Dispute over forecasted supply “gap” in East Coast gas market

Gas

AEMO last week released a report which forecasted a supply “gap” on the east coast gas market of up to 33 petajoules on assumptions that the three Queensland LGN ventures exported all their uncontracted gas this year. The report warned of a risk of a gas shortfall in the southern states this winter unless the LNG exporters in Gladstone diverted shipments from export to domestic customers.

Santos’ GLNG joint venture has spoken out against the winter gas shortfall forecasted by AEMO saying that Queensland’s three LNG ventures have committed to make available all the domestic gas expected to be needed this year. AEMO’s forecast did not account for the ventures move to supply an additional 100 terajoules a day of gas this winter.

The joint venture said it had sold more than 15 petajoules of gas to wholesalers, retailers and power generators which will deliver gas between May and September “to alleviate critical peak winter demand in east coast gas and electricity markets”.

GLNG also said AEMO’s data was based on forecasts and the other two Queensland LGN ventures had offered more than 20 petajoules of domestic gas for sale, and there has been no spot LNG export from Gladstone in 2023.

The GLNG chief executive Stephen Harty commented taking all those factors in consideration, “it looks like any potential shortfall has already been fully mitigated.”

On April 1st the Federal Resources Minister is due to start deciding whether to curb LGN exports from Gladstone on a quarterly basis if required to avoid shortfalls in the domestic market.

The reform of the Australian Domestic Gas Security Mechanism (ADGSM) has Queensland LNG exporters and their customers in Asia concerned due to the volumes of gas that Asian nations rely on.

AEMO’s report again has called upon the Albanese government to match support, it has voiced for the role of gas through the energy transition with policy measures. Which would encourage investment in the development of gas resources.

Despite this, the cap implemented on wholesale gas prices and proposed ongoing regulation through “reasonable pricing” provisions on the east coast market has caused gas producers to put several investments in proposed projects on hold. The rules are to be included within the mandatory code of conduct which is expected to be released within the coming weeks.

Industry gas executives are currently arguing for some relaxation of the rules to allow new projects that are needed to meet demand to go ahead, and that barriers to new gas supply investment are removed on the east coast as more gas supply is needed over the coming years. Victoria and NSW state governments are also under pressure to relax restrictions on onshore gas development.

 Edge2020 have an eye on the energy market, enabling us to support price  benefits as well as customer supply and demand agreements. Our clients rely on our experts to ensure they are informed, equipped, and ideally positioned to make the right decisions at the right time. If you could benefit from an expert eye on your energy portfolio, we’d love to meet you. Contact us on: 1800 334 336 or email: info@edge2020.com.au

Federal and State Government agree to power bill

On Friday National cabinet met and agreed on the states introducing a cap on wholesale gas and coal. The temporary cap will be set at $12/GJ for gas and $125/t on coal. The caps will not enforce on export contracts therefore not limiting the opportunities on high international prices.

During the meeting it was agreed that the states would sort out the coal cap and the federal government would change laws to legislate the $12/GJ cap on domestic gas. As the caps are focused on the domestic market, they will only have a small impact on the profitability of producers. It is anticipated that only 4% of gas and 10% of coal will be affected by the cap, the remaining volumes will be exposed to international markets.

As the states have been tasked with implementing the cap it is likely they will go down different routes in achieving the same outcomes. The simplest state to implement the changes will be Queensland as the government still owns and control 80% of the coal fired generation fleet. Queensland will likely use its directive powers and instruct its government owned corporations (GOCs) to dispatch the coal assets below specific prices. NSW will likely use changes in law to cap the price for the state.

In line with the price caps, national cabinet also discussed an assistance package to lower the impact on families and business as a result of high inflation and high commodity prices.

The cap mechanism will be used for uncontracted gas and coal, this may have limited impacts on generators as the majority of coal and gas has already been produced under longer term contracts with strike price below the proposed caps.

At this stage it is unlikely that the mechanism will be in place until February despite federal politicians being recalled to Canberra on Thursday to discuss the issue. While the bill will get the support of the House of representatives it is expected the Greens will put pressure on the Government in the Senate to limit any compensation for the coal producers.

When the futures market opened on Monday morning it was evident the traders expect the caps to flow into the market. Both QLD and NSW futures dropped by $20/MWh for later dated quarters and over $30/MWh for Q123.

Edge2020 have an eye on the energy market, enabling us to support customer supply and demand agreements. Our clients rely on our experts to ensure they are informed, equipped, and ideally positioned to make the right decisions at the right time. If you could benefit from an expert eye on your energy portfolio, we’d love to meet you. Contact us on: 1800 334 336 or email: info@edge2020.com.au