Gas numbers looking good: for export and domestic use

July 24th, 2017

Estimates of natural gas exports and domestic supply have simultaneously taken a turn for the better as producers have ramped up production in Queensland, South Australia and off the West Australian coast.

The world-leading coal-seam gas to liquified natural gas (LNG) operation at Gladstone, Queensland, is continuing to grow its export production, and more gas is being sent south, primarily for use in NSW.

This is a positive sign that the Federal Government may not need to intervene in LNG exports in order to ensure domestic supply on the East Coast. Resources Minister Matt Canavan has announced that the Government will examine the market to ascertain whether a shortage is likely in 2018, a situation which could prompt an unwanted intervention in existing gas export contracts.

Senator Canavan has stated that such an intervention would be undesirable for Australia’s foreign investment and trading reputation and would be used only as a ‘last resort’.  For reasons we have explained previously, this type of move would be better avoided, as it could be very damaging for the nation.

The Business Council of Australia and The Australian Financial Review have outlined the shortcomings of such a policy and the damage it could cause, in very direct terms.

The Australian Petroleum Production and Exploration Association this week repeated its criticism of the measure, which it described as a ‘quick fix’ response which would not improve long-term supply.

In fact, it could serve to make the situation worse, undermining future investment and future supply.

APPEA Chief Executive Malcolm Roberts said it could threaten the estimated $50 billion in new investment which is needed to meet export and domestic demand in the decades ahead.

“The only sustainable solution to the challenges facing the East Coast gas market is more gas supply,” Dr Roberts said.

“The Government should be working with industry on regulatory reforms that reduce the cost of developing new resources. And it should continue to pressure state and territory governments to immediately remove their bans and moratoriums and consider all new projects on their merits.”

Commentators including former Victorian Premier Jeff Kennett, SA Senator Nick Xenophon and Small Business Ombudsman Kate Carnell (A former Chief Minister of the ACT) have called on States including NSW and Victoria to remove their irrational blockers to development of resources which have been safely extracted for a century.

Hopefully the Commonwealth exports cut will not transpire.

The Energy Quest analysis suggests the unwanted intervention may not be necessary. Adjusted forecasts from the Australian Energy Market Operator (AEMO) also support this notion.

Energy Quest says Gladstone LNG exports are running at near record levels, which is good news for the Queensland and Australian economies. At the same time, an increased amount of natural gas from the Cooper Basin, in South Australia, is being sent to Queensland for conversion to LNG or being sent into the NSW and Victorian markets.

This is good news for manufacturers and other industrial producers keen to see increased supply to get downward pressure on gas prices and ensure certainty of supply.

Energy Quest said LNG production was also increasing from new and existing plants off the WA and NT coasts.

Exports should continue to rise in the second half of 2017, as shipments from Chevron’s enormous  Gorgon and Wheatstone projects began to ramp up. Total shipments were likely to exceed $22 billion, compared to $16 billion in 2016, Energy Quest estimated.

Dr Roberts said the Energy Supply Outlook (ESO) released by AEMO last month indicated market intervention may be unnecessary, especially as it did not include new supply anticipated as a result of development initiatives undertaken after 1 May.

“The ESO update, expected in early August, is likely to show no supply shortfalls are expected and there is no need to restrict LNG exports,” Dr Roberts said.

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