The role of gas in the transition to net-zero emissions by 2050 is highly uncertain and controversial. Accordingly, investors seek to better understand the impact of the changing energy landscape on Australian gas and liquified natural gas (LNG). This is particularly so for proposed new projects, which generally assume gas demand will remain steady or increase in the coming decades.

To test this assumption, the Investor Group on Climate Change (IGCC) commissioned Wood Mackenzie to assess the viability of a shortlist of proposed new or recently sanctioned Australian gas projects. The viability of the projects was tested against two energy transition scenarios aligned with limiting global warming to 1.5°C above pre-industrial global average temperatures. These scenarios were selected because of the current policy momentum towards this goal, the usefulness of the scenarios to ‘stress test’ company decision making and the relative rarity of lower temperature scenarios in company analysis.

The scenarios adopt the same 1.5°C-aligned carbon budget and apply different assumptions for factors such as the speed of uptake of renewables with long-duration storage, the commercialisation of carbon capture, use and storage (CCUS) and other emerging technologies, and policy and regulatory settings. The scenarios have been used to provide demand outlooks for Australian domestic gas and LNG exports to 2050 and to test whether proposed gas projects remain cash-flow positive under the assumed future conditions.

Key findings:

• All assessed projects record lower cash flow under both 1.5°C scenarios, particularly from the 2030s onwards and in the scenario that assumes accelerated uptake of renewables with storage.
• Australia’s net export of LNG declines slightly to 2030, then decreases sharply to less than 20% of current levels by 2050 under both scenarios as the cost of backfill projects makes Australian LNG uneconomical.
• Projected demand for domestic gas takes vastly different pathways under the two scenarios.