Biogas in Australia: a nascent market with significant growth potential

Biogas and biomethane are produced from renewable sources such as energy crops, livestock and food waste, crop residues and sewage, which are turned into low-carbon heat, electricity and fuels. They will be an essential tool in tackling climate change and boosting energy security around the world by avoiding the atmospheric emissions of these sources, and displacing fossil gas energy use in sectors that have costly abatement options. While biogas and biomethane currently make up less than 1% of global energy supplies, demand is predicted to triple by 2030.

The Australian biogas industry is young and has significant growth potential. Municipal solid waste and wastewater processing are the largest feedstock opportunity for at-scale biogas production, as they have consistent year-round availability, established collection mechanisms and infrastructure, and are usually proximate to population centres. The first demonstration project for producing biomethane and injecting it into a gas distribution network became operational in 2023.

In the longer term, demand for biomethane in Australia will likely be driven by larger industrial customers that are inherently reliant on gas for high-temperature heat applications or chemical feedstocks, and have a motivation to decarbonise. These customers have limited viable direct decarbonisation alternatives. However, they will not be able to transition to biomethane until supply grows and economics improve.

Market challenges

The viability of biomethane projects in Australia is constrained by five key factors:

1. Limited access to sufficient feedstock – Although Australia has significant feedstock potential, there is limited certainty around the end-to-end economics of biogenic feedstocks. Additionally, known sources of feedstock are highly dispersed and supporting supply chains are in the early stages of development.
   
   
2. Seasonality of feedstock availability – Biomethane project economics are sensitive to plant utilisation, and the inherent seasonality of most agricultural feedstock sources creates seasonality around feedstock supply.
   
   
3. Immature markets for byproducts – The market for digestate is limited, with limited awareness from farmers of the benefits of biofertilisers, and a lack of regulatory guidelines to ensure digestate quality.
   
   
4. Pipeline infrastructure requirements – while landfill gas feedstocks are proximate to metropolitan and industrial areas, crop and livestock wastes tend to be widely distributed in regional areas, which tend not to be close to existing pipeline infrastructure.
   
   
5. Reallocation of feedstock to other uses – Alternate uses of feedstock may be valued more highly than biomethane. For example, landfill gas may be used to generate electricity with reduced processing costs and pipeline requirements. Crop wastes may be transformed into liquid fuels like renewable diesel or sustainable aviation fuel.

Policy responses

Government policy on biogas and biomethane remains limited. There is no regulatory framework or national target for the production of biomethane, and few broad incentives to encourage biogas and biomethane production (outside direct support for pilot plants).

Reforms to the ‘Safeguard Mechanism’ in 2023 have created new decarbonisation incentives for large industrial emitters (including large industrial gas consumers), providing a pathway and financial incentive for biomethane to address this market.

Growing private sector activity and interest in biomethane (as well as other bioenergy sources such as liquid biofuels, green hydrogen) will likely continue to translate into targeted policy mechanisms that can help overcome key barriers and unlock supply.

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.