National Australia Bank : AGIG plots a course for renewable gas

In an unassuming Tonsley industrial park, a 20-minute drive south of Adelaide, the nation's largest gas decarbonisation project is pumping out hydrogen for blending with natural gas to supply about 4000 homes and businesses in metropolitan Adelaide.

Australian Gas Infrastructure Group (AGIG), which accepted a $4.9m contribution from the State Government to deliver the $15m prototype plant, holds out great hope for Hydrogen Park (HyP) SA, saying it uses the existing gas distribution network and is an important step towards delivering blended hydrogen gas.

AGIG chief executive Craig de Laine says the initial five per cent blend, whichwas recently raised to 10 per cent, will be lifted again to the maximum blending threshold of 20 per cent, and then ramped up to 100 per cent hydrogen.

"The project is incredibly important because it shows we can produce hydrogen in Australia and supply (blended hydrogen and natural gas) to our customers reliably in much the same way we deliver natural gas today," he says.

"We have also progressed construction of HyP Gladstone, which will provide a 10 per cent renewable hydrogen blend to our entire network in Gladstone by mid-2024."

Mr de Laine envisages a time when hydrogen brings the electricity and gas sectors together into a single renewable energy system for a successful push to net zero by 2050.

It's a vision incorporating use of hydrogen from two key sources to begin the decarbonisation of gas consumption: carbon-free hydrogen from the use of renewable electricity to separate hydrogen from water (known as 'green' hydrogen, a renewable gas), and biomethane captured from decomposing organic waste.

"Our customers are essentially telling us they want to use a carbon-free or carbon-neutral product into the future, so that was the trigger for us to think about how to participate in the transition and what action we needed to take,"" the AGIG boss says.

"The board's vision centred on at least 10 per cent blended hydrogen through our gas distribution network systems by no later than 2030, and 100 per cent renewable gas as a stretch target by 2040, or no later than 2050."Gas industry advocates regard blending of natural gas and lower carbon or renewable gases - and ultimately the substitution of the former with the latter - as an efficient way of decarbonising gas consumption.

That's especially so if the existing gas distribution networks can be efficiently repurposed to carry hydrogen.

Critics, on the other hand, say that gas is a fossil fuel, and hydrogen produced with natural gas still produces greenhouse gas emissions.

The Grattan Institute also said in a paper in December that switching to green electricity to reduce most energy-related emissions was cheaper than using hydrogen to replace gas in Australian homes.

Green hydrogen, however, was the only or the most promising technical option to decarbonise three important commodities - ammonia manufacturing, high-temperature alumina processing and green iron production.

It's a lively debate but Mr de Laine remains sanguine, saying that AGIG's extensive piloting of the technology is a critical part of gaining an understanding of the contribution it can make to overall energy supply decarbonisation.

In the meantime, the Federal Government made it clear in its Future Gas Strategy, announced on May 9, that gas would be needed as an energy source through to 2050 and beyond, playing an important role in backing up renewable power generation.

Mr de Laine also welcomed the Federal Budget's $6.7bn medium-term investment in hydrogen production tax incentives to accelerate renewable hydrogen projects, saying it demonstrated the government was serious about the potential for renewable gas to support the transition to net zero.

AGIG came together as a result of the 2017 acquisition of Duet Group by Hong Kong-based CK Infrastructure, combining the operations of the Dampier Bunbury Pipeline, Australian Gas Networks and Multinet into one gas distribution network.

The group has more than 2.1 million home and business customers, with $10bn of assets spanning 40,000kms of distribution and transmission gas pipelines, 60 petajoules of gas storage capacity, gas processing facilities and remote power generation.

In 2020, the AGIG board agreed on a low-carbon vision, encompassing a minimum of 10 per cent renewable - or carbon-free - gas through its distribution system by 2030.

According to AGIG, the objective is to transition its "distribution networks to 100% renewable gas by 2040 as a stretch target and by no later than 2050".

The strategy has led to a range of blended hydrogen and other lower carbon gas projects across the country, which are mainly at pilot stage.

They include the $15m Hydrogen Park partnership, which boasts what was then Australia's largest electrolyser.

Under a process called electrolysis, water is split into its component parts, hydrogen and oxygen, with the hydrogen then combined with natural gas to supply the blended gas containing 5 per cent renewable hydrogen.

Mr de Laine says AGIG is also looking across the country for opportunities in biomethane.

But the low-hanging fruit, as he terms it, needs government support to turn the waste into electricity.

A further project that excites him is HyHome - the nation's first hydrogen home launched by AGIG in Melbourne last year.

According to AGIG, the purpose of HyHome is to demonstrate that a 100 per cent hydrogen home, with a hydrogen cooktop, hot water and home-heating systems and a barbecue, has the same look and reliability as natural gas.

In a spin-off for the project, the new season of MasterChef Australia on Network Ten features an upgrade to the kitchen, with a hydrogen gas BBQ challenge and, according to AGIG, carbon-neutral biomethane for cooking.

It's all designed to support the AGIG boss's optimism that renewable gas can match the contribution of wind and solar in the nation's energy mix in the long-term.

His hope, however, is that renewable gas will attract similar incentives to renewable electricity.

"Our view is that we shouldn't be electrifying gas demand when we haven't finished deploying renewables," Mr de Laine says.

Renewable gas can carry part of the load in the meantime.

"(The gas industry) has a very simple ask, and that is to broaden the existing incentives to include renewable gases.

"We endorse a no-regrets policy to encourage more supply into the market at a time when we clearly need more supply," Mr de Laine says.

Around the middle of last year, the three biggest gas industry investors, including AGIG, commissioned Boston Consulting Group (BCG) to review the role of gas infrastructure in Australia's energy transition.

The report noted that estimates on the extent of the role to be played by natural gas in the energy transition at 2040 varied from 40-90 per cent of 2020 domestic consumption levels.

The outcome, according to BCG, depended on the rate at which renewable electricity and storage is deployed, and the rate at which customers move to electric appliances.

Natural gas, it said, could be particularly useful for parts of the system that are hard or expensive to electrify, such as times of peak demand or industrial applications requiring high-grade heat.

"While natural gas will support the energy transition, low-carbon (or renewable) gases are being demonstrated that may be able to support (some natural gas) end uses," BCG said.

Responding to the report, Mr de Laine said at the time that BCG's work demonstrated the critical role of gas infrastructure in a "least-cost energy transition, showing we need more, not fewer, energy options".

The AGIG boss also spotlighted BCG's finding that the electricity sector alone would need "incredible amounts of new infrastructure to replace coal".

AGIG, in contrast, announced the completion of its Australian Gas Networks' (AGN) two-decade, $600m upgrade to its Victorian infrastructure.

While the replacement program was a business-as-usual project to improve safety, AGN's gas mains are now operating with less fugitive emissions, and its Melbourne network has 100 per cent polyethylene and protected-steel mains, compatible with delivery of 100 per cent hydrogen "with minor incremental investment".

The mains upgrade for AGIG's other Victorian network, Multinet Gas Network, is scheduled for completion in "under a decade".

Mr de Laine says there is more than one way forward in decarbonisation of the economy.

"We don't need to make the electricity sector transition even harder and more expensive by shifting more energy demand on to a grid that is already challenged," he says

The information contained in this article is based upon sources believed to be reliable but which have not been independently verified. Opinions or ideas expressed may not necessarily be those of National Australia Bank Limited ("NAB") nor may they necessarily reflect NAB's views or endorsement. This article is for informational purposes only