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The NSW gas market: is there a problem?

The NSW gas market: is there a problem?. Ai Group AGL Gas Summit The American Club, Sydney. Paul Balfe Executive Director. 12 July 2013. Topics. Context: Eastern Australia and the transition to LNG export The situation in NSW Heavily dependent on imports Long-term contracts expiring

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The NSW gas market: is there a problem?

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  1. The NSW gas market: is there a problem?

    Ai Group AGL Gas SummitThe American Club, Sydney Paul BalfeExecutive Director 12 July 2013
  2. Topics Context: Eastern Australia and the transition to LNG export The situation in NSW Heavily dependent on imports Long-term contracts expiring Uncertainty over contract roll-over, particularly from SA Risk of significant supply contraints Mitigating the risk Stimulating supply Local NSW CSG production Ai Group AGL Gas Summit
  3. Australia’s LNG construction boom Source: ACIL Allen compilation of public data Ai Group AGL Gas Summit
  4. Eastern Australia gas demand forecast (8-train, 32 Mtpa LNG scenario) Data source: ACIL Allen GMG Australia modelling Ai Group AGL Gas Summit
  5. Interconnected East Coast Gas Market Previously separated geographic markets now interconnected Producers have options where they sell Producers will seek the best prices for their products Price trends are reflected throughout the interconnected market Ai Group AGL Gas Summit
  6. Wholesale gas prices: Brisbane STTM Spot prices are moving up ahead of LNG start-up No apparent price suppression from “ramp gas” AEMO data Ai Group AGL Gas Summit
  7. Wholesale gas prices: Sydney STTM The rising spot price trend is apparent in NSW … AEMO data Ai Group AGL Gas Summit
  8. Wholesale gas prices: Victorian Spot Market … and also in Victoria AEMO data Ai Group AGL Gas Summit
  9. Spot Markets vs Long Term Contracts Outside Victoria, short-term or spot markets are a recent development The market continues to be underpinned by long-term bilateral contracts 5-10 years, backed by dedicated 2P reserves Industry investment still requires security of long-term contracts Ai Group AGL Gas Summit
  10. The situation in NSW Heavily dependent on gas imports ex South Australia, Victoria Long term contracts expiring Uncertainty over roll-over of existing contracts, particularly from South Australia Q: If SA contract roll-over is not possible, can Victoria substitute?A: No Q: What are the alternatives?A: Develop alternative supply (eg local CSG) or risk significant contraction of gas-using industry Ai Group AGL Gas Summit
  11. NSW gas supply by source: 2012 ACIL Allen compilation of National Gas Market Bulletin Board data Ai Group AGL Gas Summit
  12. NSW contracted supply vs demand ACIL Allen analysis Ai Group AGL Gas Summit
  13. Why is there a concern about contract roll-over? Is it just a question of price? Remaining 2P Reserves in Cooper Basin heavily committed to existing contracts Very unlikely Queensland CSG will be available for NSW New reserves likely to be found in Cooper (infill, tight/shale gas) BUT availability/timing uncertain If available, alternative sale to Gladstone LNG plants means NSW will need to pay at least LNG netback prices to secure supply Ai Group AGL Gas Summit
  14. Cooper Basin ReservesTotal remaining 2P = 1,804 PJAvailable 2P = 60 PJ Net Cooper supply to NSW in 2012 = 52 PJ Core Energy 2012 Ai Group AGL Gas Summit
  15. If we can’t get gas from Cooper Basin, why not get it from Victoria? Bass Strait fields have substantial uncommitted reserves BUT Existing pipeline capacity is inadequate to meet peak demand Existing gas processing capacity is inadequate to meet peak demand Ai Group AGL Gas Summit
  16. Bass Strait ReservesTotal remaining 2P = 5,309 PJAvailable 2P = 2,542 PJ Core Energy 2012 Ai Group AGL Gas Summit
  17. NSW Gas Supply 2012 Data Source: National Gas Market Bulletin Board Ai Group AGL Gas Summit
  18. NSW pipeline capacity Data Source: National Gas Market Bulletin Board Ai Group AGL Gas Summit
  19. Existing pipelines cannot supply full NSW market ex Victoria Implies EGP expansion from 294 TJ/d to at least 475 TJ/d Data Source: National Gas Market Bulletin Board Ai Group AGL Gas Summit
  20. Bass Strait region gas production 2012 Data Source: National Gas Market Bulletin Board Ai Group AGL Gas Summit
  21. Bass Strait producers peak output in 2012 was less than aggregate nominal capacity Data Source: National Gas Market Bulletin Board Ai Group AGL Gas Summit
  22. Existing Bass Strait production capacity cannot meet the full Moomba load Data Source: National Gas Market Bulletin Board Ai Group AGL Gas Summit
  23. The risk to the NSW Gas Market In the absence of new sources of gas supply, there is a real risk that current levels of gas consumption in NSW will not be able to be maintained in the future Prices will rise, effectively rationing demand to those customers best able to pay higher prices Price sensitive customers will exit the market “Demand destruction” will bring consumption into line with available supply Some of the exiting customers will not return, even if supply recovers and prices moderate Worst-affected will be large industrial consumers, esp. feedstock users (chemicals, fertiliser) Reduced dispatch of gas-fired electricity generators will see increased dispatch of existing coal-fired plant Ai Group AGL Gas Summit
  24. NSW gas consumption vs demand: “CSG Freeze” ACIL Allen modelling Ai Group AGL Gas Summit
  25. Response options Demand is effectively locked in … Only two fundamental options: Increase Supply OR Reduce Demand LNG export demand is effectively locked in LNG projects have long-term offtake contracts with binding delivery commitments The only effective response options are those aimed at stimulating supply But supply response takes time QCLNG Project – June 2013 Ai Group AGL Gas Summit
  26. NSW CSG supply: Base Case model assumptions Current Queensland CSG production level ACIL Allen modelling Ai Group AGL Gas Summit
  27. Economic impacts of NSW CSG supply expansion Note: results represent difference between “Base Case” and “CSG Freeze Case”. Real 2012 dollars ACIL Allen modelling Ai Group AGL Gas Summit

  28. The NSW gas market: is there a problem?

    Ai Group AGL Gas SummitThe American Club, Sydney Paul BalfeExecutive Director 12 July 2013
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