Is Australia's energy transition losing track?

Australia is the second-biggest exporter of liquefied natural gas, neck-and-neck with the US and Qatar. Reuters

Australia is the lucky country. Donald Horne gave it that moniker ironically in his famous 1964 book, arguing his country prospered on natural resources and immigration rather than its “second-rate” political or economic system. The energy and climate transition will test just how much luck there is Down Under.

The nation is an energy superpower – and its strength extends across the spectrum, with the exception of oil. It is the second-biggest exporter of liquefied natural gas (LNG), neck-and-neck with the US and Qatar, the second-biggest exporter of coal, just behind Indonesia, and the fourth-biggest miner of uranium.

It is rich, too, in the minerals that construct new energy technologies. Notably, it leads in lithium, extracting almost half the world's total. It is a lesser but not insignificant player in cobalt, nickel, rare earths, copper and silver. Ninety per cent of its exports are energy, minerals, metals and agricultural products.

And its vast, sparsely-peopled terrain allow it to take advantage of strong renewable resources. From virtually nothing, solar power has boomed to the point of having the highest per-capita use of any large country in the world.

Its solar generation is twice that of the whole of Africa, and is more than the whole of the sunny Middle East. And, fair dinkum to its wind power industry, too, which is also considerable.

Its coal exports have boomed, despite an unofficial ban from China on purchases that ran from mid-2020 until the end of 2022. But a growing share of renewables has steadily driven down domestic coal consumption since 2008. In turn, carbon dioxide emissions have gradually dropped.

Solar and wind, extensive coastlines and proximity to hungry Asian markets, make it an ideal location to produce green – renewable-derived – solar power.

By 2030, the island continent could be the leading exporter of green hydrogen in the world, according to projections from consultancy Rystad. There is even hope to find naturally-occurring “white” or “gold” hydrogen underground in South Australia.

Hydrogen is also key to decarbonising the large domestic metals mining and processing industry. That is the vision of Andrew “Twiggy” Forrest, chairman of Fortescue Metals and the second-richest Australian.

In partnership with software billionaire Mike Cannon-Brookes, he launched SunCable, a plan to build a $21 billion, 4,300km electricity line to carry Australian renewable electricity to Singapore. Mr Cannon-Brookes is now forging on alone, after they parted ways over Mr Forrest’s preference for hydrogen exports.

These natural advantages are combined with political stability – despite the superficial turmoil of a revolving door of prime ministers, usually expelled by their own party colleagues. It has a trusted legal system, a skilled workforce and good infrastructure.

Like Canada, Australia is a rare wealthy western democracy that is also a leading mining destination, making it attractive as a supplier of critical minerals to planned clean energy manufacturing in the US and Europe. Covid apart, Australia has not suffered a recession since 1991.

So far, so good – by luck or by skill. But Australia’s energy powerhouse faces challenges.

First is the LNG industry. Competition is heating up: the US and Qatar have massive expansion programmes, which may lead to a glut of the fuel around 2027, and a sharp drop in prices.

Australia’s LNG projects are already very expensive to construct and operate compared to its competitors, from a combination of technical challenges and remoteness, strict environmental regulations, strong labour unions, and poor project management by many of the companies involved.

Meanwhile, Japan’s Inpex, a major investor in Australian LNG, suggested last year that the country was “quietly quitting” the business.

The company was concerned about what it saw as retrospective changes to the rules, including an increase in petroleum taxation, the introduction of carbon taxes, and the requirement for new gasfields to be net-zero carbon.

The east coast has suffered from very expensive gas to domestic users while companies sell LNG overseas, sparking calls for exports to be halted. That in turn worries international customers, including Japan, who saw Australia as a guarantor for their energy security.

But the introduction of a cap on gas prices, and opposition from environmentalists and farmers, makes it hard to develop new gasfields in the more populated eastern states.

Rather than growing to keep up with rivals, LNG production is likely to decline as older fields are exhausted and not replaced by new developments.

Second is coal. This was more than a quarter of the country’s entire exports in 2022. But of the key export destinations, only India seems a likely long-term growth market.

Others are boosting domestic coal output, as China is doing, or trying to get off the dirty fuel entirely in favour of renewables, gas and nuclear power.

Third, relatedly, is carbon. Climate policy has oscillated between a succession of Liberal (centre-right) and Labor (centre-left) governments. Emissions are dropping, helped by the renewable boom and some creative accounting on carbon uptake by the land. Electric vehicles are finally gaining speed.

Nevertheless, the country is still well short of sufficient climate targets, and recent progress could be undone by a new government, with elections due by September next year.

Fourth is global warming. Australia’s strong reputation for agriculture and tourism belie its largely hot, arid climate. It suffered a severe drought between 2017-19, devastating wildfires in 2019-20, and the famed Great Barrier Reef is increasingly threatened by bleaching as the sea becomes intolerably hot for its corals.

Australia has the advantage of its non-carbon commodities, particularly the energy-transition related minerals that will see rising demand. However, even very successful hydrogen exports will not fully replace the profits from LNG and coal.

Australia has some first-class minerals and energy companies, entrepreneurial talent and technology. Sixty years on from Mr Horne’s book, it has a lot more going for it that just luck.

But, like other energy exporters, it needs to unite federation, states, companies and population around a vision that resolves its climate and carbon contradictions.

Robin M. Mills is chief executive of Qamar Energy, and author of The Myth of the Oil Crisis