Australia’s future oil supply and alternative transport fuels

The Senate Inquiry into Australia’s future oil supply and alternative transport fuels issued its final report on 07 Feb 2007. This is the first time any Australian Parliament has recognised Peak Oil.

Here are the report conclusions/comments on the use of alternatives as transport fuels:

Natural gas
The committee has altered its view expressed in the interim report, that it would be prudent to put in place measures to encourage the rapid take-up of natural gas in the transport fuels mix.

From the perspectives of the beneficial impacts on the terms of trade and energy security and as an indigenous replacement for depleting conventional oil stocks, the fuel must be considered, particularly from the perspective of its relative abundance. There are potential economic benefits from using gas for transport. The committee considers that better use can be made of the resource than is currently the case, where most gas is exported.

The committee is not persuaded by those arguments that supplies are insufficient to make a significant contribution to the transport fuels mix. New and unconventional sources of gas are becoming available (eg coal seam methane) and availability does not appear to be a significant limiting factor within the medium term. Nonetheless, the committee is of the view that consideration should be given to establishing a national domestic gas strategy, to ensure that supplies are sufficient for domestic purposes well into the future.

From an environmental perspective, consideration is required about whether the gas will be used as fuel, and if so, in what form. Appropriate safeguards would also need to be put in place to minimise possible adverse impacts.

There are, however, significant obstacles to the wider use of gas for transport. These include a lack of distribution infrastructure, incompatibility with most of the transport fleet, economic penalties for some users if appropriate adjustments are not made, a slow return on investment for some users, and possible consumer resistance from limited range and a lack of a clear price differential from LPG.

LPG
The committee agrees that LPG has the potential to provide an alternative fuel for a proportion of the Australian transport fleet, probably not exceeding 10 per cent. It has a number of clear advantages, not least of which is a well developed distribution infrastructure and apparently good acceptance by consumers.

Its use has a number of economic advantages for both users, who enjoy substantial fuel cost savings (although parity pricing can influence these), and more broadly in relation to directly substituting an indigenous fuel for one that will increasingly be imported.

There are some doubts about the extent of future supplies of LPG, although these appear to be adequate for at least a number of decades, depending on the proportion of the vehicle fleet that is converted to operate on it.

Environmental advantages are reasonably clear, at least in relation to CO2, particularly in the case of modern, third generation conversion technology. The picture in relation to non-CO2 pollutants is less clear.

Government initiatives to encourage the take-up of this fuel appear to have been extremely successful, and do not need to be expanded.

Hydrogen
In the committee’s view, hydrogen is a fuel that might be considered in the distant future, but is not a useful option to consider in Australia’s current or medium term transport fuels mix.

Ethanol
The committee is supportive of the development of an ethanol industry in Australia, but notes the very significant barriers that need to be overcome before it becomes a mainstream fuel.

Lignocellulose ethanol production is the only realistic way that the industry can become more than a niche player. If large scale production of ethanol using a feedstock that is available in volume becomes commercially feasible in the medium term, and the fuel proves to have the environmental benefits claimed for it, it could make a worthwhile and sizeable contribution to Australia’s transport fuel requirements.

The committee notes and agrees with the Biofuels Taskforce comment to ‘consider carefully’ new policy interventions to assist investment in production from current technology.

The committee does not consider that there is any point at this time in mandating a minimum percentage of ethanol in petrol. Unless lignocellulose technology becomes viable with unexpected speed, supply will not be sufficient to produce the necessary quantities of fuel.

While the Committee notes that several of the oil companies, (particularly BP and to a lesser extent, Shell) have taken some measures to introduce ethanol into some of their fuels, the committee is unconvinced that all of the companies take the biofuels target set by the government seriously.

Biodiesel
The committee considers that biodiesel can make a small scale but worthwhile contribution to Australia’s fuel mix. In the absence of the development of a biodiesel equivalent to lignocellulose technology, the industry will be limited by the availability and price of feedstocks. There are significant environmental benefits associated with its use, but the economics of the industry are at best precarious, particularly if government assistance is reduced, as is the current policy.

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