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EnergyQuest slams AEMO gas forecast, warns of major east coast shortage

1st June 2015

By: Megan van Wyngaardt

Creamer Media Contributing Editor Online

  

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JOHANNESBURG (miningweekly.com) – The east coast of Australia is facing a 133 PJ gas shortfall by 2019, energy economics group EnergyQuest said over the weekend, slamming the Australian Energy Market Operator’s (AEMO’s) latest 2015 Gas Statement of Opportunities (GSOO) forecast.

EnergyQuest said the GSOO painted an “unrealistically optimistic” picture of gas supply for domestic use on the east coast. The group accused AEMO of brushing aside public and industry concerns about the expected tightening supply.

“Such a complacent view from the country’s official energy forecaster runs the risk of discouraging urgently needed east coast gas development, particularly in New South Wales and onshore Victoria,” EnergyQuest said in its May 2015 quarterly report, published on Sunday.

EnergyQuest CE Dr Graeme Bethune believed there were a number of shortcomings in the AEMO analysis.

“First, AEMO’s estimates of demand for gas by the Queensland liquefied natural gas (LNG) projects appear to us to be too low and would be insufficient for them to meet their contracts.

“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,” he said.

Bethune added that the forecast significantly underestimated gas reserve risk, relying on production from fields to which geoscientists might only assign a probability of success of 10% or, which were not yet demonstrated to be technically or economically viable.

“Federal and state governments have internationally respected geoscience agencies, but there is little sign that this expertise has been called upon by AEMO in preparing the latest GSOO,” he highlighted.

Further, Bethune noted that correcting for these factors changed the east coast gas demand and supply balance from AEMO’s surplus of 22 PJ in 2019, to a 133 PJ shortfall in that year. “A significant short-term supply gap has emerged, which increases to over 200 PJ/y early next decade,” he said.

“This also demonstrates how sensitive the forecasts are to the demand and supply assumptions. Small changes in assumptions can radically change the outlook. In effect, the AEMO report ‘assumes away’ the shortage that it was predicting only two years ago,” Bethune added.

As a result, he believed that AEMO saw no need for coal seam gas developments in New South Wales or the proposed new pipeline from the Northern Territory. However, EnergyQuest believed that the pipeline’s chances were improving – helped by the federal government’s Budget allocation of a $5-billion loan facility to promote infrastructure investment across northern Australia, including pipelines.

“Unfortunately, the GSOO shows no recognition of the fact that, with the fall in the oil price, energy companies exploring for, developing and producing gas on Australia’s east coast, are slashing their capital spending and workforces.

“These actions simultaneously collide with the massive growth of LNG along the east coast within a relatively small domestic gas market. This is an unprecedented market development globally and has, as yet, uncertain results on longer-term volumes of gas available for domestic consumption.

“In these circumstances, any analysis by AEMO should focus on what are clearly ongoing gas market risks,” he noted.

Edited by Mariaan Webb
Creamer Media Senior Deputy Editor Online

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