In contrast to the 2018 GSOO (Gas Statement of Opportunities) released today by the AEMO (Australian Energy Market Operator), Wood Mackenzie’s East Coast Gas report identifies a potential gas shortfall starting between 2023 and 2025, significantly earlier to the GSOO’s estimate of 2030.
Nicholas Browne, head of Asia-Pacific gas and LNG, said: "Even with the reduced demand forecast from AEMO, based on our supply modelling, we still see a gas shortfall starting between 2023 and 2025. This is significantly earlier than 2030 which is what the 2018 GSOO indicates.
"There are two immediate options to meet this shortfall.
"Firstly, gas will need to be diverted from Queensland to ensure east coast demand can be met. As the higher-quality coal-seam gas (CSG) areas, such as the Undulla Nose and the Comet Ridge, are more fully developed, we expect supply to increasingly come from the more economically marginal areas. These CSG fields, with lower permeabilities or thinner coal seams, will be more expensive to develop, contributing to the expected increase in gas prices in eastern Australia.
"If diversions do occur, then it's unlikely that exports will ramp up to maximum liquefied natural gas (LNG) production capacity from 2030 as the GSOO indicates.
"An implication of this is that it incentivises producers to divert LNG, and east coast gas prices will need to be on a netback parity to the price achievable in Asian markets."
He added: "Bear in mind that we expect the Asian LNG market to get tight around 2022, so LNG prices could continue to trend upwards from today's level of US$10/mmbtu (approx. AUD$14/GJ). So we can expect Australian gas prices to rise, which may lead to industrial demand destruction in some industries where gas is a primary cost.
"Secondly, if adequate diversions cannot be ensured, then LNG imports will remain an option on the table. These would also be priced based on the Asian LNG price."