Gas supply imbalance at ‘critical point’ for Australia’s south-east states – report

An inquiry has found that there is not enough gas production forecast to meet demand in some of Australia’s southern states this year, placing the east-coast supply at a “critical point for government policy”.

The Australian Competition and Consumer Commission (ACCC) has said that the east-coast gas market is “at a crossroads” and that a supply problem needs addressing, particularly in New South Wales (NSW), Victoria and Tasmania.

Higher prices for commercial and industrial users are expected, according to the report, while wholesale gas prices remain generally higher than the Asian LNG spot netback prices.

“High gas prices are a threat to Australian industry’s competitiveness, and can be very stark for low income households relying on gas to heat their homes,” said ACCC chairman Rod Sims.

“A blanket ban which captures all potential projects, including conventional reserves, has consequences in the form of significantly higher gas costs for consumers and industrial users of gas in these states.

“It also acts as a brake on exploration and precludes industry even confirming gas reserves that on a robust cost benefit analysis would improve consumer outcomes.”

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Gas prices in southern states are potentially $2-4 per gigajoule (GJ) higher than would be likely to prevail if there was sufficient supply and diversity of suppliers in the south.

One reason for the “demand-supply imbalance”, according to the report, is that the Gippsland Basin Joint Venture (GBJV) legacy fields – the biggest offshore producer in south east Australia – are reaching the end of their life after over 45 years of operation.

The GBJV is forecasting a significant decline in production in 2018 compared with record production levels in 2016 and 2017.

The Gippsland basin decline is not being offset by new onshore development, as moratoria and other regulatory restrictions in NSW, Victoria and Tasmania are preventing or impeding onshore gas exploration and development.

“This southern shortfall means that gas produced in Queensland will need to be sent to the southern states to meet the needs of gas users in those states, adding costs of transport and weakening southern buyers’ bargaining power to secure gas,” Sims continued.

“We are at a critical point for government policy making in addressing the issues faced in the east coast gas market.

“The fundamental problem of a lack of both sufficient and divergent sources of supply, particularly in the south, needs to be addressed. This needs to happen soon, given the lags in bringing supply to market.

“Without addressing the supply problem, we will not be able to get to the competitive market that should be available for domestic users of gas.”

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