Australia should divert LNG exports to meet a domestic gas supply shortfall on the east coast next year, the Australia Competition and Consumer Commission (ACCC) said in its latest report.
Australia’s east coast gas market is expected to have a shortage of 56 petajoules (PJ) next year, or about 10% of domestic demand, according to the ACCC. Australia also is one of the world’s largest LNG exporters.
“Our latest gas report finds that the outlook for the east coast gas market has significantly worsened,” ACCC Chair Gina Cass-Gottlieb told local media this week.
To protect energy security on the east coast, the ACCC recommended the resources minister initiate the first step of the Australian Domestic Gas Security Mechanism (ADGSM). “We are also strongly encouraging LNG exporters to immediately increase their supply into the market,” Cass-Gottlieb said.
Under the ADGSM implemented in Western Australia, 15% of LNG exports must always be available for the domestic market, a policy that was agreed to by exporters when developing projects. As such, any supply diversions to the domestic market would not impact the levels of LNG exports. Eastern Australia has been criticized for not setting similar LNG reserve limits, allowing local and international companies to export as much gas as they produce.
Three of the largest Queensland LNG producers – Origin Energy Ltd.’s Australia Pacific LNG, Shell plc’s Queensland Curtis LNG and Santos Ltd.’s Gladstone (GLNG) – reportedly held emergency meetings with the Australian Petroleum Production and Exploration Association (APPEA) on Monday.
The three producers exported 13.24 million tons (Mt) of LNG from January to July this year, compared to 12.97 Mt for the same period in 2021, based on data from Kpler.
“It is not sustainable to intervene in long-term LNG contracts, after final investment decisions have been taken,” Santos said in its response to the government request for comments on extending the ADGSM beyond its January 2023 expiry date to January 2030.
The ADGSM could impact the $690 million that GLNG partners are investing to drill more wells and develop more gas fields in the Surat and Bowen Basins to supply long-term international contracts, according to Santos.
The company said their French, Korean and Malaysian investors “are already cautious about investing in new supply following the 2017 introduction of the ADGSM, which they regard as having raised sovereign risk in Australia.”
Australia Resources Minister Madeleine King said she would consult with LNG exporters and international buyers before making a decision in October “to reassure them that Australia remains a trusted trading partner and a stable and reliable exporter of resources and energy.”
Paying Up
Triggering the ADGSM could help meet the east coast gas shortfall, but it is not only about diverting LNG exports to the domestic market for gas producers. Price is a huge issue. East coast buyers will be forced to pay competitive prices.
Australia’s wholesale energy prices tripled in June and July compared with the first three months of the year, according to Australia’s Energy Market Operator. However, it is unlikely domestic industrial and business customers can afford to buy up to $40.00/MMBtu recently paid for spot cargoes in Asia.
Although additional gas is needed on the east coast as nearby offshore fields are in decline, east coast producers are expected to produce around 167 PJ, or roughly 157 Bcf, over what is needed to meet contractual commitments, according to the ACCC report. That could be used for exports or delivered to the domestic market.
“While there has been some noise about potential gas supplies next year, the ACCC report actually demonstrated there is more than enough gas to cover both domestic and international demand going forward,” APPEA acting CEO Damian Dwyer said in an email.
Dwyer told NGI that the industry has announced more than $13.84 billion of new investments related to supply in the past 18 months.
The “positive to come out of this week’s report is it further highlights the long-term need for ongoing planning and support from different levels of government to open up more supply to continue to provide energy security,” he said.
