Today’s AFR
The east coast gas market faces tight supply from 2021 and shortfalls from winter 2024 if more is not done to replace rapidly declining output from Bass Strait, the Australian Energy Market Operator says.
AEMO says in its Gas Statement of Opportunities (GSOO) and Victorian Gas Planning (VPGR) reports that recent efforts by industry and government to ease gas supply constraints that emerged in 2017 have ensured adequate supply in south eastern Australia until 2023.
But the market body says supply will be tight from 2021 to 2023 and cold weather or the increasingly frequent failures from ageing coal generators may exacerbate the situation by ramping up the electricity market's demand for gas.
ExxonMobil and BHP continue to forecast declining production from Victoria's Bass Strait waters, which produce most of the gas for south-east Australia.
New supply will be required to plug a forecast gap in meeting long-term winter gas demand from 2024 because ExxonMobil and BHP continue to forecast declining production from Victoria's Bass Strait waters, which produce most of the gas for southeast Australia.
The problem is that not enough is being done to develop alternative production. The number of exploration, appraisal and development wells drilled in south eastern Australia has collapsed in the last decade, pipeline capacity into the area limits imports of gas from northern Australia, and proposals to import liquefied natural gas floated by AGL Energy and others are still just that.
The reports come as manufacturers' grievances about high east-coast gas prices have cranked up a notch as Asian LNG spot prices sink to a three-year low, leaving local businesses paying almost double the rate some see as the benchmark price.
Manufacturers frustrations have been raised to boiling point by the refusal of the Victorian Labor government to lift a ban on onshore drilling, and a softly, softly approach to new gas development by the re-elected NSW Coalition government which has seen Santos's Narrabri project, which could supply half of NSW's gas needs, held up for years.
Energy Minister Angus Taylor urged all state and territory governments to remove blanket bans on gas exploration to help gas customers to secure a better deal and reduce the cost of transporting gas while supporting much needed investment.
"States with moratoria in place are effectively locking themselves into a future of importing gas from Queensland which requires significant transportation costs, or shipping LNG from overseas—to meet demand," Mr Taylor said.
Without new supply, falling production in Bass Strait means less winter gas for NSW, South Australia and Tasmania as well as Victoria, because the southern state supplies those markets as well as its own, AEMO's Chief System Design and Engineering Officer Alex Wonhas said.
”Southern Australia's overall supply-demand balance for 2021-2023 remains very finely balanced, reflecting the ever-tightening integration of Australia's electricity and gas markets in the context of an evolving and dynamic energy system," Dr Wonhas said.
AEMO forecasts a reduction in demand for gas for electricity generation in the short term but "unforeseen weather-related consumption or contingency events in the electricity market" could reverse this, "depleting gas storage inventories and tightening the supply-demand balance further," he said.
The federal government's jawboning of Queensland LNG producers has had some effect, with Queensland's LNG plants drawing less gas from Victoria and the southern states in the summer, and sending more gas to the southern states in the winter.
But existing production will fall sharply from about 2021, and committed new supply projects will only meet the gradually rising demand curve until 2024.
After that, the supply balance will depend on as yet uncommitted and undeveloped projects, but supply from these fields is likely to be more costly than existing production.
Within the next five years, domestic gas demand, particularly in the southern states, will be difficult to meet in its entirety without either exploration and development of new southern resources, LNG imports, or major pipeline expansions to bring Queensland and Northern Territory gas south.
Further storage facilities may help meet peak demand but only after more gas is made available, the reports say.
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