Australia regulator forecasts 2023 gas shortfall, recommends LNG diversion

Australia's competition regulator forecasts a steep gas supply shortfall for 2023 and recommends that LNG exporters be asked to divert most of their surplus gas to the domestic market instead of selling into overseas spot markets, according to its July 2022 Interim gas report published Aug. 1.

The Australian Competition and Consumer Commission, or ACCC, said the east coast is forecast to produce 1,981 PJ of gas in 2023, which will fall short of domestic and LNG export demand of 2037 PJ, resulting in a supply shortfall of 56 PJ.

The gas supply shortfall assumes 2023 domestic east coast gas demand of 571 PJ, LNG export demand of 1,299 PJ under long term contacts, and 167 of surplus gas that has not been committed to buyers and could be supplied into either the domestic market or the international LNG market, it said.

"While LNG exporters expect to have sufficient gas to meet their contractual obligations under domestic GSAs and long-term LNG SPAs in 2023, they expect to export the vast majority of their uncontracted gas (167 PJ) as spot cargoes or additional LNG sales," the report said.

"This is consistent with what we observed for 2021, with 99% of the uncontracted gas that was forecast for 2021 (100 PJ) exported as spot cargoes and as additional sales under long term SPAs," the report said.

The ACCC that not only is there "a significant deterioration in conditions" for 2022 than what was expected at the same time last year, which presents a real risk to Australia's energy security, there is also a bleaker outlook for 2023 than what was earlier projected by other government bodies.

To address the projected shortfall in 2023 significant additional volumes of gas will need to be produced in the east coast from gas fields that are already connected to the market, transported from the Northern Territory into the east coast, withdrawn from storage, and/or diverted by LNG exporters into the domestic market, the report said.

"Our latest gas report finds that the outlook for the east coast gas market has significantly worsened. To protect energy security on the east coast we are recommending the Resources Minister initiate the first step of the Australian Domestic Gas Security Mechanism (ADGSM)," ACCC Chair Gina Cass-Gottlieb said in a statement.

"We are also strongly encouraging LNG exporters to immediately increase their supply into the market," she said, adding that LNG exporters have diverted most of their excess gas to overseas spot markets, with as much as 70% of the excess volume going overseas in recent years.

Other concerns

The ACCC also raised concerns about the high level of market concentration, saying that the upstream market was highly concentrated and dominated by the three LNG exporters and their associates, and that LNG exporters influence supply through numerous joint ventures and exclusivity agreements.

The report said some LNG exporters were also not engaging with the domestic market in the spirit of a Heads of Agreement signed in early 2021, which commits LNG exporters to offer uncontracted gas to the domestic market first on internationally competitive market terms before it is exported.

A well-functioning Heads of Agreement should ensure that natural gas is made available to all domestic users at demonstrably competitive prices, at a quantity that meets their needs, and within a suitable timeframe.

In response the government has said it will renegotiate both the ADGSM and the Heads of Agreement with LNG exporters.

In a separate statement on Aug. 1, Resources and Northern Australia Minister Madeleine King said she had opened consultations to improve the ADGSM to strengthen domestic energy supply, and started consultations with gas producers on a new Heads of Agreement.