‘Renewables Are Not the Holy Grail’, Energy Boss

Santos CEO Kevin Gallagher speaks during the annual Australian Petroleum Production and Exploration Association (APPEA) 2023 Conference in Adelaide, Australia, on May 18, 2023. AAP Image/Matt Turner

The boss of one of Australia’s largest domestic gas suppliers has warned the country could face significant problems if it phases out oil and gas in favour of renewables amid rising pressures from the industry’s opponents.

In his speech to the Australian Petroleum Production and Exploration Association’s (APPEA) 2023 conference, Santos CEO Kevin Gallagher said oil and gas were vital for the operation of modern society.

“The main game is gas because it makes renewables possible, it provides feedstock for fertilisers and chemicals, and it fires the high-temperature furnaces required for bricks and cement,” he said.

The CEO noted that while some people had lectured about how millions of lives could be at risk due to climate change during the conference, there was no thought about the human cost of a world without oil and gas.

“The world could not feed itself today, or anytime soon, without fertilisers made from gas,” Gallagher said.

“Without ammonia-based fertilisers made from natural gas, we could feed about four billion people, roughly half of today’s global population.

“And we do not yet have replacements for the materials that are fundamental to our modern civilisation–steel, cement and plastics.”

Fossil Fuel Has Allowed Society Freedom

Gallagher added that the freedom that people took for granted, including choosing a place to live and pursuing a career and education, was possible because of fossil fuel.

He also emphasised the importance of maintaining investments in new gas supply to reduce energy prices, as well as minimising the costs of gas production and the industrial processes where it was consumed.

“To achieve the government’s targets under the safeguard mechanism, industries like steel, cement, aluminium and ammonia need us to succeed in delivering large-scale, low-cost abatement and affordable abated gas,” Gallagher  said.

“Otherwise, Australia will lose those industries and those jobs as well.

“Renewables are part of the solution, but they are not the holy grail.”

The safeguard mechanism is a policy that mandates Australia’s 215 businesses with the highest greenhouse gas emission levels to cut their carbon footprint by 4.9 percent each year as Australia aims to reach net-zero emissions by 2050.

The CEO also stated that while net-zero should be all about reducing emissions, the industry’s opponents only sought to remove oil and gas from the country’s energy mix.

Objections to Oil and Gas Projects

Gallagher’s remarks come as the oil and gas industry has been facing significant objections when attempting to expand or open new projects in recent years.

In 2021, the former Morrison government refused an application from several energy companies to extend an exploration permit for drilling oil and gas offshore off the New South Wales coast.

At the time, former Prime Minister Scott Morrison said the refusal was due to widespread community opposition as well as a lack of reasonable grounds to extend the permit.

A general view of Coal Seam Gas wells in the Pilliga Forest in Narrabri, Australia, on Feb. 6, 2021. Brook Mitchell/Getty Images

Meanwhile, Santos itself lost an appeal against a Federal Court’s decision that prevented the company from resuming drilling on its $3.6 billion (US$2.4 billion) Barossa gas project off northern Australia in December 2022.

Previously, a member of the Indigenous clan Munupi had filed a lawsuit against the company, claiming that the Barossa project posed a risk to sacred sites and spiritual connection to the Tiwi Islands in the Timor Sea.

The Federal Court found that the company had not properly consulted the Munupi clan about the project and thus ruled that the approval for the Barossa permit was invalid.

Analysts expected the ruling to cause a material delay in the project’s progress.

Legislation Challenges

Apart from rising objections toward new oil and gas projects, the industry has been affected by a new wave of legislation changes since the Labor government came to power.

In December 2022, the federal government introduced the gas price cap, which limits wholesale gas prices produced by east coast gas companies to a maximum of $12 per gigajoule, to tackle soaring energy prices.

The new policy resulted in uncertainty in the market and, at one point, caused some gas producers to stop taking in new contracts.

This prompted gas companies and energy experts to raise concerns that the price cap would hurt domestic energy supplies on Australia’s east coast.

In May, the Labor government announced an overhaul of the petroleum resource rent tax (PRRT) by imposing a new cap on the use of deductions.

From July 1, the proportion of PRRT assessable income that can be offset by deductions will be limited to 90 percent, which will result in energy companies paying more tax.

While the government expected the move to raise $2.4 billion over the forward estimates, the Opposition warned that the changes could lead to higher inflation.