Questions surrounding the implications of looming gas shortages on the CSG industry in Queensland remain unanswered, at least until crisis talks this week between the federal government and east coast gas companies take place.
The Australian Energy Market Operator last Thursday warned of shortages that it said, without a swift response, could lead to supply risks as early as the summer of 2018-19 in New South Wales and South Australia, in 2020-21 in Victoria, and between 2030 and 2036 in Queensland.
This coincides with last week’s release of what was described as a “highly forensic” review of Australia’s east coast gas sector by independent energy consultancy, EnergyQuest.
It found that estimates of commercial gas reserves to service Queensland’s new Gladstone-based LNG industry and local domestic gas consumption, carry substantial risks that are not widely appreciated.
It said this put at risk the longer-term security of east coast gas with current investment in new supply for that market being “nowhere near sufficient”.
AEMO chief operating officer Mike Cleary said that with energy demand rising and gas production from existing fields in decline, the market needed new sources of gas or the rapid implementation of new non-gas electricity generation to avoid cuts.
Speculation on the best way to address the shortage included comment that LNG could be redirected from international markets into the domestic market, that production from existing fields could be increased, or that new fields could be explored and developed.
When asked for a response, Australian Petroleum Production & Exploration Association external affairs director Kieran Murphy said his organisation was not prepared to comment prior to Wednesday’s crisis talks.
“APPEA has long argued that moratoriums and bans in NSW and especially Victoria are to blame,” he said. “Removing those restrictions will help bring more gas to market and put downward pressure on prices.”
Describing the potential shortfall as "very concerning", Prime Minister Malcolm Turnbull called on state governments to loosen restrictions on onshore gas exploration and development in a bid to avert the energy emergency.
His government is also considering some sort of domestic reservation policy to boost gas supplies but is grappling with how to implement it, fearing it could act as a disincentive to investment.
The Australian Energy Market Operator has warned that power costs will continue to rise even if new gas supplies come online, putting the "financial viability of some commercial and industrial customers" under threat.
The EnergyQuest findings include a warning that in the absence of any federal government action to solve gas supply challenges, affected states may take matters into their own hands, leading to the “unravelling” of the national gas market.
Its reserves outlook was contained in the consultancy’s March quarterly review, which coincides with Australia’s LNG exports hitting a monthly record of $2 billion in January.
This is off a surge in LNG exports over 2016 of 48.7 per cent, to 45.2 million tonnes, year-on-year.
EnergyQuest CEO, Dr Graeme Bethune, said the consultancy had previously flagged a significant east coast supply gap of around 172 petajoules (PJ) of gas by 2020 building to 205 PJ by 2025, exacerbated by easing output in three southern basins - Gippsland, Otway and Bass.
“As Queensland’s coal seam gas (CSG) output will now dominate future total production in the east coast gas market, we undertook a detailed bottom-up analysis of this market’s gas production outlook,” Dr Bethune said.
“In particular, we compared stated Proved and Probable reserves (known as 2P, gas volumes already classed to be commercial) and matched them against our own assessment of drilling statistics for 8000 gas wells, stated reserves for 50 gas exploration permits and 250 production licences (PL) and 10 years of production data from 250 PLs along the east coast.
“Our conclusion is that CSG (which comprises 91pc of stated east coast reserves) has been oversold, with potential reserves risk.
“The new Gladstone CSG to LNG industry is fed by booked 2P reserves but substantial reserves are booked in areas that have not yet demonstrated any commercial production.”
Dr Bethune said this scenario was compounded by the fact that the east coast’s conventional gas fields are now mature and face increasing output challenges.
“While there is some investment underway in new east coast gas supply, it is nowhere near sufficient and this reinforces the growing concern about gas supply security on the east coast,” he said.
“It is not an issue of short-term security. With ~3,500 terajoules per day of gas production in Queensland from numerous plants, the east coast is better protected against any short-term supply emergency. The concern is more for longer-term security.”
The new EnergyQuest report noted that in the absence of significant gas imports or major cheap discoveries that can be brought quickly to market, wholesale gas prices will ultimately be driven by the costs of new field developments.
“Our analysis points to price estimates for gas into Sydney of around $14 per gigajoule from 2024 – with obvious implications for affordability and demand.”
Sally Gall
Based at Blackall, CW Qld, where I've raised a family, run Merino sheep and beef cattle, and helped develop a region - its history, tourism, education and communications. Get in touch at 0427 575 955 if you've got a story idea for me.
Based at Blackall, CW Qld, where I've raised a family, run Merino sheep and beef cattle, and helped develop a region - its history, tourism, education and communications. Get in touch at 0427 575 955 if you've got a story idea for me.
