Bills

Statutes Amendment (National Energy Laws) (Other Gases) Bill

Second Reading

Adjourned debate on second reading.

(Continued from 27 September 2023.)

The Hon. J.A.W. GARDNER: Deputy Speaker, I draw your attention to the state of the house.

A quorum having been formed:

Mr PATTERSON (Morphett) (19:54): I take the opportunity now to speak on the Statutes Amendment (National Energy Laws) (Other Gases) Bill and indicate that I am the lead speaker for the opposition. In terms of this bill, this is another batch of reforms that is coming through the national Energy Ministers' Meeting. This bill deals with amending the national energy laws, in particular through the National Gas (South Australia) Act 2008 and also the National Energy Retail Law (South Australia) Act 2011.

At the moment, these laws cater for natural gas and they are looking to expand the type of gases that will be regulated nationally to include hydrogen, biomethane and synthetic methane, which are renewable gases, and also blending these various gases with natural gas as well, so blends of these as well.

As with other national energy laws that have come before this parliament, South Australia is the lead legislator for these laws and so we now see these changes for other gases being introduced here into the South Australian parliament after going through the energy ministers' deliberations and approval. As has been explained previously, the convention for such changes to these national energy laws is that these amendments are supported by the opposition, so of course I indicate that the opposition will be supporting this bill.

To go into the background of this bill a little bit more, just to get a bit of an understanding of how it arrived here in the South Australian parliament, going back to 22 November 2019, the energy ministers endorsed the National Hydrogen Strategy, which sets out what the government's actions will be both at the federal level and at the jurisdictional level to support the development of Australia's hydrogen industry, including reviewing the application of the gas regulatory arrangements for hydrogen—so not only trying to grow the hydrogen industry but also regulating it because, of course, it is different in its chemical make-up from natural gas. Natural gas is made up of methane, which is a hydrocarbon itself.

An important element of this National Hydrogen Strategy was a vision to make Australia a major player in a global hydrogen industry by 2030. So you can see back in 2019 that the opportunities for hydrogen were realised. They were being worked on at a federal level and at a state level here in South Australia when the former Liberal government had a seat at the table at the Energy Ministers' Meeting and also with other states as well.

Even preceding this National Hydrogen Strategy, the former Liberal government announced in September of 2019 South Australia's own Hydrogen Action Plan. This was done at the opening of the International Conference on Hydrogen Safety just down the road here at the Adelaide Convention Centre. This action plan was a plan that set out 20 key actions across five priority areas to help scale up renewable hydrogen production for domestic consumption and also, potentially, longer term for export as well.

At the same time, as I said before, with hydrogen being a different gas, it will also work to underpin a safe and secure hydrogen sector because, as with all gases, as they are transported, as they are stored, safety has to be paramount. We have seen that hydrogen has high energy value and there have been major explosions going back in history. It is a volatile substance that needs to be handled correctly.

So that is the safety side of it, but it is also about how to accelerate hydrogen in the South Australian domestic economy as well, from the perspective of trying to lower emissions across the board in South Australia, realising that the heavy lifting cannot just be done via the electricity sector. There are other sectors that are high energy consumers—industry, transport, agriculture and construction—that also need to do some lifting. That was the background to what was going on back in 2019.

The National Hydrogen Strategy, signed-off in November 2019, agreed to a number of actions. There are quite a number written there, I think by Dr Alan Finkel. Some of them were in support of continuing pilot trials and demonstrations of hydrogen gas in gas distribution networks where distributors can satisfy regulators, and also to complete a review that considered the application of the National Gas Laws and relevant jurisdictional laws and regulations for hydrogen. Those were some of the riding instructions that came out of that review, and of course the energy ministers then did do work towards progressing some of those actions.

On 20 August 2021, the energy ministers agreed that the national gas regulatory framework should be amended to apply to hydrogen but also to renewable gases. While hydrogen, when it is produced with either renewable energy or via natural gas with carbon capture—which are both methods to make it low emission—is certainly one form of having low-emission gas, there are also opportunities in other forms of gas as well. Biomethane is an example, which effectively is methane produced naturally via organic matter. So there are ways for that to also be used to displace hydrocarbon gas and ergo have lower emissions. So there are opportunities there.

If one were to go to the effort of actually regulating hydrogen, at the same time it would make much sense to also incorporate renewable energy and renewable gases, and blends as well. We talked about hydrogen itself, but there is the opportunity for it to be blended with existing natural gas. Of course, we will touch on that a bit later in the contribution.

Going forward from August 2021, there was work done around consultation. There were two rounds of consultation with industry stakeholders around this. In looking at those submissions, you can see there was broad support around incorporating these renewable gases and hydrogen into the National Gas Laws. Leading into 28 October 2022, and also taking into account advice received from the Australian Energy Market Commission and the Australian Energy Regulator, the energy ministers agreed to the proposed law amendments that we see finally arriving here in the South Australian parliament.

It should be noted, as I said, in the submissions that were part of this consultation there was broad support. I say that because the push from the energy ministers was also a push being made by the gas sector itself. We understand, certainly on this side of the house, that gas is such an important energy source for the state and for the nation, not only for electricity generation but also for many other sectors as well. I talked about its use in industry and manufacturing. Using gas directly impacts in terms of agriculture as well. Gas is used to create fertilisers; a lot of the fertiliser is created by gas. That leads to higher agricultural yields. From an agricultural perspective, it might not be intuitive to think that gas is related to agriculture, but it certainly is there.

I also talked about the manufacturing of cement and the manufacturing of steel, which, from an industry perspective, are heavily reliant on gas. In the perspective of construction, steel is very important, concrete is very important and brick is very important. Gas has an important role to play there.

Equally, those sectors are sensitive to gas prices as well. When you talk about trying to maintain our standard of living in South Australia, that includes the housing construction sector and our food sector as well. The point being made there is just to reiterate gas being a very important energy source in the nation. In fact, it makes up around a quarter of Australia's energy mix. It is very important for South Australia and very important for the country as well.

In saying that, not only does industry understand their importance to an orderly transition in the electricity system that is moving to be much less reliant on coal and continuing to be so, they also understand, though, that it is not just their place to displace coal and then they become baseload, but that over time they will need also to transition to a low-emission energy source, transition to renewable gas, transition to hydrogen and use other technologies such as carbon capture in the coming decades to capture carbon emissions, methane, as part of the gas processing and make sure that does not escape into the atmosphere. They are also technologies that can lead to abated gas, to low-emission gas networks.

While they understand the need, and I think we on this side of the house understand the need and their desire to decarbonise, we see the Greens, in particular, and other states seeking to ban gas connections outright, to not give the gas industry the opportunity to transition but rather to try to do a forcible downscaling of what I have described before as a very important energy source in the nation.

Clamping down on supply will have massive impacts on price that do not just flow through to our electricity sector but flow through, as I said before, to food prices and flow through to housing prices. If it is banned before replacement technology is in place, you would have to say that the scale of the energy produced by gas cannot be replaced in one year, in two years, or in five years, so if it is not available then, as we have seen happen with baseload power closing down too quickly with no replacement, we will risk having large parts of the country's cheap energy mix not being available before there is an economic replacement. Ultimately, households pay for that in their energy prices, and industry, in terms of the energy prices they pay and their competitiveness on a global scale.

By looking at it in a global context, the International Energy Agency have just released their latest global energy outlook that looks through to what the energy mix will be through to 2050. It is quite clear that the International Energy Agency sees a big role for gas. Equally, other bodies see a big role for gas in terms of reaching net zero. It is not like there will be zero gas by 2050. People are looking to get to net zero by 2050, but gas is still present in that energy mix. It is abated gas.

Looking at the global energy outlook, at the moment over 4,000 billion cubic metres of gas are currently used worldwide and, depending on the scenarios projected through to 2050, projections still have gas over and above that 4,000 billion cubic metres per year. Depending on the current policies in place worldwide, what pledges there have been and the vision of where countries would like to go, even those in their quest to reach net zero by 2050 still have gas at quantities of about two and a half thousand billion cubic metres.

I think in terms of the world's appetite for energy, trying to get populations out of poverty, trying to feed them, you can see gas is important. Certainly having abated gas in the system, renewable gas in the system, hydrogen in the system is going to be very important going forward. We sought today, as I said in the introductory comments, that by amending the National Gas Laws and National Energy Retail Laws to allow for hydrogen renewable gas, it does allow the gas industry to transition in Australia and equally in South Australia.

Again, another point that may be lost on those who are seeking to ban it is the sheer size of the balance sheet of some of these gas players—Santos, from a South Australian context, and nationally you have Woodside, and globally other big players as well. Their balance sheets are enormous. Certainly their appetite to invest is there but also their knowledge, their global expertise as well. They are the best placed to assist with this transition rather than trying to force them out and help a new player in. Certainly the only viable alternative if you are going to have that scenario is for governments to step in.

If you look at the billions and billions of dollars required, the trillions of dollars required, as we all know in this place, government is about priorities. It is about not being able to do everything; it is having to make choices. If you are having to spend money that could otherwise be spent on health, that could be otherwise spent in the education system on having to do this heavy lifting in regard to gas, then that is just money that cannot be spent on services that the community is crying out for. I think that is something very important that we as a country really should look to work with these companies on rather than to demonise them.

As I have said previously, with that reflection on the state of the gas market, we have these changes before us. As is the case with these national energy laws, South Australia is the lead jurisdiction. As I have said, the convention is that because they have been signed off by the energy ministers prior to being introduced here in the parliament, it receives bipartisan support, which is what is occurring this evening.

In terms of the bill itself, if we go through it, there is quite a lot in there but most of it is actually, as I have said, changing that definition of 'natural gas'. It is making amendments to both the National Gas Laws and also the National Energy Retail Laws to bring hydrogen, biomethane and other renewable gases under the national gas regulatory framework.

The current national gas law and retail law only refer to natural gas. When you look at the definition in the National Gas Law, it defines natural gas as a substance that:

(a) is in a gaseous state at standard temperature and pressure; and

(b) consists of naturally occurring hydrocarbons, or a naturally occurring mixture of hydrocarbons and non-hydrocarbons, the principal constituent of which is methane; and

(c) is suitable for consumption;

Looking at that definition, we then try to work out where hydrogen fits with that. Where do biomethane and other renewable gases fit with that? Where potentially do hydrogen blends fit with natural gas? Where does that sit? Working through that three-part test as defined and set out in the laws, certainly both hydrogen and biomethane satisfy the first condition, which is that it is in a gaseous state at standard temperature and pressure, so it ticks that first box.

You then get to that second one where it consists of naturally occurring hydrocarbons, and immediately 100 per cent hydrogen falls foul of that clause and so is ruled out. Potentially that also excludes some of the renewable gases, biomethanes and blends. There is uncertainty there. If you have blended in renewable energy-created hydrogen with natural gas, you have natural gas but being artificially made it is not naturally occurring hydrogen, so potentially there are issues there, there is uncertainty created from that. Similarly with biomethane: is that defined as a hydrocarbon or is that naturally occurring or is it because of man-made breakdown of organic matter in landfill, for example? Is that naturally occurring? There are questions around that, and then the final question is whether it is suitable for consumption.

Again, at the moment in standard gas appliances—whether they are household or industrial—100 per cent hydrogen is not compatible with those appliances or even with the distribution network itself. It is similar with renewable gas blends; while biomethane is effectively methane, as is natural gas, there is a high potential that it might be suitable but it might not work for all appliances. It might be satisfactory for some but not for others. Again, there is uncertainty around meeting that criteria, that test.

That is a preface for saying there was a decision behind the energy ministers back in August 2021 saying that we need to regulate both hydrogen and renewable gases and their blends as well. It also takes into account the impetus for that which, as I think was stated in the National Hydrogen Strategy, was that there were already projects underway and an interested appetite into introducing hydrogen blends and using biomethane in the gas network.

Having these changes will help create regulatory certainty around what is an emerging industry. It will address those ambiguities I went through before in relation to how hydrogen and those other gases would be treated. Having that certainty would also support investment into some of the innovative projects and test cases being investigated by stakeholders in the gas industry to reduce emissions in their gas networks. It will also ensure that the work done and the laws in place will safeguard consumers going forward by not having hydrogen blends put into the network without safety considerations there.

In terms of how the bill seeks to address that, the principal amendment to this is to substitute natural gas with what is called covered gas, a mixture defined in the bill itself as either a primary gas or a gas blend. Further on it talks about what a primary gas is, and it is either natural gas itself—so that is retained within here—or it could be hydrogen, biomethane or synthetic methane. Those are the primary gases. Potentially it could also be as prescribed by regulation, which then allows for futureproofing of this legislation to some extent in that if other renewable gases are looked at in the future we do not have to come back here and go through another amendment; it could be done by regulation.

Likewise, the National Energy Retail Laws talk about natural gas equivalents and prescribed covered gases. The natural gas equivalents are gases that can be used in current gas appliances: natural gas, biomethane, synthetic methane, and also low level blends of hydrogen that are blended with either natural gas or biomethane. Jurisdictions will be able to authorise projects supplying natural gas equivalents from the commencement of these reforms.

The other type of gases, prescribed covered gases, are gases that may well require changes to the networks or appliances before they can be supplied. The obvious one is 100 per cent hydrogen. Before they can be introduced there would need to be a focused review to understand what the specific regulatory elements are that should be applied by jurisdictions to be able to bring prescribed covered gases under the National Energy Retail Laws and regulations.

So that gives a broad summary of what is in the bill. Later on in the bill, at the end—as with other national energy legislation—the South Australian minister is empowered to make the initial rules, which have been developed and recommended to the energy ministers by the Australian Energy Market Commission. Again, those rules were consulted on and, once brought in by the minister here, no further rules will be capable of being made by the minister—it will be over to the relevant authority afforded in this bill. That is really the basis of the bill that we have here before us.

As I said before, back in 2019 the former Liberal government introduced its Hydrogen Action Plan. Closely following that strategy—that was released back in September—I was fortunate enough in December 2019 to go down to Tonsley with the former Premier where the early works were being started by Australian Gas Networks in the building of Hydrogen Park SA at Tonsley, which aimed at the time to build a 1.25-megawatt electrolyser to produce hydrogen. That is supplied by renewable electricity again, hence creating low-emission hydrogen.

The aim was then to blend it into the gas network in that local area around the Tonsley precinct. From the time that the earth was broken and the first sod turned, construction occurred through to May 2021, and Hydrogen Park SA was then opened, and I had the opportunity to be there for the opening.

The aim of the project was to blend up to 5 per cent hydrogen into the natural gas network and for it to go into 700 homes in the Mitchell Park area. In terms of that, if members of parliament have had the opportunity to go down there, they would have seen where the pipe from the hydrogen storage goes into the natural gas pipeline where it is blended, and then it goes on into the distribution network in Tonsley. That certainly has been a success. They had started off small. This is the thing: where some would like to race forward and say, 'That's great, let's just do it across all of metropolitan Adelaide,' we really need to do it incrementally—in this case, it was 700 homes in Mitchell Park.

We need to make sure of the ramifications. Did households notice any difference? Did it have any effect on the distribution pipes or even the appliances? The 5 per cent itself was slightly conservative in terms of the percentage of blend—potentially, they could have had a higher blend percentage—but they were very mindful of the effects that hydrogen can have on these appliances which are geared towards the heavier gas, which is natural gas/methane. They did not want to take any chances.

That said, it has been a successful trial and we are pleased to see that it was expanded in March 2023 such that it now delivers this 5 per cent of renewable gas blend to now more than 4,000 gas customers in not only Mitchell Park but its neighbouring suburbs of Clovelly Park and parts of Marion as well. So that has been expanded to households, to some businesses and to schools as well.

This is a really good pilot. Certainly, at the time it was Australia's largest renewable gas project, and it probably still is. It was a $14.5 million renewable hydrogen facility that Australian Gas Networks operated and it is pleasing to see that now. It is certainly one example, talking about hydrogen blends, of how they could be incorporated. Currently, they fit within the definition of natural gas because it is predominantly natural gas, but you can see going forward that if you want to increase those blends at some stage it might fall foul of the current legislation. Certainly, this bill will be able to give greater investment certainty for companies going forward to invest in these sorts of plants as well.

As I said, to increase those percentages, the transition will take time. It is not something that can occur quickly overnight. It would require careful long-term planning and rollouts to expand further, but there really are opportunities going forward for new developments potentially in the future; rather than retrofitting existing appliances and existing distribution pipes, looking at having new developments starting off at 100 per cent hydrogen, which this bill would allow for. Certainly, Australian Gas Networks has ambitions to do that sooner rather than later.

Additionally, there is biomethane and synthetic methane as well. They have the same chemical make-up as natural gas because they are both methane. You can either have a blend of natural and biomethane or high concentrations of biomethane, which would be able to be used in existing appliances and has the opportunity to provide an economic pathway for renewable gases to be blended into the gas system in a quicker, shorter time frame.

The energy ministers at the time in October 2021 certainly were alive to this when they had their ambition to look at these amendments here. Their initial focus was on getting these low-level blends and renewable gases that are suitable for consumption in existing appliances, to have them expedited immediately and then, down the track as time permitted, to look to those other ones, those prescribed, covered gases as well.

In terms of biomethane, it can be captured from a breakdown of organic matter. For example, it could be from landfill sites or wastewater treatment plants. Recently, I visited the Southern Region Waste Resource Authority, which is down at Seaford Heights. I visited there with my colleague Heidi Girolamo from the other place. It was very interesting to see what is going on there. It is the regional waste authority that is used by a number of local councils. Certainly, two of the councils in the electorate of Morphett use it, both the City of Marion and the City of Holdfast Bay.

I have seen its progress. I got to have a tour there many years ago, back in 2010, where at the time they saw only a life span of probably another 10 years. Through better and improved processes, they have been able certainly to extend the life of that landfill site. At the same time, there is a lot of decaying organic matter in the waste stream, especially historical waste streams as well. Predominantly before we had green bins, there was a lot of waste in there, a lot of food and food scraps. That is a big source of organic matter.

These tips are emitting a lot of methane and will continue to do so even after they are closed. One of the companies that is involved, LMS Energy, first started looking at biogas from landfill sites at a local school in Highbury; in fact, where I went to primary school. They were explaining they got called in because the school was having trouble getting grass to grow on the ovals. It was on a former landfill site.

Looking back now, at the time when you are a kid you do not really realise. You think your knees are getting scuffed because you are running around and there is probably a bit too much wear and tear, but maybe the reason there was not much grass coverage while we were running around at lunchtime kicking the footy was that some of it was related to the methane seeping up from the old landfill, going through the grass. LMS was called in, saw this was the problem and worked towards capturing that gas and using it effectively. They were using it as an energy source for their kilns in their brick manufacturing.

Fast forward to the 2020s, and now they at the SRWRA site. They are also, again, capturing the biogas that is coming out of that site. It has a twofold purpose. One is, looking at what they were measuring, by capturing this biogas it reduces the equivalent of over 130,000 tonnes of carbon dioxide from being emitted directly into the atmosphere. Prior to capturing the gas, it was effectively a source of carbon emissions. Now they are able to capture that gas and use it to fuel and power three one-megawatt biogas generators, which convert that biogas into green renewable electricity. They are actually capturing that energy. In fact, that is an opportunity for these landfill sites going forward in that they can actually be sources of energy as well as looking after the waste stream.

It is to the point that there is still green waste going into these sites; however, it is now separated out, so it does not go into the normal waste stream. It is in its own green waste, but they are still able to capture that, put it into machines and anaerobically digest it and create the methane. Rather than having to wait for it to break down under the soil, taking many years, these processes can be sped up to be a matter of months, so they can speed that up and use the green waste stream as an energy source as well.

That technology is very interesting. As you go down the Old South Road—most people would miss it—on the way to Aldinga, just over the hill, there is this innovative facility running on biogas, which again is an example of potential opportunities to use renewable gas. They use it onsite, so they do not probably fall into these laws necessarily. But should you have a site, and then it goes into the distribution network, rather than having the energy located on their site, these changes are something that would be allowed under these new laws that are coming in here.

They are two examples of what is going on here in South Australia, at SRWRA and Tonsley, which is a good sign. It points to the ability for renewable gases and gas blends to have processing facilities that are also more likely to be closer to population centres. Those population centres will ultimately be consumers of that renewable gas.

That speaks to a point that was raised in the submissions. You have these gas processing facilities, either hydrogen or biomethane. Compare this to natural gas, where the gas basins are mostly quite discrete. They are usually quite remote to the population centres. Of course, we have Moomba in the state's Far North. That is where the gas is, and then pipelines are needed to pipe it down to population centres—significant pipelines, in fact.

The cost involved in that really means there is only one pipeline. Hence we have seen legislation before about covered pipelines and scheme pipelines. There are natural monopolies there, and so the gas laws have been set up to overcome those monopolies, whereas we compare that to potentially the future of generating hydrogen or biomethane close to population centres. There could well be much more opportunity for competition in these renewable gas and hydrogen processing facilities into the future, but of course what that competition looks like at this stage is somewhat uncertain.

One of the submissions made was by Australian Gas Networks. They are quite familiar, obviously. As I said, they work at Tonsley. They went on to say:

We are in the very early stages of the industry's development. Hydrogen and other renewable gases need time for appropriate business models to emerge and therefore flexibility within the regulatory framework is imperative to enable the required innovation to occur. We think it is unlikely any pipelines delivering constituent gases would possess sufficient market power to warrant full regulation in the short to medium term.

In the long term, increased competition from alternative energy sources is likely to mean that economic regulation of pipelines transporting the various hydrogen and renewable gas products may not be appropriate. Low-cost alternatives is likely to diminish the market power of pipeline service providers over time.

I raised this issue when I had the briefing with department officials, and I should certainly thank them very much for their briefing. They went through it in great detail and provided good explanations. Their point around these questions that were being raised was that how this would be handled in the first instance was by light-touch regulations.

This is done, I think, in the insertion of chapter 5A, which deals with third-party access obligations for non-pipeline facilities, I suppose signalling to the market that there is the opportunity for regulation or rules in the future but potentially not having them from the get-go, which would certainly allow the industry to (a) innovate and (b) mature a little bit so we are not stifling investment. That is pleasing to hear that those concerns by Australian Gas Networks, and probably some of the other submissions as well, have been covered by that.

In conclusion, I think it is worth reiterating how important the gas sector is in South Australia for the state's energy mix. Again, I reiterate how important it is for Australia's energy mix. Certainly, on this side of the house the Liberal Party is supportive of the role that gas will play as part of an orderly transition, not only for the electricity system but also for industry, agriculture and construction.

As has been stated here by our leader, the Liberal Party's policy is to reach net zero by 2050, and the path that this takes really needs to acknowledge the scale and complexity of the task that lies before us, both now and into the future. That is why our view is that all technologies should be on the table, and this does includes gas, so we need to focus on all those technologies to ensure a successful transition.

We know there is a commitment by the gas industry to be net zero by 2050 through the use of the technologies I have mentioned, such as hydrogen, such as renewable gases, such as carbon capture as well. Importantly, they have that industry knowledge and significant balance sheets to lean into this challenge. This bill that is before us will incorporate renewable gases and hydrogen into the National Gas Laws. The former Liberal government, which had a seat at the table of the energy ministers, started the reform, and now the current government with the minister is continuing it. The aim is that it will help reduce the emissions profile of the gas sector in South Australia and allow gas to be a viable energy choice for households and businesses into the future.

The Hon. A. KOUTSANTONIS (West Torrens—Minister for Infrastructure and Transport, Minister for Energy and Mining) (20:38): I thank the member for his contribution on this important piece of legislation. I thank the opposition for their bipartisan support. It is good to see that bipartisan support has returned, given the brief time under the Marshall government when there was no bipartisan support, when they banned gas extraction from certain parts of the state. I know that there is now a new broom sweeping through the Liberal Party, jettisoning those previous policies. I welcome it and I thank the opposition for a speedy passage of this important piece of legislation.

Bill read a second time.

Third Reading

The Hon. A. KOUTSANTONIS (West Torrens—Minister for Infrastructure and Transport, Minister for Energy and Mining) (20:39): I move:

That this bill be now read a third time.

Bill read a third time and passed.