective obligation for several years and as at June 2023 holds 51 days of net oil imports. While global oil demand must necessarily decline to reach 2050 net zero scenarios, policy, technological and regulatory changes are needed in low-emissions liquid fuels, such as hydrogen, to eventually replace this stockholding obligation to ensure and maintain energy security.
Renewable and low-carbon hydrogen has been offered as a potential solution to decarbonise heavy transport, manufacturing, chemical production, and other hard-to-abate sectors. 46 countries and 8 provinces have released hydrogen strategies, with Australia’s national hydrogen strategy currently under review, encouraging first movers to scale-up low- emissions hydrogen production and use. However, global hydrogen production is currently dominated by oil, gas, and coal.
Just four per cent of the global hydrogen mix is produced by electrolysis creating hydrogen from renewable energy. Five per cent of new low-emissions hydrogen projects have made firm investment decisions due to the lack of clarity in policies and regulations concerning hydrogen certification and the potential of a hydrogen export market.
As recently highlighted in the IEA Emissions from Oil and Gas Operations in Net Zero Transitions report, the petroleum sector requires ambitious targets to achieve meaningful reductions while transitioning to net zero businesses and operations.
Profound technological changes and market reform are required for deep decarbonisation to not only avoid climate change impacts but to unlock new sources of economic growth and ways of working with the natural environment.
The lessons, innovation, and capital from the oil and gas sector experiences represent crucial insights to create the energy transformation needed to decarbonise across the global economy. Salient technological challenges remain to fully replace oil and gas and achieve a balanced and inclusive approach to energy transition based on the Energy Quadrilemma as a guiding principle.
Transition, technology, and risk
The term transition implies a steady, incremental shift from one state to another. Yet in Australia, the energy transition is anything but slow, steady, and incremental. It is nothing short of an explosive transition, the likes of which is an event that has rarely been seen in this country.
To date, Australia has developed most systems organically – think the development of the electricity system based on the ‘poles and coal’ notion, or the organic development of our capital systems and the infrastructure that goes with it. In our history, the only transformation on a similar scale was the post-war establishment of the Snowy Mountains
Hydro-Electric Scheme (Snowy Scheme). Utilising tried and true technology and leadership for the US Bureau of the Interior, the Snowy Scheme gave us something we didn’t knew we needed, but only dreamed about – water in inland arid regions to be utilised for agricultural activities, and the generation of electricity as that water was released for agricultural use.
With the Snowy Scheme, there was little risk. Government backed, underwritten by tried and tested US knowhow, and constructed by eager and hard-working migrants, the Snowy Scheme added much to this country in economic, social, and political terms.
The present energy transition is nothing like this. The key to this transition is timing – do we have the appropriate time, technology, investment, and knowledge to effectively transition from the use of carbon-emitting hydrocarbons to low carbon energy and are we making the right choices as to the technologies and energy generation sources implemented?
Transitioning too early is likely to place the National Electricity Market (NEM) at risk – the resilience of the grid and the affordability of electricity are likely to be severely tested and affected in the next few decades.
In Australia, the big loser could be the Federal Government’s Modern Manufacturing Initiative, which relies on gas for not only electricity but also heat to undertake many industrial processes. If gas is to be left out of the energy mix, then this heat generation will be hard to replace if nuclear energy generation is not included.
Another loser is likely to be grid stability. In 2016, a series of events led to a cascading failure of the renewables-dominated South Australian Grid, blacking out the entire state and lasting upward of 24 Hours. A similar grid failure occurred in Texas in 2021, blacking out over 4.5 million homes and businesses for days, and killing at least 240 people.
In 2022, low power reserve conditions caused the NEM to be suspended for seven days, creating chaos, threatening supply and demonstrating a continued lack of resilience in a market where coal and gas fired generation still dominates.
If NEM resilience is threatened in a traditional generation system, the outlook for a NEM with variable input and frequency from renewable energy is one of a market with high risk. To assuage concerns of risk, and to increase NEM resilience, government, the Australian Energy Market Operator (AEMO), and energy suppliers are increasingly turning to technology to solve generation and energy storage issues as Australia shifts away from coal and gas-fired assets.
As we develop and refine technologies that can lower or reduce carbon from gas, we can utilise low-carbon gas as an instrument in the energy transition. Such technologies centre on the capture of carbon as gas is processed, and then the storage of this captured carbon, usually through underground carbon sequestration (collectively known as CCUS), thereby providing a steady fuel with built-in energy storage, thereby lessening the need for big batteries.
Indeed, according to the IEA, capturing and sequestering gas will be critical in the energy transition. Another technology is the utilisation of gas, again with the CO2 removed and sequestered, to produce hydrogen. However, this is unlikely, given the loss of energy in conversion, and the present use of gas in electricity-generating infrastructure. Many other countries, especially Europe, are embracing CCUS as a necessary and integral tool in the shift to net zero emission.
To date Australia is not, but it is obvious that at some stage, the transition will require energy sources that are constant in supply and frequency, and able to provide energy storage for unexpected events. Australia needs to get the present NEM, dominated by hydrocarbons, functioning, before utilising technology to shift to renewable energy sources, lest network resilience be affected.