Are Australian carbon prices sufficient to support decarbonisation in gas production?

Abstract

Recent years have seen a rapid increase in the push for energy transition in Australia. Carbon prices have been introduced through the Safeguard Mechanism and Australian Carbon Credit Units. Consumers of hydrocarbon products are beginning to demand carbon neutral products. Oil and gas operators are pledging net-zero emissions targets. The decarbonisation efforts that ensue are expected to drive a paradigm shift in upstream development approaches. In this work, we investigate how an anonymised high carbon dioxide (CO2) gas field may be developed under prevailing carbon prices. We identify three project archetypes and estimate economically recoverable resources under each project; we also analyse the economic performance of each project. In the first archetype, we consider a project where CO2 is separated from the produced gas and vented into the atmosphere. In the second archetype, we consider a carbon sequestration project in which CO2 is transported via pipeline for storage in an onshore depleted gas reservoir. Lastly, we consider a case in which the gas buyer demands a fully carbon neutral product; as such, we study the feasibility of producing blue hydrogen using the produced gas, and how this impacts project economics and reserves. The case studies quantify by how much decarbonisation efforts negatively impact project economics and how they are the least objectionable when carbon prices are high. The analysis shows that carbon prices in Australia are currently sufficient to enable commercial development in ideal situations, but need to be higher to enable wider decarbonisation.