AEMO: No more risk of gas supply shortfall

gas networks, Jemena, aemo

Australia is no longer in danger of a domestic gas supply shortfall, according to the Australian Energy Market Operator (AEMO).

AEMO’s 2018 Gas Statement of Opportunities (GSOO) has found a change in international market dynamics, lower demand for gas-powered generation (GFG), new pipeline interconnections and the Federal Government’s Australian Domestic Gas Supply Mechanism (ADGSM) have delivered an improved outlook for the east-coast gas markets.

AEMO planning and forecasting executive general manager David Swift said the GSOO provides a 20-year outlook for Australia’s east-coast gas sector.

“The 2018 GSOO outlines a number of rapid responses made by industry and government based on our concerns raised around forecast shortfalls in the 2017 GSOO update and the 2018 Victorian gas planning report,” Mr Swift said.

“Alongside international market changes, newly committed electricity generation resources have resulted in a favourable increase of gas availability for the east-coast market.”

Last year, AEMO forecast a 48PJ gas shortfall for 2019.

This year, AEMO forecasts no gas supply gaps in the most likely scenario for the domestic gas market out to 2030, and forecasts a 58PJ gas surplus in the east coast domestic market in 2019.

“With more than 4000MW of wind and solar coming online in the next two years, our forecasts show GPG demand could be even lower than the projections in our 2017 GSOO, as the role of GPG transitions to focus more on meeting demand when renewable generation is low,” Mr Swift said.

“However, an increased need for GPG due to weather related or contingency events could still adversely impact this forecast, and tighten the supply demand balance once again.”

Federal Energy Minister Josh Frydenberg and Minister for Resources Matthew Canavan said in a joint statement the improvement in gas supply was thanks to government action.

“The Turnbull Government’s intervention in the market to ensure more gas for domestic use before it is shipped offshore has averted a previous projected shortfall,” the statement said.

“Adequate gas supply above domestic demand is forecast for 2019.

“This is largely due to reductions in forecast demand for gas-powered generation and a small increase in domestic gas supply including the connection of the Northern Gas Pipeline between the Northern Territory and Mt Isa in Queensland.

“While the gas market remains finely balanced, the gas market on the east coast continues to improve since the volatility of 2016-17.”

The ministers called on states and territories to remove blanket bans and moratoria on conventional and unconventional gas exploration.

The report also reflects the connection between Australia’s domestic and international gas markets, as minor changes in liquefied natural gas (LNG) exports provide additional supply to the east coast.

“The international oversupply of LNG capacity and the emerging spot Asia-Pacific LNG market means international buyers are forecast to source less gas from Australian LNG producers in the short-term,” Mr Swift said.

“Coupled with the current supply conditions on the east coast, this will mean LNG producers will be able to provide up to 8PJ more than previously expected to the domestic market, which is a minor, but favourable addition to the east coast’s dynamic supply demand balance.”

In the longer-term, the 2018 GSOO highlights the need for additional gas supply reserves to be developed, as existing fields ramp up their production to meet short-term demand.

“While southern producers have informed AEMO about their forecast production increase from the southern gas fields, AEMO’s 2018 GSOO forecasts still show that further exploration and development will be needed to meet demand from as early as 2022,” Mr Swift said.

Santos managing director and chief executive officer Kevin Gallagher said the outcome was a good demonstration of the corporate sector working in partnership with government to solve a public policy problem without the need for market intervention.

“As a proud Australian company, Santos is committed to ensuring the domestic gas market is adequately supplied and is set to deliver around 70PJ, which is about 11 per cent of expected east coast domestic demand this year,” he said.

“The industry as a whole did an exceptional job of increasing gas supply to the domestic market in the face of unprecedented reputational challenges arising from community concerns about access to reliable and affordable energy.”

Mr Gallagher said Santos had also made significant progress in reducing the cost of supply.

“When it comes to putting downward pressure on gas prices, cutting the cost of supply is a good place to start,” Mr Gallagher said.

“Connected well costs in our Roma field are now $900,000 per well, and in the Cooper Basin, our completed well costs are averaging $2.8 million per well.

“That’s a reduction of 72 per cent and 42 per cent respectively since the end of 2015.

“As Australia’s lowest cost onshore developer, we’re extracting more gas for less money.”