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Australia's southern states likely to see gas supply shortfall by 2024: regulator

Highlights

Shortfall in southern states will precede east coast shortfall in 2026

Gas prices for domestic supply in 2021 have also declined sharply

Sydney — Australia's southern states could see a shortfall in natural gas supply of around 30 PJ emerging as early as 2024 unless an LNG regasification terminal or other local productions resources, which remain speculative, are developed, the Australian Competition and Consumer Commission, or ACCC, said in its Gas Inquiry 2017–2025 interim report made public on Feb. 16.

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The projected shortfall is the key reason for at least five LNG import projects currently being planned in the states of Victoria, New South Wales and South Australia, although most of them are still in the feasibility stage.

ACCC said the potential 2024 gas supply shortfall in the southern states will precede the broader east coast gas market facing the risk of a shortfall in 2026, based on its assumptions of 2P gas reserves, which covers proven and probable reserves available for development.

"There are a number of new domestic supply projects that could potentially be brought online by 2024, but some of these projects are quite speculative in nature. There is a risk therefore that some of the projects will not come online in time (if at all) and those that do come online will not be sufficient to avoid the projected shortfall in the south," the report said.

"Additional supply from either an LNG import terminal in the south, or domestic supply sources in the north is likely to be needed, with the latter likely to require an expansion of the north-south transportation infrastructure as well," it added.

The watchdog noted that Australian Industrial Energy's proposed Port Kembla LNG import terminal could start before 2024 and help stave off the projected shortfall in the southern states and east coast market until 2028.

Beyond 2028, a number of new domestic sources of supply in the south and the north that have not yet been sanctioned that could potentially be brought online including projects not connected to the east coast market, such as, Narrabri, the northern Bowen Basin and the Galilee Basin.

These will need to overcome a range of technical, commercial, financial and regulatory barriers, and overcome the challenging investment conditions that the COVID-19 pandemic and falls in oil, LNG spot prices and domestic gas prices are currently presenting, the ACCC said.

It said the longer term supply uncertainty is due to the large write-downs of 2P reserves over the last three years of around 18%, mostly in Queensland acreage controlled by LNG producers, the increasing reliance on undeveloped reserves and resources in the southern states and producers cutting upstream expenditure and delaying projects.

ACCC said Australian LNG producers expect LNG export demand, including both long-term contracts and spot sales, to peak in 2028, before declining, and utilize their trains at 80% of capacity on average between 2022 and 2032.

Domestic price outlook for 2021

Meanwhile, prices offered for domestic supply in 2021 have also declined sharply due to low international LNG and oil prices, exacerbated by the COVID-19 pandemic, which resulted in additional gas supply into domestic markets.

It said, "Prices offered for 2021 supply by both producers and retailers (under gas supply agreements (GSAs) have declined noticeably from $8–14 per gigajoule over the second half of 2019 to $6–8 per gigajoule by mid-2020."

"The prices in offers and GSAs for 2021 supply also likely reflect the expectations (at the time these offers were made and GSAs executed) for continued low LNG and oil prices over 2021, including the impact of these price expectations on quantities of gas Australian LNG exporters would supply to international customers and into the domestic east coast gas market," ACCC added.

Australia's key gas and LNG infrastructure