Gas and AI are the energy superpowers of the future

It is now clear that natural gas and artificial intelligence, not hydrogen, will be the superpower essentials for the future and that Australian policymakers have made a grave miscalculation. The issue has been brought into sharp relief with the coincidental final collapse of hopes that the Queensland city of Gladstone will ever be a heavy industry hub powered by hydrogen, while at the same time the world’s leading AI company, OpenAI, has issued a stark warning about the geopolitical risks of missing the AI boat.

Like all industries, AI can be guilty of talking its own book but the common theme is energy security. AI needs energy production to be abundant, reliable, affordable and secure. The hydrogen experience was on track to deliver the opposite of all of those things. Worse still, the illusory promise of hydrogen allowed government to lose focus on what traditionally has been our greatest strength: abundant reserves of high-quality, always ready energy in coal, gas and uranium.

Monday’s announcement by Energy and Climate Change Minister Chris Bowen of a “comprehensive and methodical look at key measures” on energy supply and prices is an admission that the Albanese government – as well as some state governments, notably Victoria – had lost their way on gas. Mr Bowen reiterated that gas had an important role to play in our energy system.

“Unlike coal, gas-power generators can be turned on and off in a couple of minutes, providing the ultimate backstop in our energy grid,” Mr Bowen said. The aim of the review is to “get the settings right in our gas market, ensuring we are securing affordable Australian gas for Australian use, while remaining a reliable energy exporter and delivering lasting energy security in our region”.

Mr Bowen’s initiative comes after the Australian Competition & Consumer Commission released its latest gas inquiry report, which confirmed the domestic gas supply situation was deteriorating. A looming shortage of gas has been apparent for a long time but the seriousness of the likely impacts seems to have only recently dawned on the Albanese government.

For too long, policymakers have been able to downplay the risks of a gas shortfall because of an assumption that hydrogen would become rapidly available at reasonable cost to plug the gap. Few now believe this is a realistic expectation. The collapse of Australia’s largest green hydrogen project is further proof of the difficulties that have engulfed the sector. The scrapping of the Central Queensland Hydrogen Project follows the lack of progress in a near $100bn pipeline of projects due to technological difficulties and a lack of overseas buyers willing to sign purchase contracts to offset the risks of development.

Government must now get serious about energy security to ease the cost pressures on families and industry and to protect our national interest in the rapidly emerging AI sector. Energy security is essential in the hyper-competitive world of AI data centres.

In a report on the nation’s position, OpenAI argues that Australia has natural advantages in terms of land availability, strong policy stability, efficient permitting processes and abundant access to renewable energy. But it wants government to take the energy risk by making sure energy infrastructure and capacity planning are aligned with the data centre industry projections. It is calling for accelerated hybrid finance and underwriting models for long-duration energy storage, new incentives to reward grid stabilisation services, streamlined permitting, and more money for transmission infrastructure.

It is no secret that the world’s biggest companies are looking to nuclear to satisfy their AI energy needs. Without nuclear in Australia, gas inevitably will be a key part of securing grid stability and reliability. The government finally is sending welcome signals that it understands this to be the case. The latest investigation into the gas market must not repeat the same mistake of blaming producers. Mr Bowen is sensible to suggest that a domestic reservation policy could apply to new projects, not existing ones. His efforts with gas must be aimed at reducing sovereign risk and clearing the way for the new supplies of gas that are needed to restore our energy advantage and strengthen our hand in the emerging world of data centres dedicated to building the artificial intelligence-powered future.