Australia's LNG import plans unchanged despite Victoria lifting onshore gas ban

Sydney — Australia's LNG import project developers are pushing ahead with their plans to build terminals in South Eastern Australian and begin LNG imports as early as 2022, despite an announcement by the Victorian government last week of its plans to restart the state's onshore conventional gas industry.

Project stakeholders pointed to the long lead times between initial domestic exploration and gas deliveries to end users, but potential gas discoveries associated with the lifting of the ban could balance out the market towards the mid-2020s and challenge the long-term viability of these LNG projects.

"We do not believe that this will change anything for our project," South Korea-based EPIK's executive director for corporate strategy James Markham-Hill told S&P Global Platts this week.

EPIK expects to make final investment decision by the end of 2020, and first LNG imports by 2022.

"With or without additional conventional gas development in Victoria, there is still a strong need for significant additional natural gas volumes being brought in through our proposed LNG import terminal in Newcastle," he said.

A spokesperson for Australian Industrial Energy told in similar terms, saying the Victorian government's decision has "no bearing" on its Port Kembla Gas terminal project.

"Our focus is meeting predicted short-term gas shortages, which are unlikely to be satisfied by onshore development projects, given the lengthy processes associated with exploration, permits, pipeline construction and a range of other factors," he said.

"Longer term, PKGT can operate alongside onshore development, giving the market choice of supply," he said.

AIE is seeking a modification to its development consent granted by the New South Wales Department of Planning to increase its allowance for 26 shipments/year of LNG to 46 cargoes/year.

"This is now in its final stages and once approved, we will seek to finalize negotiations with a range of parties who are showing strong interest in the project," the spokesperson said.

PKGT expects to starts importing LNG by 2022, he said.

Australian gas retailer and potential LNG importer AGL also pointed to long lead times for onshore projects.

"Gas projects take significant periods to develop, commonly seven to 10 years, as they require long-term environmental safety planning and are subject to a rigorous environmental assessment," an AGL spokesperson said, adding that the Australian Energy Market Operator is projecting supply shortages in the mid-2020s.

He said that AGL's decision to proceed to an FID for its Crib Point project is dependent upon regulatory and environmental approvals being granted.

Venice Energy also has plans for importing gas into Australia. ExxonMobil was considering a project but shelved it citing lack of customer interest.

MORE UNCERTAINTIES AHEAD: ACCC

Australian Competition and Consumer Commission told Platts the Victorian governments' move "could contribute" to reducing the shortfall of supply in the medium-to-long term, but also pointed to the long lead times for that gas coming to market.

ACCC places that time-frame at three-to-five years from initial exploration to gas deliveries under normal circumstances, the ACCC spokesperson said, but given the current uncertain economic situation caused by the COVID-19 outbreak, the timing for any new supply is even more uncertain.

"It is too early to speculate about whether the recent decision by the Victoria government will affect the need for one or more LNG import terminals," he said.

NEW PRODUCTION MAY HIT LNG PROJECT VIABILITY

According to Platts Analytics, the outlook for LNG import projects is looking less optimistic, as the government moves towards policies that support domestic production.

"The main challenge for LNG import projects in South Eastern Australian (SEA) is that demand only peaks above available supply during winter. While [supply] tightening could worsen as domestic production declines, the potential addition of new production could further limit the viability of these projects," said Jeff Moore, head of S&P Global Platts Asia LNG Analytics.

With production declining in Victoria, SEA markets, which rely heavily on gas for industrial and heating demand and have a winter-peaking market in July and August, will become more and more reliant on Queensland gas production, Platts Analytics said.

The gap between supply and demand could widen out to more than 9 Mcm/d during peak winter months by 2024, which would put a strain on infrastructure, but potential discoveries associated with the lifting of the Victoria ban could provide roughly 5 Mcm/d of additional production by the mid-2020s.

Even though the proposed LNG import projects are relatively small, their combined capacity would be sufficient to meet roughly 90% of NSW's city gas demand, which suggests severe underutilization during the off-peak season.

ONSHORE EXPLORATION TO RESTART 2021

The state government of Victoria announced last week it would introduce a bill to allow the restart of the onshore conventional gas exploration and development from July 1, 2021. The decision followed three years of investigation into environmental impacts.

The ban on hydraulic fracturing and coal seam gas exploration in the state, introduced in 2017, still stands.

The east coast's uncertain gas supply outlook has resulted in LNG import project proposals and the government implementing export control measures on three LNG export plants at the Port of Gladstone.

In the January edition of its interim report, the ACCC flagged that it remains concerned about gas supply for the east coast for 2021-2031.

The watchdog said the southern states of the east coast—which include South Australia, New South Wales, the Australian Capital Territory, Victoria and Tasmania-- will continue to risk seeing a supply shortfall in the medium-term unless domestic production increases, transportation infrastructure is enhanced and one or more LNG import terminals are developed.