A supply shortfall in Australia’s east coast gas market is increasingly likely, especially in the southern states, the ACCC’s latest gas report reveals.
The report, released yesterday, reveals a finely balanced supply outlook for 2022. A supply shortfall of 2PJ could arise across the entire east coast gas market next year, driven by a shortfall of up to 6PJ in the southern states, if LNG producers export all of their surplus gas.
This forecast is dependent upon demand from gas powered generators decreasing to record lows, and a material volume of gas from currently undeveloped reserves being supplied.
“The precarious supply situation for next year highlights the importance of the new Heads of Agreement that the Australian government signed with LNG exporters in January 2021,” ACCC chair Rod Sims said.
Under the Heads of Agreement, LNG exporters must offer uncontracted gas to the domestic market on internationally competitive terms before it is exported, and provide relevant material to the ACCC to demonstrate their compliance.
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The three Queensland producers—Santos’s GLNG, Origin Energy’s APLNG and Shell’s QCLNG—did not adequately comply with a supply pact agreed with the Morrison government in January, according to the ACCC.
“The initial material LNG producers provided to us did not adequately demonstrate compliance with the new Heads of Agreement and they will need to lift their game,” Mr Sims said.
“The initial responses from LNG producers were concerning given that in the near future Australia’s southern states may depend on their surplus gas. We expect to see better compliance from LNG exporters over the next 12 months.”
The report shows that prices for contracted gas in the east coast market through to February 2021 remained at the lower levels observed during 2020. However, the tightening supply situation means these prices may not last.
“Domestic spot prices for gas spiked in July but the increase was driven by a particular set of circumstances that won’t necessarily impact offers for long-term contracts. Fortunately, we have subsequently seen some softening of those high spot prices in August,” Mr Sims said.
The ACCC observed that price offers for supply in 2022 trended from $6-11/GJ at the start of 2020 to $6-8 in the second half of 2020.
Although lower prices were welcomed by commercial and industrial users, many users are struggling to obtain offers for supply beyond 2022. Where supply is offered, prices are often at $9-10/GJ.
“We are also concerned that there have been significantly fewer offers for gas supply being made in the domestic market recently.”
The difficulty in securing offers beyond 2022 may have been partially caused by uncertainty around the Gas Code of Conduct and the ACCC’s LNG netback price series review. This demonstrates that it is important both are completed in a timely manner.
The ACCC’s LNG netback price series review is underway and will be completed by September 2021, following two rounds of public consultation.
APPEA immediately responded to the ACCC’s report, denying there would be a supply shortfall.
“The Australian Competition and Consumer Commission (ACCC) has reaffirmed for the tenth straight time there is no shortfall in Australia’s domestic gas market,” APPEA’s statement read.
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“The ACCC’s latest Gas Market Inquiry 2017-2025 interim report found ‘Sufficient supply is forecast to be available to meet demand in 2022’ and that minor concerns around supply are already being addressed.”
APPEA chief executive Andrew McConville said, “Our members are constantly working with customers to meet their energy needs. This includes signing more than 100 gas supply agreements and other commercial arrangements since 2012 including just last month Senex signing a long-term domestic gas sales agreement with Adbri Limited to supply up to 11PJ of natural gas to support Adbri’s South Australian manufacturing operations to 2030.
“They are also meeting the requirementunder the 2021 Heads of Agreement to offer equivalent volumes of uncontracted gas (spot cargoes) with reasonable notice on competitive market terms to the Australian domestic gas market before they are offered to the international market.
“This includes billions of dollars in new investment to bring more gas into the domestic market such as the announcement by Senex today of an expansion at Atlas which will supply a total of 18PJ of gas a year entirely for domestic use—which is more than five times the energy needed to run all the homes in Toowoomba.”
