Gas price alert for buyers in Victoria amid dearth of new local supply
Victorian manufacturers have been warned in no uncertain terms that they face higher gas prices over the next several years as new local projects fail to offset declining output from the Bass Strait, making the state more reliant on expensive coal seam gas from Queensland.
Gas production offshore Victoria - most of which lies in Commonwealth waters - is set to plunge by almost a quarter between 2016 and 2022, representing more than 15 per cent of east coast demand, according to Federal Resources Minister Matt Canavan. The dip may be about 16 per cent this year alone from the record by the Esso-BHP Billiton venture in 2016 and 2017, some say.
The slack is being taken up by CSG in Queensland but production is costlier, while transportation adds $2-$4 per gigajoule for a Victorian customer.
"We are extremely concerned that if unconventional gas in Queensland is the only new supply we get on the east coast that is going to significantly affect the affordability of gas in the southern states," Australia Pacific LNG chief executive Warwick King said in Sydney.
The next significant new source of southern gas will be Cooper Energy's $605 million Sole project off Victoria, but that won't compensate for the declining Bass Strait, said Cooper managing director David Maxwell.
The project, involving a $250 million upgrade of the Orbost gas plant and a $355 million offshore development, is targeting start-up in mid-2019.
Cooper has contracts to sell Sole gas to retailers AGL Energy, EnergyAustralia and Alinta Energy, and to manufacturer O-I Australia. While it has scope for more sales from the expected 24 petajoules a year of production, Mr Maxwell said he will wait until construction is more advanced than the current circa 30 per cent.
Few other options for new southern supply are on the table, and those that are, such as Beach Energy's Haselgrove project onshore South Australia or Strike Energy's Southern Cooper Basin project are either small, early stage or both.
Mr Maxwell said Cooper's plans for Sole originated from an analysis in 2012 that recognised the huge impact the new Queensland LNG export projects would have, trebling east coast demand.
He pointed to the findings of the Australian Competition and Consumer Commission, which forecasts a production shortfall of gas this year of between 116 and 156 petajoules, which will need to be filled by Queensland.
Credit Suisse analyst Mark Samter puts the domestic east coast gas shortage at up to 200 petajoules a year, rising to 700 petajoules a year including unused LNG export capacity in Gladstone. That would require "tens of billions of dollars" of investment a year to meet, capital that just "isn't there," he told a gas conference last week.
Cooper is meanwhile looking to build out its southern gas business over the next two years around hubs in the Gippsland and Otway basins to tap into the opportunity, involving an additional well at its Manta field in the Gippsland Basin, and a development well at its Henry field as well as 2-3 offshore exploration wells.
The federal government, the competition regulator and Mr King all pointed to the need for states such as Victoria to free up access to onshore gas resources. But Mr Samter argues it would be "fanciful" to suggest that a lifting of the restrictions five years ago would have made any difference to today's shortage given the early stage of work.
He said even the Queensland government's initiative to release acreage specifically to supply the domestic market wasn't enough to compensate for the circa 60 PJ a year decline in Bass Strait production.Senex Energy's Atlas project, for example, could supply about 11 PJ a year.
"We will look at every proposal for supply of gas," said EA's head of energy Mark Collette. "There is less resilience in our gas system than there used to be - the older fields are in decline - all new sources of gas are welcome and where we see them stacking up financially we'll be involved."
COE Price at posting:
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