The Chief Minister of the Northern Terriroty (NT) Michael Gunner has announced that the 135 recommendations made in the recent inquiry into fracking in the NT would be implemented, allowing on-shore fracking to take place in the territory. The 135 recommendations made in the inquiry mitigate the risks associated with onshore gas development to acceptable levels, and in some cases claim to eliminate the risks completely.
New gas developments will require environmental management plans which will be assessed by the NT Environment Protection Authority and signed off by the environment minister.
There will also be area’s where fracking will not be allowed. These include indigenous protected areas, special environmental areas, cultural and agricultural areas of significance to the Northern Territory.
There is a number of studies to be completed before fracking production can begin including strategic environmental and baseline assessments. At this stage it is estimated exploration will begin in 2019 and production in 2021.
If you would like to understand how these changes will affect your gas portfolio please contact Edge on (07) 3905 9220 or 1800 334 336.
The Clean Energy Regulator (CER) announced earlier today, the 2018 small-scale technology percentage (STP) as 17.08%. This means that liable entities (mainly electricity retailers) are required to surrender to the CER approximately 29.3 million STCs to meet their small scale renewable energy scheme obligations for 2018. This figure is derived by adding 7.2 million STCs to the estimated 22.1 million supply of STCs in 2018 (see below for how this is determined). The 7.2 million STC adjustment is the difference between previous years’ STC creations and the actual number of STCs surrendered in those years.
Last year the STP was 7.01%, therefore this year is an increase of 10.07%. The uplift was anticipated by the market due to information previously released by the CER regarding a surplus of certificates.
Surrendering certificates is a legal requirement for liable entities in accordance with the Renewable Energy (Electricity) Act 2000, and works to increase the portion of renewable energy generated and supplied to the Australian electricity market.
If you would like to know more about STCs or the impact this announcement has on your electricity portfolio, please contact Edge on (07) 3905 9220 or 1800 334 336.
After 15 months, 151 public hearings, 31 community updates and 1,257 submissions, Justice Rachel Pepper has presented the independent Scientific Inquiry into Hydraulic Fracturing of Onshore Unconventional Reservoirs to the Northern Territory Government. The inquiry makes 135 recommendations which mitigate the risks associated with onshore shale gas development to acceptable levels, and in some cases, eliminate the risks completely. The report clearly states that it is necessary for all the recommendations to be actioned in order for the risks to be reduced to acceptable levels.
The final report builds on the recommendations made in the Draft Final Report by including:
an implementation Chapter, which states clearly that all of the recommendations in the Final Report must be implemented;
greater clarity on the timing of the implementation of the recommendations; and
the inclusion of a requirement that there be no net increase in greenhouse gas emissions in Australia as a consequence of the development of any onshore shale gas industry in the Northern Territory.
The findings of the Inquiry have triggered the expected (opposing) responses from gas producers and environmentalists. The NT Government must now make their decision on whether or not the moratorium on fracking will be lifted. The Federal Government last year made their intentions clear, consistently pressuring the NT Government to lift the moratorium. The NT Government has indicated that the decision to lift the moratorium would be based on the findings of this inquiry however have said that they will not rush their decision. No indication has been given as to when a decision would be made.
It is the general consensus that a portion of the gas extracted from the Beetaloo Basin will be transported to the east coast through the under construction Northern Gas Pipeline. This is a key driver behind the Federal Government’s push to lift the moratorium as reducing gas prices has been high on the agenda. The impact that NT gas will have on the southern gas markets is likely to be minimal as transport costs remain high due to limited available capacity in key transmission pipelines.
If you would like to know more, please contact Edge on (07) 3905 9220 or 1800 334 336.
The ACCC released the second interim report into gas supply arrangements in December 2017. In the initial report (released September 2017) it was reported that there would be shortages in gas supply available to east coast consumers in 2018. The report found that buyers of gas were receiving offers from a reduced number of suppliers and that prices offered were above the ACCC’s benchmark prices. It was also noted in the report the lack of participation from the QLD LNG producers in the domestic market. This reported lack of participation from the LNG producers prompted the Federal Government to act. The result was the creation of a Heads of Agreement with the LNG producers which would see additional gas allocated to the domestic market. According to the second Interim Report (released in December 2017), since September 2017 the QLD LNG producers contracted 42 PJ’s of gas under long-term supply agreements to domestic buyers for supply in 2018. The majority of this gas was sold to aggregators and retailers. The ACCC’s forecast for the balance of gas was also updated in the second interim Report and resulted in an improved balance of 75 PJ’s. The change in balance has been driven by a 12 PJ increase in supply and the lower demand from the LNG producers (63 PJ). Whilst on face value the market has gone from deficit to surplus, the balance remains tight and subject to gas producers meeting forecasts.
Table 1. Gas Balance
September Expected Domestic Demand Scenario (PJ)
December Expected Domestic Demand Scenario (PJ)
Supply
1,901
1,913
Domestic demand
642
642
LNG demand
1,314
1,251
Projected Balance
-55
20
Source: ACC Gas Inquiry Report – Second Interim
According to the report, there continues to be a shortage of production in the southern states to meet demand (SA, NSW, ACT, VIC and TAS). As a result, these states will continue to rely on gas transported from QLD. Additional costs to transport gas from QLD to VIC and SA are currently between $2/GJ and $4/GJ. Transporting gas south from QLD is not only expensive but due to limited firm capacity in key pipelines is not always feasible. Firm capacity in these key pipelines is predominately booked by the major retailers. It was examined by the ACCC if the major retailers were making spare capacity available to other users on major pipelines through secondary trading. It was found that on the major pipelines this was not the case however, there was some evidence to suggest this may have been occurring on the less critical pipelines. Since the ACCC investigation it has been observed that the retailers have increased the availability of spare capacity to other pipelines participants improving competition.
FIRM CAPACITY – The amount of transmission guaranteed to be available to the shipper – up to MDQ & MHQ every day
AS AVAILABLE CAPACITY – This capacity is typically spare contracted capacity that is offered on the secondary market. As can be disrupted or delayed, it is not necessarily guaranteed.
The ACCC expects that transportation costs will start to come down as regulatory reforms begin to take effect.
Domestic prices to large C&I customers were around $16/GJ in early 2017 and even higher for smaller business customers. Since July 2017, it was reported that prices between $8/GJ and $12/GJ were achieved by large C&I customers.
GAS PRICES
Across each of the east coast trading hubs January average prices were higher than the Q417 average.
Table 2. Hub Prices
Adelaide price ($/GJ)
Brisbane price ($/GJ)
Sydney price ($/GJ)
Melbourne price ($/GJ)
Q417
$7.14
$7.68
$7.12
$6.20
JAN18
$ 8.10
$8.16
$9.71
$8.64
FEB18
$9.29
$7.33
$9.71
$8.67
Source: AEMO
Recent news
Four projects have received funding from the South Australian Plan for Accelerating Exploration (PACE) gas program’s second round. The program was designed as part of a suite of measures to increase investment in local gas production and to ease price pressure in South Australia. The four projects to receive funding were:
$6.89 million for the Santos-Beach Cooper Basin project to deploy a heat-energy recovery system to offset natural gas used to run the Moomba petroleum processing plant
$5.26 million for the Senex Cooper Basin Gemba exploration/appraisal project
$6.89 million for Beach /Cooper Energy’s Dombey project in the Otway Basin
$4.95 million to the Rawson/Vintage Nangwarry project in the Otway Basin
Under the program, gas extracted through the PACE program must first be offered to local electricity generators, enhancing the affordability of supply. Whether the cheaper gas is passed onto end customers by the gas generators is more difficult to say.
Moving north to QLD, Senex’s 100% owned Western Surat Gas Project recently recorded a significant milestone, which was an all-in well cost of $1.2 million. The strong results have promoted Senex’s reputation in the market and has encouraged Project Atlas, which is another Surat Basin project expected to bring first gas in 2019, to be sold to the domestic market.
On 12 December Independent Scientific Inquiry into Hydraulic of Onshore Unconventional Reservoirs in the Northern Territory releases its draft final report. The overall conclusion of the report was:
“The overall conclusion of the Report is that risk is inherent in all development and that an onshore shale gas industry is no exception. However, if the recommendations made in this draft Report are adopted and implemented in full, those risks may be mitigated or reduced – and in many cases eliminated altogether – to acceptable levels having regard to the totality of the evidence.”
Since the release of the draft final report the panel has engaged with the Northern Territory community, Government, Industry, environmental groups, and other relevant stakeholders about the content of the report. This is the last opportunity for the Territorians to express their views on the inquiry.
The final round of regional consultations concluded mid-February and the final day for submissions due to the panel is 25 February 2018. At this stage the panel has committed to providing the Final Report to the government in March 2018.
If you would like to know more about what is happening in the gas market and how your business may be affected, please call Edge on 07 3905 9220 or contact your Edge Portfolio Manager.
The Northern Territory Government announced on 7th November that the Final Report for the Scientific Inquiry into Hydraulic Fracturing in the Northern Territory (Inquiry) will not be published until March 2018. This has been caused by delays in community consultation activities that have set back the release of the draft Final Report to mid-December.
The Federal Government continues to put pressure on the States to lift their moratoriums on fracking, and this may very well be a set-back to the Government’s plan to free up more gas for the domestic market in the short to medium term. The delay in releasing this report will make it virtually impossible for any significant investment to be made in 2018; should the NT Labour Government lift the moratorium on fracking.
It is reported that the Beetaloo Joint Venture, between Origin Energy and Falcon Oil & Gas Australia, is sitting on a substantial resource of approximately 6.6 Trillion Cubic Feet of natural gas. If extracted, this gas could be delivered to the East Coast gas market via the Northern Gas Pipeline, which is currently under construction.
If you would like to understand how the announcement affects your portfolio, please contact Edge on (07) 3232 1115.
The Australian Energy Market Operator (AEMO) released its updated Gas Statement of Opportunities during September. The report indicates that in eastern and south-eastern Australia, there is potential for an annual energy shortfall in the domestic gas market of 54 petajoules (PJ) in 2018 and 48 PJ in 2018. AEMO warned that the shortfall could be higher in a variety of plausible circumstances that could increase demand for gas by household and business consumers, and for gas-powered generation of electricity (GPG) in the National Electricity Market (NEM). AEMO’s estimates that the shortfall could be as high as 107 PJ in 2018 and 102 PJ in 2019. This forecast was quickly followed by the Federal Government requesting major LNG producers to bridge the supply gap or face the implementation of the Australian Domestic Gas Security Mechanism (ADGSM). The LNG producers agreed to the Prime Minister’s request to make gas available. Had they not, the Federal Government has the power to implement the ADGSM which is a mechanism designed to restrict gas exports to increase domestic supply.
The Sole Gas Project is a new source of gas for the south east. The project is estimated to bring an additional 25 PJs of supply to the market each year, of which some is already contracted. This is the first offshore project in VIC to be sanctioned in almost a decade.
Still on the topic of increasing supply of gas to the east coast, the Northern Gas Pipeline is being promoted by owners Jemena, as being operational from the end of 2018. This is despite delays caused by negotiations with traditional owners of land and issues with the construction partner. Once the pipeline is complete it will have capacity to transport 90 TJs per day from Tennant Creek to Mt Isa. The challenge will be delivering gas to the east coast at a competitive price and achieving a level of increased supply that is sufficient to impact prices.
Following the NT Governments announcement of a moratorium on hydraulic fracturing of onshore unconventional reservoirs and the initiation of an Independent Scientific inquiry into Hydraulic Fracturing of onshore unconventional reservoirs, an interim report was released during July. The report provided some high-level conclusions regarding the environmental, social, cultural and economic risks associated with hydraulic fracturing for shale gas in the NT. The final report is due March 2018 and will be critical in guiding the NT government on whether to lift the moratorium. During September the Federal Government pressured the NT government into lifting the moratorium in the interest of making more gas available for domestic consumption.
Difference between Conventional and Unconventional gas…
Unconventional gas rests in relatively impermeable rock. The low porosity of the rocks is why, as opposed to conventional gas, ‘artificial stimulation’ is required. Artificial stimulation is where fracturing or “fracking” is required to disrupt the rock and release the gas. Unconventional gas includes Coal Seam Gas (CSG), shale gas and tight gas.
Conventional gas has moved from its original source rocks and is now resting in more permeable rocks and has then been trapped under a seal of impermeable rocks. Collection of conventional gas is easier as the gas accumulates in confined spaces and therefore allows for strategically placed wells to take advantage of areas of accumulated gas.
Gas Prices
Wholesale gas prices were lower for Adelaide and Brisbane and higher for Sydney and Melbourne relative to the same period last year. Unlike last year there were no significant price spikes in Adelaide or Melbourne.
Adelaide price ($/GJ)
Brisbane price ($/GJ)
Sydney price ($/GJ)
Melbourne price ($/GJ)
Q316
$9.27
$7.13
$7.53
$8.48
Q317
$ 8.11
$6.71
$8.94
$8.72
During September there was an increase in average temperatures which lowered demand for domestic heating gas and consequently there was some softening of wholesale prices late in the month.
C&I customers are generally facing increased prices as they come off old contracts. Prices quoted by gas suppliers have a relatively wide range and are subject to swings in consumption and tenure of agreement. The higher contract prices have prompted consumers to ask questions about alternative supply options and there has been an increase in interest into participation in capital city trading hubs.
Gas supply is a key feature of the recently announced National Energy Guarantee (NEG). Gas plays a key role in any emissions reduction policy due to its relatively low emissions and responsive nature of gas fired power stations. Within the NEG there is $90 million allocated to securing medium term supply. The funds will go towards the following initiatives:
Geological and Bioregional Assessments program to examine new gas reserves and support increased domestic supply by assessing the environmental safety of unconventional gas;
Development of new onshore gas in the NT and east coast;
Accelerate the work of the Gas Market Reform group to improve access and transparency;
Assessment of benefits in construction of new gas pipelines in the north and west of Australia to the south east via Moomba in SA; and
Examination of constraints on increasing gas supply on the east coast such as regulatory barriers and inconsistent policy.
If you would like to know more about what is happening in the gas market and how your business may be affected, please call Edge on 07 3232 1115 or contact your Edge Portfolio Manager.
The Australian Energy Market Operator (AEMO) recently published an update to the Gas Statement of Opportunities. The sticking point of the publication is a forecasted 54 petajoule and 48 petajoule (PJ) shortfall in 2018 and 2019 respectively. The forecast shortfall is three times higher than the forecast earlier this year. The report estimates aggregate gas production in 2018 to be 1,891 PJs and a shortfall of 54 PJs, or as a percentage, 3% of total production. This is a very small margin and given the level of assumption contained in the report Edge believe it should be considered cautiously.
Putting aside the potential inaccuracies of the report, it is important to consider the wider implications of federal government intervening into the gas market and how this will be perceived by international investors. Australia is the second largest gas exporting country in the world, has close proximity to Asia and AAA credit rating. Political intervention into markets is viewed as a sovereign risk and may be the difference between investment here or abroad. The longer term outcome of less capital coming into the Australian gas market is that prices will eventually rise.
Malcolm Roberts the Chief Executive of the Australian Petroleum Production & Exploration Association said “Looking ahead to 2018, there is a large supply of uncontracted gas available for domestic customers. The industry has made it clear that it will ensure that sufficient gas is available for the domestic market”. These comments are in complete contrast to the AEMO update and suggest that there will not be shortfall of gas.
There are a broad range of stakeholders who will be impacted by the actions of the federal government whether that is intervening or not. The federal government has until 1 November to decide whether the Australian Domestic Gas Mechanism will be put in place. If it is actioned the mechanism will begin on 1 January 2018.
Edge will continue to monitor the actions of gas producers and the federal government in the coming weeks.
A joint statement issued by Queensland Treasurer Curtis Pitt and Queensland Energy Minister Mark Bailey in early June announced that the Swanbank E Power Station (385 MW) would be recommissioned in the first quarter of 2018. Bringing the gas-powered station back online is part of a multi-faceted approach by the government to increase supply and reduce volatility in the energy market.
Stanwell Corporation withdrew Swanbank E from operation in late 2014 due to an over-supply of generation. Since then, Stanwell has been selling their gas to LNG exporters and the Brisbane Short Term Trading Market (STTM). Once back in operation Stanwell will no longer do this because the gas will be consumed by the power station. This will reduce the overall volumes sold to LNG exporters and the STTM. It is important to note that the Brisbane STTM is where gas powered generators buy gas from, particularly in periods of high electricity demand.
It will remain to be seen how effective the increased supply of electricity will be, considering the increased competition for gas in the Queensland market. If more gas becomes available from either increased gas production or government -imposed export restrictions, then we are likely to see prices and volatility reduce. Alternatively, the implications are likely to be modest if more gas isn’t made available.
The Prime Minister has this week announced he will take immediate action as part of his commitment to ensure a reliable and affordable energy supply for consumers.
Prime Minister Malcolm Turnbull, unveiled the Australian Domestic Gas Security Mechanism in April which allows the government to implement export controls and pass legislation as required to secure supply and put downward pressure on prices.
Mr Turnbull this week confirmed that gas export restrictions would be put in place from 1 January 2018.
The introduction of the LNG export market to Australia has created a complex situation where domestic gas consumers are paying more for gas than international buyers of the same product. The main driver behind this is the structure of the gas export contracts which are linked to the price of oil.
The specific mechanism that will be put in place by the government is yet to be determined and will need to be done carefully to ensure security of supply and fair treatment to consumers. Implications of intervention include; but won’t be limited to:
Reduced investment in upstream gas which will bring higher prices long term;
Uncertainty for domestic and international consumers;
Reduced gas prices not flowing through to the electricity prices.
The Federal government is currently in consultation with industry to understand how best to implement an export restriction.
The Prime Minister has today announced plans to impose export restrictions on gas producers to ensure domestic supply is maintained at reasonable prices.
The Turnbull Government unveiled their Australian Domestic Gas Security Mechanism which will give the government power to implement export controls where there is a shortfall of gas supply in the domestic market.
The shortage of gas supplies has resulted in higher prices domestically than the markets where gas is exported. The government wants to guarantee supply, and ensure gas prices are affordable for Australians.
Prime Minister, Malcolm Turnbull has met with gas producers in March and April to seek a commitment to increase supply to the domestic market. Although progress has been made, expectations have not been met.
The purpose of the Australian Domestic Gas Security Mechanism is to ensure supply always meets forecast domestic requirements which will put downward pressure on retail prices.
There will be an adequacy test which will compare how much an exporter draws on the domestic market with usage from their own tenement. If they draw more from the market than they put in, they must explain how they will fill any domestic shortfalls as part of their overall production and exports. Failing this, the Minister for Resources will order them to limit their export.
Although the government remains committed to LNG exports, it will not support a position that affects jobs and Australian interests.
The government expects this to be a temporary measure to restore certainty to the market.
Regulations are expected to be in place by 1 July 2017, after full industry consultation.
