AEMO: Eastern Australia facing gas shortages as LNG exports surge

Eastern Australia could face natural gas shortages starting in 2018 as Queensland LNG exports move into full swing, the Australian Energy Market Operator said Thursday.

Australia has currently seven operating LNG export developments and three more under construction. The country is poised to become the world’s largest LNG exporter by 2020.

However, shipping of large quantities of domestic gas abroad and moratoriums on onshore gas development are creating supply shortages at home and raising prices as well.

Annual gas demand in eastern and south-eastern Australia is expected to rise 24 percent to 1,972 petajoules over the five years to 2021, driven by LNG exports and gas-powered generation, AEMO said in its annual gas forecast.

“During the 2020s, gas-powered generation is expected to support the achievement of Australia’s climate commitments by replacing higher-emitting coal, and complementing the increase in renewables along a pathway to a new, lower-emissions power system.”

However, growth in gas-fired power is expected to stretch available domestic gas supply, with the greatest supply challenge between 2018 and 2024, AEMO argues in the report.

The eastern Australia regional market could also be vulnerable to sharp price moves as Queensland LNG exports ramp up, AEMO said.

The start of Queensland LNG exports linked international gas prices with domestic prices in eastern and south-eastern Australia.

This has been facilitated via interconnection of the LNG supply system with the domestic gas pipeline system at Wallumbilla, providing a physical link that can enable trade between the two systems, AEMO said.

“As the size of the LNG export sector relative to the domestic gas sector is expected to more than double by 2018, even small imbalances in the LNG sector could have large impacts for the domestic gas markets.”

AEMO’s report comes at times when the gas supply crunches in eastern and south-eastern Australia are being widely discussed.

In a paradox move, as Australia is expected to become the top LNG exporter, AGL Energy said recently it is considering building an LNG import terminal in the southeastern part of the country to fill the expected supply gap.

The chilled fuel could be sourced from Europe, the Middle East, Africa, Asia and the United States. The LNG import project could be ready by 2021, AGL Energy said.

This was also not the first time that an LNG import project is being mentioned as an option in Australia in the wake of the LNG export boom.

Earlier this year, Andrew Smith, Chairman of Shell Australia said that New South Wales and Victoria may have to consider importing LNG due to the looming gas shortage in the two states located in the southeastern part of the country.

Smith said then that importing LNG to Sydney could be an option if governments in Victoria and New South Wales persist with moratoriums on the development of additional reserves.

APPEA calls for more gas development

AEMO’s report is a “timely warning for governments” and highlights the need for urgent policy reform, the Australian Petroleum Production & Exploration Association said in a response on Thursday.

“AEMO has correctly described the east coast gas market as at a ‘crossroads’,” said Malcolm Roberts, APPEA Chief Executive.

“To ensure we take the correct path, governments in eastern Australia must pull out all stops to encourage the investment needed to urgently address the gas supply challenges that are forecast to occur between 2018 and 2024.”

According to Roberts, the information relased by AEMO is “another sobering reminder that the east coast needs rapid development of new gas reserves to guarantee supply. Our transition to a low carbon future is at risk.”

“APPEA has long argued that if we wish to achieve a more competitive market, put downward pressure on prices and ensure stable, adequate supply, we must bring more gas to market,” he said.

“Unfortunately, a mix of policy indecision, restrictive regulations and politically motivated bans and moratoriums, particularly in Victoria, has stymied exploration and development.”

Roberts said that the report, in discussing the range of uncertainties and challenges facing the market, had also highlighted the large difference in gas supply arising from a ‘weak’ scenario and a ‘strong’ scenario.

“This brings into sharp focus the key role of policymakers in establishing sensible policy frameworks to allow the industry to reach its potential and play its part as we move towards a lower emissions future,” he said.

“In Victoria, almost 80 per cent of households and thousands of local businesses rely on natural gas, yet the state refuses to develop its onshore resources.”

“Sound policies are also needed to provide greater certainty and investor confidence to support exploration and reduce the high cost of development and production,” Roberts said.

LNG World News Staff