Rising export demand likely to push up domestic gas prices

EASTERN Australia may face gas shortages over the next few years as a result of surging demand from Queensland's gas export projects, the Australian Energy Market Operator has warned in a report to be released on Tuesday.

By InvestSMART · 11 Dec 2012

By InvestSMART ·
11 Dec 2012

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"The relatively small volume of uncommitted available reserves, combined with a large proportion of reserves committed or earmarked for LNG projects, may create challenges for domestic supply," AEMO's managing director and chief executive, Matt Zema, said.

"Forecast domestic gas demand for a number of proposed large industrial projects currently exceeds the capacity of the pipelines to supply gas in Gladstone from 2013. Competition for gas supply may impact the timing or scope of these proposed projects."

Rising LNG exports from Queensland are expected to require between 43,000 and 53,000 petajoules of gas reserves, AEMO said. If reserves are not developed in a timely fashion, supply shortfalls may emerge as export projects begin to reach their capacity from 2016.

Gas retailers AGL and Origin Energy have already warned of higher domestic gas prices due to rising competition from exports.

Much of the forecast rise in gas demand will be for exports, with electricity generators unlikely to install new gas-fired plants for at least a decade, the forecast said.

Combined cycle gas turbines would require a higher carbon price and lower gas prices to compete with other generation sources, the survey noted, although there is ongoing need for gas peaking power generation.

In the medium to long term, depletion of gas in the Cooper-Eromanga basins in central Australia may prompt the development of reserves elsewhere to maintain supplies to NSW. As conventional gas reserves are depleted or committed to export projects, coal seam gas, shale and tight gas reserves will be used by the domestic market. Increased gas pipeline capacity may be needed, with gasfields around Casino in NSW likely to be tapped from 2018.

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Frequently Asked Questions about this Article…

What did the AEMO report warn about possible gas shortages in Eastern Australia?

AEMO warned that Eastern Australia could face gas shortages over the next few years because surging demand from Queensland LNG export projects is using a large share of available reserves. The report says there is a relatively small volume of uncommitted reserves and many reserves are already committed or earmarked for export, which may create challenges for domestic supply.

How could rising LNG exports from Queensland affect domestic gas prices for investors to watch?

Rising LNG exports increase competition for gas and can push up domestic gas prices. AEMO estimates Queensland export projects will require between 43,000 and 53,000 petajoules of gas reserves, and gas retailers such as AGL and Origin Energy have already warned that export competition is likely to raise domestic prices.

When might supply shortfalls appear as Queensland export projects ramp up?

AEMO indicated that if new reserves aren't developed in a timely way, supply shortfalls could start to appear as export projects begin to reach capacity from around 2016 onward.

What does the AEMO report say about pipeline capacity and industrial demand in Gladstone?

The report says forecast domestic gas demand for several proposed large industrial projects around Gladstone exceeds existing pipeline capacity to supply gas from 2013. That competition for pipeline capacity may affect the timing or scope of those industrial projects.

Which energy companies have already warned about higher domestic gas prices?

Gas retailers AGL and Origin Energy have warned that rising competition from LNG exports is likely to lead to higher domestic gas prices.

What are the implications for new gas-fired electricity generation?

AEMO forecasts that electricity generators are unlikely to install new gas-fired plants for at least a decade. Combined-cycle gas turbines would need a higher carbon price and lower gas prices to compete with other generation sources, although there will still be an ongoing need for gas peaking power generation.

How could depletion of the Cooper-Eromanga basins affect domestic gas supply to NSW?

Medium- to long-term depletion of gas in the Cooper-Eromanga basins may prompt development of reserves elsewhere to maintain supplies to NSW. As conventional reserves are depleted or committed to exports, coal seam gas, shale and tight gas reserves are likely to be used by the domestic market.

What infrastructure and supply developments should everyday investors monitor in the gas market?

Investors should watch for timely development of new gas reserves, any increases in gas pipeline capacity (which AEMO says may be needed), the tapping of gasfields around Casino in NSW from about 2018, and announcements from major retailers like AGL and Origin Energy about domestic price and supply trends.