Developed gas reserves in eastern Australia will only meet demand until 2019, a report from the Australian Energy Market Operator (AEMO) warns.
Market data from the AEMO’s 2016 Gas Statement of Opportunities (GSOO) shows gas reserve development is required by 2019 to maintain long-term gas supply adequacy in eastern and south-eastern Australia.
AEMO Managing Director and Chief Executive Officer, Matt Zema, said that while there are no gas supply shortfalls forecast until 2029, the 2016 GSOO shows that developed gas reserves in eastern and southeastern Australia are only sufficient to meet forecast gas demand until 2019.
Mr Zema said, “This means that currently undeveloped gas reserves, including those reported as contingent resources and possible reserves, will be required to ‘come online’ to meet forecast demand as early as 2019 when developed reserves are forecast to start to deplete.”
Mr Zema said that the need to convert undeveloped gas reserves and resources into working gas fields from 2019 reflects forecasts from AEMO’s 2015 National Gas Forecasting Report (NGFR), which projects total annual gas consumption in eastern and south-eastern Australia to double over the next five years to 2020 as Queensland’s liquefied natural gas (LNG) export facilities ramp up production.
The 2016 GSOO uses the demand forecast scenarios from the 2015 NGFR, and production and supply information provided by industry, including wholesale gas contract information, to assess the adequacy of gas infrastructure and resources to meet demand in eastern and south-eastern Australia to 2035.
The GSOO is based on data provided by industry participants up to 10 December 2015.
“The need to convert undeveloped gas reserves and resources into working gas fields from 2019 becomes clearer still when we take export LNG demand out of the picture,” Mr Zema said.
The Australian Petroleum Production and Exploration Association (APPEA) said Governments in eastern Australia must pull out all stops to encourage the investment needed to address predicted gas shortages highlighted by AEMO.
APPEA Chief Executive, Dr Malcolm Roberts, said, “The information released by AEMO is a sobering reminder that the east coast needs rapid development of new gas reserves to guarantee supply.
“We have long argued that if we wish to achieve a more competitive market, put downward pressure on prices and ensure stable, adequate supply, we must bring more gas to market.
“Unfortunately a mix of policy indecision, restrictive regulations and politically motivated moratoriums, particularly in Victoria, has stymied exploration and development of our abundant natural gas resources.
“Almost 80 per cent of households in Victoria and thousands of local businesses rely on natural gas, yet the State refuses to develop its onshore resources.”
Contingent resources and possible reserves are forecast to start producing from 2020, while highly uncertain prospective resources are forecast to be required from 2026, to meet domestic demand
“It’s important we highlight this now, as there are technical and commercial uncertainties associated with developing contingent resources and possible gas reserves,” said Mr Zema.
“And reducing this uncertainty requires the timely development of these resources at a time when low oil prices have led to a significant fall in revenue streams and reductions in capital budgets for gas developers and producers, heightening the risk that some resource development may not be commercially viable.”
The 2016 GSOO reports that gas transmission and processing infrastructure is adequate to meet forecast total domestic gas and export LNG demand until 2029.
Shortfalls relating to projected pipeline and facility constraints, and forecast increased demand for gas-powered generation (GPG), are observed in Queensland (Gladstone and Townsville) from 2029, totalling 50 petajoules across the 20-year outlook to 2035.
“The GSOO medium scenario is AEMO’s best estimate of the future based on current information as provided by industry,” Mr Zema said.
“However the GSOO includes supply and demand input assumptions that are highly uncertain, as changes in economic conditions, policy settings, global oil prices, and weather events continue to increase gas market volatility, and impact investment and development decisions.
“To explore this further, we have conducted sensitivity analysis around the medium scenario to test the impact of some of these factors on the supply adequacy assessment.”
Sensitivity modelling shows gas supply shortfalls are projected to increase under drought conditions (due to increased demand for GPG), or if gas producers reduce capital expenditure in response to sustained low oil prices and/or higher production costs.
Conversely, a new supply source from the Northern Gas Pipeline is forecast to extend the life of developed gas reserves by up to three years.
“AEMO continues to liaise with gas industry participants and monitor key uncertainties facing the sector, and we will update the GSOO if there are material changes to market conditions,” Mr Zema said.
Australian Pipelines and Gas Aassociation Chief Executive, Cheryl Cartwright, has responded to the GSOO report, stating that investment must be encouraged for the future of Australian gas.
“All governments in Australia should do their utmost to immediately introduce policies that encourage investment that will result in additional supply of gas.
“The AEMO report makes recent remarks on increasing regulation on gas transmission pipelines from Australian Competition and Consumer Commission Chair Rod Sims even more alarming.
“It’s clearly the wrong time to be introducing regulatory uncertainty into the gas transportation sector.
“Just when governments should be doing all they can to ensure there is no shortage of gas after 2019, they are being advised to introduce changes that will make the investment required to secure the future of gas supply much less likely.
“Mr Sims himself recognised that more gas from a wider diversity of sources was needed in Australia and that the best designed trading markets will not work without gas to trade.
“AEMO is warning that the gas available to trade will begin to deplete in just three years unless investment is encouraged.
“APGA calls on governments to introduce without delay policies that will increase gas supply and encourage the development of new sources of gas as soon as possible.”