McKinsey sees $10 billion investment shortfall in east coast gas
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Without near-term investment in gas supply, price rises will wipe out the ammonia sector, McKinsey says.
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by
Angela Macdonald-Smith
An extra $10 billion of investment is needed in gas supply to meet Australia's demand through to 2030, with critical decisions needed sooner rather than later to prevent prices rising to a level that could put whole sectors of industry out of business.
The findings from McKinsey, released Tuesday, show that already planned investment of about $40 billion over the next 15 years is insufficient to meet demand for gas from export and domestic customers.
Putting in place measures to address the shortfall before 2020 could limit the increase in domestic gas prices to about $8 a gigajoule, the consultancy found.
But delaying them could lead to prices ranging up to $12 a gigajoule, at least twice current contract prices of $5-$6, and wiping out industries such as ammonia production.
"When we look ahead at gas supply on current plans and compare it with the outlook for gas demand, it looks like there will be a larger gas shortage through the 2020s and particularly out through 2030," said Peter Lambert, one of the authors of the report.
"There are plenty of options to close the gap, but those options clearly require some investment."
The report comes a day before a critical meeting of east coast gas producers called by the Prime Minister to try to find solutions for a shortage of gas faced by local manufacturers, who are struggling to compete against the Queensland LNG projects for supplies.
McKinsey estimated that east coast demand for gas through to 2030 would remain at up to 2155 petajoules a year, of which 68 per cent will be for LNG exports.
It said that up to 465 PJ of gas was needed to balance the market and pointed to five ways: investing in new gas fields; importing gas; energy efficiency and fuel switching;
industrial demand destruction through high prices; and not fully utilising LNG export capacity.
McKinsey found that some 1400 PJ of additional gas could be brought into production in eastern Australia with a breakeven price of between $5 and $11 a gigajoule, while about 150 PJ could be imported through a floating terminal at a breakeven price of about $10.
Energy efficiency and fuel switching could reduce demand by 250 PJ, while likely cutting back exports could reduce demand by 320 PJ at prices of $8-$12/GJ.
Industry closures would remove about 70 PJ if prices rose consistently above $9, McKinsey calculates, pointing in particular at risks in ammonia production. The sector consumes about 30 per cent of eastern Australia's industrial demand and employs about 2500 people but could be shut down completely should high gas prices persist, it said.
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