The Australian Energy Market Commission (AEMC) has today released a scoping study warning of impending East Coast gas shortages as LNG exports from Queensland ramp-up from 2015:
The influence the LNG developments are having on the market is not surprising given both the scale of the projects under construction (25.3 mtpa or~1,550 PJ pa) and the relatively short period of time over which the projects are to become operational (late 2014-2015).
With production in eastern Australia having to treble over the next three to five years to satisfy both domestic and LNG export demand, and some LNG proponents having to supplement their own production with supply from other sources, conditions in the market are understandably quite tight at the moment with only a limited number of producers in a position to sell gas under medium to longer term contracts. The effect of these tight conditions on prices is already being felt…
Looking forward, conditions are expected to continue to tighten when the LNG facilities come on line and start ramping up to full capacity (2015-2018), because the period over which this is to occur, coincides with the expiry of a large number of domestic gas supply contracts. The market is therefore likely to be placed under additional pressure over the next three to five years as domestic customers compete with each other, and potentially LNG proponents, to secure supply from a much smaller set of producers.
Whether or not there will be sufficient gas available to domestic customers during this period is another question. Although there are sufficient reserves in eastern Australia to supply the domestic market for some years to come, the critical question currently facing the market is whether domestic oriented production will be able to expand rapidly enough to address the supply shortfall that is expected to arise once the LNG projects start exporting and domestic contracts expire (2015 onward).
While it is possible that production from existing sources in eastern Australia could increase… It is unclear at this stage though whether all of the proposed projects will proceed and if they do, whether they will be used to supply the domestic or export market.
The other key uncertainty is whether projects that pass the final investment decision stage will be able to be brought on rapidly enough to fill the gap in the domestic market that is expected to emerge from 2015. Given that a number of the projects are still in the exploration stage and will require the development of new production facilities and/or new transmission pipelines, it appears unlikely that gas from these sources will be available to the market by 2015. It is not therefore surprising that conditions in the market are expected to become even tighter from 2015, or that some market commentators, such as EnergyQuest, are projecting a supply shortfall to emerge around this time.
With a “gas cliff” expected in 2015-16 as major east coast LNG export terminals come on line, gas shortages and rising domestic prices are likely to become more pressing, forcing Australia into developing unconventional gas supplies like coal-seam gas, with potentially risky outcomes for agricultural security.
There is also the risk that for every dollar earned from exporting gas to Asia, Australia faces losing some portion of it in lost value-added local production.
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