ACCC report reveals ‘substantial gas shortfall’ likely in 2018

Beetaloo, Santos, gas, Origin, Karratha gas

Australia’s east coast is likely to experience a substantial gas shortfall next year, according to a report by the Australian Competition and Consumer Commission (ACCC).

The federal government released the ACCC’s first interim report, Gas Inquiry 2017-20 Interim Report, which focuses on likely supply and demand conditions for 2018.

Estimates of gas supply have been compared to estimates of demand in the east coast gas market for 2018, based on estimates of exports obtained from the liquefied natural gas (LNG) producers and the Australian Energy Market Operator’s (AEMO) projections of domestic demand.

“The interim report projects a supply shortfall in the east coast gas market of up to 55PJ in 2018, which could be as high as 108PJ if domestic demand is higher than expected,” ACCC chairman Rod Sims said.

In 2018, the LNG projects will together produce more than 70 per cent of the east coast’s gas and account for two-thirds of the east coast’s gas demand.

“The expected shortfall could be reduced to a significant extent if the expected sales on international LNG spot markets were instead redirected to the domestic market,” Mr Sims said.

“It is unclear why we are not seeing more steps being taken by the LNG projects to supply more gas into the domestic market.”

Mr Sims said the situation in the east coast gas market was serious and options to address the problems in the immediate term were limited.

The Federal Government recently implemented the Australian Domestic Gas Security Mechanism (ADGSM), which allows for the restriction of LNG exports in an expected shortfall year, with the aim of directing those supplies to meet domestic demand.

“Export controls may go some way to addressing this shortage in the short term,” Mr Sims said.

“However, further steps are needed to address the underlying problems of lack of gas supply and lack of diversity of suppliers in the east coast gas market.

“Supply-side solutions are needed to bring more supply and suppliers into the domestic market, particularly in the southern states.

“Blanket moratoria and other restrictions on developing new supply should be replaced by case-by-case assessments to allow for new sources of supply to respond to high domestic prices.”

Prime Minister Malcolm Turnbull said the reports from the ACCC and AEMO, both commissioned by the federal government, indicate the shortfall of gas in the east coast domestic market would be considerably higher than that estimated six months ago.

“The export control mechanism that we announced earlier in the year is designed to ensure there is not a shortage of gas on the east coast in 2018,” the PM said.

We’ve already been in discussion with the chief executives of the big gas exporting companies and we’ll be speaking with them again this week.

“We expect them to demonstrate to us what they have already indicated in meetings and in writing; that they will ensure that there is not a shortage of gas next year on the east coast.

“If they are able to do that and to the satisfaction of the ACCC, then the foreshadowed export control mechanism will have done its work.

“But we will continue to hold that mechanism ready to go and we will ensure it is entirely fit-for-purpose in light of these changed circumstances of a much bigger shortage than previously advised.

“So, if we are not able to receive the assurances from the industry to our satisfaction and that of the ACCC, then we will impose those export controls.”

APPEA chief executive Dr Malcolm Roberts said in recent months, the gas industry had increased substantially the flow of gas to the domestic market.

“This analysis reinforces how vital it is for all governments to support developing new gas supplies as quickly and as cheaply as possible,” he said.

“For its part, the gas industry is striving to lift production, often in the face of regulatory barriers and escalating costs.

“More gas supply and more gas suppliers is the only sustainable way to meet long-term demand and to put downward pressure on prices.”