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Gas supply shortfall 'increasingly likely' - ACCC

Image shows an LNG export vessel

Photo by Bloomberg

17th August 2021

By: Esmarie Iannucci

Creamer Media Senior Deputy Editor: Australasia

     

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PERTH (miningweekly.com) – The Australian Competition and Consumer Commission (ACCC) has warned that a supply shortfall in Australia’s east coast gas market is increasingly likely.

In its latest gas report, the ACCC revealed that a shortfall of 2 PJ could arise across the entire east coast gas market next year, driven by a shortfall of up to 6 PJ in the southern states, if liquefied natural gas (LNG) producers export all of their surplus gas.

This forecast is dependent upon demand from gas-powered generators decreasing to record lows, and a material volume of gas from currently undeveloped reserves being supplied.

“The precarious supply situation for next year highlights the importance of the new heads of agreement (HoA) that the Australian government signed with LNG exporters in January 2021,” ACCC chairperson Rod Sims said.

Under the HoA, LNG exporters must offer uncontracted gas to the domestic market on internationally competitive terms before it is exported, and provide relevant material to the ACCC to demonstrate their compliance.

“The initial material LNG producers provided to us did not adequately demonstrate compliance with the new HoA and they will need to lift their game,” Sims said.

“The initial responses from LNG producers were concerning given that in the near future Australia’s southern states may depend on their surplus gas. We expect to see better compliance from LNG exporters over the next 12 months.”

The report shows that prices for contracted gas in the east coast market through to February 2021 remain at the lower levels observed during 2020. However, the tightening supply situation means these prices may not last.

“Domestic spot prices for gas spiked in July but the increase was driven by a particular set of circumstances that won’t necessarily impact offers for long-term contracts. Fortunately, we have subsequently seen some softening of those high spot prices in August,” Sims said.

The ACCC also noted that price offers for supply in 2022 trended from A$6/GJ to A$11/GJ at the start of 2020 to A$6/GJ to A$8/GJ in the second half of 2020.

Although lower prices were welcomed by commercial and industrial users, many users are struggling to obtain offers for supply beyond 2022. Where supply is offered, prices are often at A$9/GJ to A$10/GJ.

“We are also concerned that there have been significantly fewer offers for gas supply being made in the domestic market recently,” Sims said.

The Australian Petroleum Production and Exploration Association (Appea) said on Tuesday that “minor” concerns around supply were already being addressed.

“Our members are constantly working with customers to meet their energy needs. This includes signing more than 100 gas supply agreements and other commercial arrangements since 2012 including just last month Senex signing a long-term domestic gas sales agreement with Adbri Limited to supply up to 11 PJ of natural gas to support Adbri’s South Australian manufacturing operations to 2030,” said Appea CEO Andrew McConville.

“They are also meeting the requirement under the 2021 HoA to offer equivalent volumes of uncontracted gas (spot cargoes) with reasonable notice on competitive market terms to the Australian domestic gas market before they are offered to the international market.

“Members continue to bring more supply online for domestic customers. This includes billions of dollars in new investment to bring more gas into the domestic market such as the announcement by Senex on Tuesday of an expansion at Atlas which will supply a total of 18 PJ of gas a year entirely for domestic use, which is more than five times the energy needed to run all the homes in Toowoomba.”

McConville said the ACCC’s report confirmed that the market is working and again, and that domestic customers do not pay more for Australian gas.

“One of the great myths is that Australian customers pay more for their gas than overseas, that is simply a fabrication,” McConville said.

“Our industry is providing secure supplies of competitively priced gas to customers all over Australia. In 2020/21 the industry produced record volumes of gas while average spot prices remained low. The ACCC report found that prices for contracted gas in the east coast market through to February 2021 remained at the lower levels observed during 2020.

“Australia has abundant gas resources and the real answer to more supply and competitive prices is safely developing more gas resources close to customers. That’s why the New South Wales government should reconsider its decision to effectively lock up most of the state from gas exploration.”

Federal Treasurer Josh Frydenberg said on Tuesday that the government would continue to ensure domestic gas users receive the best deals and that prices remain affordable. 

“The latest ACCC report, along with more recent gas market activity, demonstrates the importance of the gas-fired recovery to ensure the best outcomes for Australian households and businesses,” the Treasurer said. 

Energy and Emissions Reduction Minister Angus Taylor said the government was already taking action to ensure Australian gas worked for all Australians.  
 
“Gas supports jobs in crucial energy-intensive industries that support jobs and economic activity across the economy and regional Australia,” Taylor said. 
 
“The government has committed A$38.7-million through our interim National Gas Infrastructure Plan for targeted support for critical gas infrastructure projects, including storage. These measures will help increase supply in the south and demonstrates our commitment to delivering key infrastructure to overcome future gas shortfalls.” 
 
“This work also builds on the package of reforms to natural gas pipeline regulation agreed to by Energy Ministers. These reforms will reduce costs of transportation and delivered gas, improve access to pipelines, facilitate more effective competition in the gas market and have net benefits valued in excess of A$1-billion.”  
 
Meanwhile, Resources and Water Minister Keith Pitt said the government was working to unlock development in key onshore gas basins, notably the Beetaloo, the North Bowen and Galilee, and Cooper-Adavale basins, which will increase future supply and help keep prices as low as possible. 
 
“Under the latest HoA, the three east coast LNG exporters have committed to offer uncontracted gas to domestic customers first, with reasonable notice and at competitive market terms. We expect the LNG producers to keep their commitments in good faith,” Pitt said. 
 
“The government will continue to monitor developments in the gas market to make sure Australians continue to have access to affordable and reliable energy supplies. We continue to call on all states to ensure gas resources can be developed as we know increasing local gas supply is the best way to drive down prices.” 

Edited by Creamer Media Reporter

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