More gas cartel drivel

From cartel champion, The Australian:

A gas deal between US energy major ConocoPhillips and junior explorer 3D Oil in Victoria’s offshore Otway Basin could help ease a forecast supply crunch set to hit the east coast by 2024.

After selling an 80 per cent stake in the T49P permit in the Otway Basin to Conoco, 3D Oil expects the joint venture will push ahead with a seismic survey followed by a potential exploration well in 2022.

…“We can see that Exxon‘s production is falling from a cliff and they’re in limbo because of the Bass Strait sale and then Beach have deferred their exploration and development drilling also,” 3D executive chairman Noel Newell told The Australian.

“The cheapest gas in the Melbourne market is coming from the Gippsland and Otway Basins. It’s hard to imagine how a LNG terminal can be competitive against gas that‘s local in my opinion.”

The shortage is 100% real. Via the AEMO, here’s where we are today:

And here is where we’re going fast as Bass Straight gas runs out:

Can Otway produce the 1000Tj per day to fill the gap? No. Even if it is substantial it will only displace northern gas into higher LNG export volumes. Conoco-Phillips is partner in QLD’s APLNG.

So will it lower prices? No. Only domestic reservation will do that.

But let’s roll the dice on a tiny prospector operating in a diminishing reserve instead.

David Llewellyn-Smith
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Comments

  1. I’m having dinner with a senior donny at Santos on the weekend — I’ll get this all sorted out and report bank on Monday.

  2. TheLambKingMEMBER

    Ok, if we are going to have a gas shortage, lets start taking steps to reduce usage! How about banning gas connections on any new house/building. Ban the sale of any new gas heater or hot water system. Simple. Provide a ‘cash for clunker’ to replace gas space heaters with electric heat exchange systems (powered by rooftop solar).

    • Peter SMEMBER

      Domestic gas usage is a small fraction of total demand, which is dominated by power generation and other industrial and chemical usages.

      • TheLambKingMEMBER

        My quick search showed some old figures where ~900 petajoules for power and ~200 petajoules for households. The assumption would be that renewable energy (with storage) would reduce the need for gas for power generation as well!

        But my point is we don’t need do find or produce any more gas if we reduce the demand for it. Which we need to be doing anyway because it is a fossil fuel and burning it contributes to the world warming. So incentivise the reduction in demand – but that is not going to happen with the current government 🙁

  3. Senator Rex Patterson gone into deafening silence over gas, has the gas cartel or SA renewable sector got to him?
    High gas price translates into higher prices for other energy sources not only coal, but hydro, solar and wind, Reason? because if a bunch of rogues run the cartel and start charging outrageous prices, other corporate rogues join in with the price gouge to charge extra for their competing product. A free market would not allow this. I recall Paul Broad from Snowy Hydro saying before a Senate Committee his Snowy Hydro 2.0 project stacks up when measured against the East Coast price, he failed to mention to the Senate Committee its only because of cartel practices which set the East Coast gas price.

  4. I was told yesterday by a IOC executive who markets natural gas to domestic WA users that the WA Domgas Reservation Policy is successful in both:
    1. Keeping long term pricing within a sensible and sustainable range, and
    2. Providing security of supply into the market for short, medium and long-term.

    I was also told that the federal government looks to the WA reservation policy and recognises it as best-practise…

    So it begs the question, WHY IS IT NOT BEING REPLICATED AUSTRALIA-WIDE in the NATIONAL INTEREST !! ??

  5. Peter SMEMBER

    3D Oil may be a small company, but its farm-in partner CoP is hardly a tiny prospector.
    The Otway Basin is massively under-explored and was the primary target of Prof Weeks, who is the guy who first recognised both it and the Gippsland Basin as being prospective for petroleum. Since the arrival of 3D seismic technology, the drilling success in the Otway Basin has been 100%, overcoming previous issues with faulting and enabling geologists to actually “see” the gas in place prior to drilling. The 3D Oil/CoP permit is in shallow water, close to existing pipeline and gas processing infrastructure and would thus be very cheap to develop and produce. The JV permit has upside for well over 10 trillion cubic feet (Tcf) of gas. That would make it bigger than the entire Gippsland Basin, which is now in terminal depletion mode, with only about 2 Tcf of remaining gas Reserves.
    Early Otway gas discoveries were contracted for sale at less than A$2/GJ and only had a CPI escalator clause! It should not be a surprise that these low gas prices and a lack of liquid petroleum associated with the gas, which might have supported development as it did in the offshore Gippsland case, inhibited further exploration over the past 15 years as oilfield costs tripled. However, current relatively low drilling and development CAPEX combined with a gas price of say, A$6-$8/GJ would support development which, depending on the quality of Reservoirs, that can be assumed from discoveries further to the north, could easily be ramped up to 200 to 400 TJ per day, offsetting decline from other sources and delivering gas with a much lower environmental cost that CSG from Queensland or NSW.
    If Australia could magically rebuild its energy supplies over a few years, which is currently sourced 86% from fossil fuels, that would be fabulous, but there is no plan or reasonable method to achieve that end. Replacing the East Coast’s ~360PJ pa domestic gas demand (The Gladstone LNG “cluster” consumes or exports an additional 1,500PJ pa!) with less polluting sources and associated infrastructure is going to take longer than a decade and even a 30-year build-out would be optimistic.
    If the current population policy is maintained, adding 1 million people every 28 months, it is hard to see Australia’s demand for energy falling, so that even new re-buildable (EV/wind) power struggles to keep up with rising demand, let alone replace legacy FF supply, except perhaps in South Australia which has a back-up power connection to the NSW coal power.
    Low-cost, gas from the Otway, reserved entirely for domestic demand, which does not involve turning thousands of hectares of the countryside into swiss cheese as does CSG extraction, would provide a couple of decades of space in which to establish population and decarbonise our economy, remembering that gas has plenty of uses outside of power generation.

    • TheLambKingMEMBER

      Wrong on so many point that I won’t mention them all. Grid Energy demand is shrinking even with rising populations because of more efficient devices and domestic solar. EV/Wind is more than keeping up with demand – as shown by negative energy prices during certain circumstances. There is only a shortfall currently for a few hours every year – but there are plenty of ways to fix that even with existing supply.

      So instead of more gas in the Otways that we can’t afford to burn. How about we take the $500m PER YEAR we subsidise the Alcoa Aluminium plant in Portland and spend it on EV & Wind farms and a usage agreement – let them suck up cheap power when demand is low and shut down production when demand is high. We currently PAY THEM to shut down production on top of the subsidy we give them. It is a perfect reverse battery.

      • Agree.
        As we deindustrialise our economy, sending high energy-consuming, manufacturing businesses like aluminium refining over to China, Australia will need less power generation. (just enough to run a coffee machine!) I am not convinced that transferring aluminium production to the Middle East, where power price is cheap or to Asia would lower global emissions?
        Currently, there are renewable power generation projects queuing up to get onto the grid, but many are unable because the grid is not designed for weather-dependent generators. We need more micro and local grids that are backed up with batteries. Negative power prices will eventually force FF generators off the grid since they are designed to operate 24/7. The focus should be on ensuring that there is power on a calm night from battery/pumped hydro, solar thermal storage etc, but that will take longer than we would all like.
        There is a sensible centre path. Norway for instance heavily subsidised its domestic agricultural industries to support local communities and promote a resilient and sustainable food supply. Without that funding, entire rural communities would be hollowed out as they have been in Sweden where the market ran riot. People leave as farming consolidates into one large private or corporate hands, schools and local shops close, the community centre folds etc. Strategic activities of national significance deserve funding if they cannot stand against market forces or risk falling into foreign hands, so Portland and other such activities need a wider focus.