Australia's Gas Shortages Self-Inflicted: ACCC
Australia might now be rivalling Qatar as the world's largest exporter of LNG, but its domestic market is riddled with regional problems of supply, leading to price spikes. These are encouraging some industries to relocate to cheaper parts of the country.
An interim report by the Australian Competition & Consumer Commission (ACCC), Gas Market Inquiry 2017-2020 published December 18, focuses on the east coast gas market, where much of the country's gas exports originate, and where commercial and industrial gas prices are rising to converge with export netbacks.
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The east coast market is heavily reliant on gas from Queensland. Over 80% of 2P reserves and almost 65% of 2C resources are in Queensland and controlled by the LNG producers, either through ownership or through purchases from other suppliers. The ACCC says there remain "considerable challenges" for this region, which can be solved by a greater level and diversity of supply, greater transparency and a more efficient transportation network.
There are also problems about transparency, ACCC says. "Uncertainty about the long-term performance of coalseam gas (CSG) fields remains. In the period 30 June 2017 to 30 June 2018, 2P reserves in the east coast fell by 4994 PJ. This is largely attributable to substantial write-downs of CSG reserves in Queensland, particularly in Arrow-operated fields."
The southern states, where offshore production is declining, will need to develop new sources of gas, transport more from Queensland or import gas from overseas. Further investment in pipeline and/or storage capacity may be required to enable more gas to flow from Queensland southwards. Little additional exploration is planned in offshore Victoria in the next three years and no onshore exploration is expected in New South Wales or Victoria owing to regulations in those states, says the report. Nor is there sufficient investment in pipeline capacity, given the price differences, so the result is congestion.
The ACCC said it finds "the gas market appears to be slow to respond" to the signals. After falling to very low levels in 2016 with plummeting oil prices, exploration activities are now beginning to recover. However, the number of exploration wells that suppliers expect to drill in the east coast in 2019 will still be 40% lower than in 2013, it says.
Producers 'do their bit'
The Australian Petroleum Production & Exploration Association (Appea) said the report confirms that east coast gas prices remain below 2017 peaks, thanks largely to new supply entering the market. "The ACCC finds that prices have eased since early 2017, with most offers in the range of $8-11/GJ. Producers – particularly the LNG projects – are delivering more gas to the local market," said Appea's CEO, Malcolm Roberts. The September 2018 agreement between LNG producers and the Commonwealth ensures that uncontracted gas is offered to domestic customers first.
"In the past year, we have seen significant announcements from Arrow Energy, Shell Australia, Senex, Cooper Energy, Strike Energy, GLNG, Australia Pacific LNG, Origin Energy, Santos, ExxonMobil and BHP to bring on new gas supply," he said.
"The latest ACCC report confirms, yet again, that customers in New South Wales and Victoria are paying more for their gas because of state government restrictions on developing local gas resources. Importing gas from Queensland adds $2-$4/GJ to retail prices in the southern states," Roberts added.
As the ACCC notes in the report: "The most material pricing benefits for domestic gas users are likely to come if additional lower‑cost gas is produced in the southern states.... For this reason, we continue to urge state governments to adopt policies that consider and manage the risks of individual gas development projects, rather than implementing blanket moratoria and regulatory restrictions."