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.
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)
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.