CANBERRA: Australia’s eastern gas market risks a 20% shortfall in supplies by 2019 as upstream producers rein in spending because of low oil prices. Rising demand from upcoming LNG export projects in Queensland could also limit flows into the local market should suppliers prioritise more lucrative Asia Pacific buyers in the years ahead.
The warning was flagged by consultants EnergyQuest, who identified what they claim to be assumption errors in data used to monitor future demand and support policy and investment decisions.
In its 2015 Gas Statement of Opportunities (GSOO) published in April, the Australian Energy Market Operator (AEMO) said there will be “no supply gaps for any of Australia’s eastern and southeastern gas markets over the short term to 2019”. This is because of lower-than-forecast consumption levels, including a 17% drop in gas consumption in New South Wales (NSW) and upgrades to gas market infrastructure, AEMO said.
But, according to EnergyQuest Chief Executive Graeme Bethune, AEMO’s forecast is “unrealistically optimistic” – brushing aside public and industry concerns about tightening gas supply, and threatening future onshore gas investment in NSW and Victoria. EnergyQuest has highlighted three main areas where it believes AEMO analysis is inaccurate.
“First, AEMO’s estimates of demand for gas by the Queensland LNG projects appear to us to be too low and would be insufficient for them to meet their contracts,” Bethune said. “Second, AEMO’s estimates of production from the Cooper Basin are too high higher than the producing companies themselves expect – particularly in view of cuts to capital spending due to the fall in the oil price.
“Third, AEMO significantly underestimates gas reserve risk, relying on production from fields to which geoscientists might only assign a probability of success of 10% or which are not yet demonstrated to be technically or economically producible,” he added.
“Correcting these factors changes the east coast gas demand and supply balance from AEMO’s meagre surplus of 22 PJ in 2019 to a 133 PJ shortfall in that year. A significant short-term supply gap has re-emerged, which increases to over 200 PJ per year early next decade,” Bethune warned.
The claims have been rejected by the regulator. “AEMO followed a rigorous consultation process to ensure the most up to date information was available in its the GSOO, and continues to monitor the market closely,” a spokesperson told Interfax.
The disagreement fuels concerns about the supply and price of gas for consumers in eastern Australia exposed to international gas markets for the first time since exports from BG Group’s Queensland Curtis LNG (QCLNG) plant began this January.
QCLNG will be joined by Australia Pacific LNG and Gladstone LNG later this year, which will export gas from onshore fields to the Asia Pacific region. Anticipation of LNG startups in Queensland saw domestic prices spike a few years ago. A tail-off in upstream gas production and the rise in oil prices could kickstart an increase in domestic prices if producers prioritise exports over local supply.
Ben Eade, executive director of Manufacturing Australia, which represents large energy consumers, told Interfax the country lacks a “functional” gas market with diverse suppliers. It also needs more supply, appropriate infrastructure and competitive, transparent trading markets.
“Right now we don’t have that kind of market. Instead, we’re on course for a train wreck. Just a handful of economic interests control almost three quarters of our vast gas reserves and are focused on exports, while a combination of regulatory, policy and commercial barriers are discouraging new participants,” Eade said.
Concerns over the adequacy of supply and rising prices have led some consumer groups to call for a gas reservation policy for the eastern states. Legislation is already in place in Western Australia, but has been vigorously opposed by producers in the east, who say policy incentives are needed to spur upstream development.
Bethune told Interfax it is not a gas reservation policy that is needed, “but developing more gas, particularly freeing up government restrictions in NSW and Victoria. Unfortunately, the AEMO report is a barrier to that, suggesting development in NSW is unnecessary… Any restrictions on development will inevitably mean higher prices”.
For its part, Manufacturing Australia “does not advocate retrospective reservation of gas supply”, Eade said. But he warned that “if sensible reforms to restore balance to the gas market can’t be achieved in the next 12-18 months, future governments are likely to face mounting calls for emergency gas reservation to prevent widespread offshoring of gas-intensive manufacturing”.
