PERTH (miningweekly.com) – New Australian liquefied natural gas (LNG) supplies will have to come on line by 2028 in order to forestall a shortage, advisory firm Wood Mackenzie (WoodMac) has forecast.
“The Queensland LNG export projects have shattered the east coast’s ‘cheap gas forever’ mentality,” WoodMac director for gas and LNG research, Nicholas Browne, said.
“We believe Australia’s domestic gas price is now inextricably linked to the global LNG price.”
He noted that with the introduction of the Australian Domestic Gas Security Mechanism (ADGSM) on July 1 last year, the federal government has the power to restrict gas exports to ensure there is adequate gas supply to meet domestic demand.
The ADGSM ceases on January 1, 2023, but it is possible that similar policies will be maintained.
“The Australian government has already indicated its unease with gas being purchased for export in competition with domestic market buyers. However, this competition between domestic buyers and the Asian markets for available gas is likely to continue,” Browne said.
“The mature, conventional fields in Victoria, New South Wales and South Australia are declining. Given this, we believe extra gas will need to be diverted from LNG into the southern domestic markets from as early as 2025. Diversions could even be earlier than this to meet winter demand.
“The third-party gas purchased by Queensland’s LNG projects looks to be the most at risk of diversion, and, as such, the LNG projects are likely to come under pressure to reduce these purchases.”
He added that the ongoing call on Queensland gas for both export and the domestic market will keep the supply-demand balance in a precariously tight but supplied position through to 2028.
“Based on our supply forecast, from 2028 there is not enough gas to meet both LNG contracts and demand. More gas will need to be developed and commercialised, or LNG imported, to meet the needs of both the domestic market and to fulfill LNG contracts.
“However, no new easy and economical sources of supply are currently available to the market.”
Browne said that while there were more than 13 000 PJ of undeveloped gas resource in east Australia and the Northern Territory, this was either uneconomic to develop, unproven to be developed at scale, or stranded from existing infrastructure.
“On top of this, pipeline bottlenecks during winter will start to constrain the physical delivery of Queensland gas into the southern states from 2026. Unless additional pipeline capacity becomes available, LNG imports will be the only physical and commercial alternative to ensure security of supply, at least in winter.”
He noted that the shift in the east coast gas market would also see pricing mechanisms change.
WoodMac expects Asian LNG netback pricing will form the basis of east Australian domestic gas prices, with Queensland emerging as the market’s marginal supply option.
“The reported price range for new gas contracts in Victoria, New South Wales and South Australia in 2019 is in the A$8.50/GJ to A$11/GJ range. We expect a price range will be maintained through our forecast due to different end markets, cost structures and differing interpretations and expectations of LNG netback pricing.
“While LNG spot prices may soften over the next three years, $70/bl to $80/bl oil prices would keep LNG netbacks high and sustain contract prices at between A$8.50 and A$11.50/GJ.”
The Asian LNG market is expected to tighten from 2021, which could see domestic contract prices nudge up to between A$10.70/GJ and A$12.70/GJ by 2025.
“From 2026, with more expensive gas from Queensland setting the marginal price and limited pipeline capacity to enable flows south, prices would rise further and LNG imports become economic, and effectively set a ceiling for gas prices in the winter,” Browne added.
By 2030, in the absence of additional pipeline infrastructure, LNG could feasibly be imported in larger quantities and set the floor of the domestic price in the southern states.
Without further upstream developments and reduced upstream costs, prices could reach between A$14.30/GJ and A$15.90/GJ by 2030 and continue to grow after that, depending on international oil prices.
Meanwhile, federal Resources Minister Matt Canavan on Wednesday said that the government would seek to finalise a heads of agreement with Australian LNG producers that would provide domestic gas users with the first option to buy uncontracted gas.
This followed in-principle support from producers at an industry round-table.
“The government is committed to protecting the thousands of manufacturing jobs that rely on gas supplies as well as ensuring adequate affordable gas for domestic consumers. We also recognise the importance of the LNG industry to the national economy and many parts of rural and regional Queensland in particular,” Canavan said.
“I also reiterated my call for all states, in particular Victoria, to lift their moratorium on conventional and non-conventional onshore gas exploration and production.
“Their intransigence is costing Australia export revenue, jobs and affordable household gas prices.”