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Paul Balfe, Executive Director, ACIL Allen Consulting delivered this presentation at the East Coast Gas Outlook conference. The event brings together industry professionals and government representative to discuss opportunities and options to secure gas supply on the east coast of Australia. For more information, please visit the conference website: http://www.informa.com.au/eastcoastgasconference.
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Gas Supply & Demand Outlook for
Eastern Australia
East Coast Gas Outlook Conference Sydney Harbour Marriott Hotel
Paul Balfe
Executive Director
21 October 2013
Topics
• Eastern Australia gas demand outlook
– The transition to LNG exports
– Changing face of domestic gas demand
• The supply situation
– Current gas supply sources
– New conventional sources
– CSG
– “Unconventional” gas: shale gas, tight gas
• Price implications
East Coast Gas Outlook Conference 2
Topics
• Eastern Australia gas demand outlook
– The transition to LNG exports
– Changing face of domestic gas demand
• The supply situation
– Current gas supply sources
– New conventional sources
– CSG
– “Unconventional” gas: shale gas, tight gas
• Price implications
East Coast Gas Outlook Conference 3
Back in 2010 - Eastern Australia
domestic gas demand outlook
• A carbon price corresponding to CRPS -5% could
see 1,000 PJ/a gas-for-powergen by 2030 …
… but in the absence of carbon pricing, gas-for-
powergen falls to 400 PJ/a in 2030
East Coast Gas Outlook Conference Slide 4
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Gas
Co
nsu
mp
tio
n (
PJ/
a)
Total
Electricity
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Gas
Co
nsu
mp
tio
n (
PJ/
a)
Total
Electricity
Eastern Australia domestic
gas demand outlook, NOW
• Domestic demand is now falling and looks unlikely to return to current levels for at least 20 years!!
East Coast Gas Outlook Conference Slide 5
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8002
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Ga
s co
nsu
mp
tion
PJ/
a
QLD NSW VIC SA TAS ACT
Why is domestic demand
collapsing?
• A Perfect Storm:
– Competing demand from LNG Projects • Driving rising gas prices
– Manufacturing industry declining • Strong A$; declining competitiveness
• Manufacturing closures affect direct gas demand and indirect gas demand (via electricity)
– NEM electricity demand falling • With gas-fired electricity generation most heavily affected
– C-tax low to zero; rising gas prices; low electricity pool prices; black & brown coal running hard (no Contract for Closure); RET-driven renewables keep coming in
• No new entrant base load plant before 2020
East Coast Gas Outlook Conference 6
Domestic gas demand
outlook, by sector
East Coast Gas Outlook Conference 7
0
100
200
300
400
500
600
700
800
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
PJ/aResidential/Commercial Small Industrial Large Industrial Electricity generation
Contraction in the NEM
• Energy in the NEM turned the corner in 2008 – Sustained decline is without precedent in the history of the industry
– Energy reduction from 2008-09 to 2012-13 = 13,400 GWh (scheduled and semi-scheduled basis as generated)
– Equivalent to a 1,800 MW generator @ 85% capacity factor
• Why? – Weak manufacturing/strong A$; renewables (wind/roof top solar); demand
response to rising prices
Source: ACIL Allen based on AEMO data
1.4% 0.7% 0.7% -0.8% -1.2% -2.1% -2.6%
-3.0%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
0
50,000
100,000
150,000
200,000
250,000
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
En
erg
y G
Wh
as g
en
era
ted
Scheduled and semi-scheduled
NSW1 QLD1 SA1 TAS1 VIC1
Minus 6.7%
Slide 8 East Coast Gas Outlook Conference
Projected NEM generation mix
• Resurgence of coal generation due to repeal of C- tax – Black coal output up 17% in 2020 compared with 2013
– Brown coal output up 5%
• Natural gas < 9,000 GWh in 2020 – Wholesale gas costs and wind suppression
Black coal53.2%
Brown coal24.0%
Hydro8.7%
Natural gas12.0%
Solar0.0%
Wind2.1%
2013
Black coal56.9%
Brown coal23.1%
Hydro7.8%
Natural gas3.8%
Solar0.2%
Wind8.3%
2020
0
50,000
100,000
150,000
200,000
250,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
GW
h a
s g
en
era
ted
Black coal Brown coal Hydro Natural gas Solar Wind
2013
2020
Forecast
Slide 9 East Coast Gas Outlook Conference
But TOTAL EA gas demand
is growing strongly …
• LNG exports will see total gas consumption in EA more than triple by 2030
East Coast Gas Outlook Conference Slide 10
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Ga
s co
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mp
tion
PJ/
a
QLD NSW VIC SA TAS ACT LNG
Australia’s LNG
construction boom
East Coast Gas Outlook Conference
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LNG Capacity (mtpa)
Australia LNG Production:
Existing, Committed & All ProposedArrow 2
Arrow 1
Timor Sea LNG
Sunrise
Bonaparte
Scarborough
Pluto 3
Browse
Pluto 2
Prelude
Ichthys
Wheatstone
APLNG 2
APLNG 1
GLNG 2
GLNG 1
QCLNG 2
QCLNG 1
Gorgon
Pluto 1
Darwin LNG
NWS
Committed
11
Source: ACIL Allen compilation of public data
Topics
• Eastern Australia gas demand outlook
– The transition to LNG exports
– Changing face of domestic gas demand
• The supply situation
– Current gas supply sources
– New conventional sources
– CSG
– “Unconventional” gas: shale gas, tight gas
• Price implications
East Coast Gas Outlook Conference 12
EA Production history
East Coast Gas Outlook Conference 13
Source: ACIL Allen analysis of APPEA data
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
NSW CSG 1 1 1 2 2 3 4.5 5.1 5.5 4.8 5.9 5.8 5.9
Qld GSG 5.6 9.5 16.2 27.4 29.5 36.4 63.2 86.2 125.1 150.9 212.0 233.5 268.7
Otway/Bass 21.7 17.4 24.4 23.8 16.2 52.2 76.0 85.3 129.5 136.7 129.9 126.7 121.2
Bowen/Surat 22.5 22.5 23.1 24.9 26.7 25.7 28.2 46.4 52.7 9.7 14.8 10.7 3.2
Amadeus 19.0 18.1 18.8 19.4 18.4 20.5 20.4 30.1 19.7 18.7 3.1 1.8 4.2
Gippsland 182.3 222.6 213.5 223.7 259.9 241.8 238.2 289.6 290.3 224.3 239.5 235.5 262.4
Cooper/Eromanga 277.5 278.2 276.7 258.5 209.3 200.6 174.7 135.0 139.0 137.9 115.4 116.1 119.7
0
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800
900
Pro
du
cti
on
(P
J)
Where will new gas come
from? • Conventional:
– Bass Strait (Gippsland, Otway, Bass Basins) • eg Kipper/Tuna/Turrum; Halladale/Blackwatch; Rockhopper
• CSG – Queensland: best of the resource is LNG committed; marginal
production economics???
– NSW: major resources but little recent progress – bogged down with policy/approvals issues and public opposition to development
• Missed the boat?
• “Unconventional” (Shale gas, tight gas) – For EA most promising is Cooper Basin tight/shale gas
• Encouraging technical results
• Large in situ resource established – Some “wet gas”
• Early commercialisation under way (eg Moomba 191)
• Cost structure/economics?? No cheap gas without associated liquids
East Coast Gas Outlook Conference 14
Topics
• Eastern Australia gas demand outlook
– The transition to LNG exports
– Changing face of domestic gas demand
• The supply situation
– Current gas supply sources
– New conventional sources
– CSG
– “Unconventional” gas: shale gas, tight gas
• Price implications
East Coast Gas Outlook Conference 15
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
East Coast Gas Outlook Conference 16
Brisbane
Gladstone
Moranbah
Townsville
Newcastle
Sydney
Hobart
Melbourne
Adelaide
Mount Isa
Bowen CSG
Surat CSG
Gunnedah CSG
Sydney CSG
Ballera
Iona
Lang LangLongford
Orbost
WallumbillaMoomba
Gladstone CSG
LNG plantsQueensland
New South Wales
South Australia
Victoria
Tasmania
Northern Territory
Wholesale gas prices:
Brisbane STTM
East Coast Gas Outlook Conference
AEMO data
17
$0
$2
$4
$6
$8
$10
$12
Sep
2010
Oct 2
010
No
v 2
010
Dec 2
010
Jan
2011
Feb 2
011
Mar 2011
Ap
r 2011
May 2
011
Jun
2011
Jul 2
011
Aug
2011
Sep
2011
Oct 2
011
No
v 2
011
Dec 2
011
Jan
2012
Feb 2
012
Mar 2012
Ap
r 2012
May 2
012
Jun
2012
Jul 2
012
Aug
2012
Sep
2012
Oct 2
012
No
v 2
012
Dec 2
012
Jan
2013
Feb 2
013
Mar 2013
Ap
r 2013
May 2
013
Jun
2013
Ex-p
ost p
rice ($/G
J)
Brisbane 28 per. Mov. Avg. (Brisbane)
• Spot prices are
moving up ahead of
LNG start-up
• No apparent price
suppression from
“ramp gas”
Wholesale gas prices:
Sydney STTM
East Coast Gas Outlook Conference
AEMO data
18
$0
$2
$4
$6
$8
$10
$12 S
ep
2010
Oct 2
010
No
v 2
010
Dec 2
010
Jan
2011
Feb 2
011
Mar 2011
Ap
r 2011
May 2
011
Jun
2011
Jul 2
011
Aug
2011
Sep
2011
Oct 2
011
No
v 2
011
Dec 2
011
Jan
2012
Feb 2
012
Mar 2012
Ap
r 2012
May 2
012
Jun
2012
Jul 2
012
Aug
2012
Sep
2012
Oct 2
012
No
v 2
012
Dec 2
012
Jan
2013
Feb 2
013
Mar 2013
Ap
r 2013
May 2
013
Jun
2013
Ex-p
ost p
rice ($/G
J)
Sydney 28 per. Mov. Avg. (Sydney)
• The rising spot price
trend is apparent in
NSW …
Wholesale gas prices:
Victorian Spot Market
East Coast Gas Outlook Conference
AEMO data
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10.00
Jan 2
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Feb
2010
Mar
2010
Ap
r 2010
May 2
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Jun 2
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Jul 2
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Aug
2010
Sep
2010
Oct 2010
No
v 2
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Dec 2
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Jan 2
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Feb
2011
Mar
2011
Ap
r 2011
May 2
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Jun 2
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Jul 2
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Aug
2011
Sep
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Oct 2011
No
v 2
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Dec 2
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Jan 2
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Feb
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Ap
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May 2
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Jul 2
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Oct 2012
No
v 2
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Dec 2
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Jan 2
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Feb
2013
Mar
2013
Ap
r 2013
May 2
013
Jun 2
013
Withd
raw
als
(TJ/d
)
Price ($/G
J)
Withdrawals (TJ)
Market Price ($/GJ)
28 per. Mov. Avg. (Market Price ($/GJ))
… and also in Victoria
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
Sep
2010
Oct 2
010
No
v 2
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Jan
2011
Feb 2
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Mar 2011
Ap
r 2011
May 2
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Jul 2
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Aug
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Sep
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Oct 2
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Dec 2
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Jan
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Mar 2012
Ap
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Aug
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Jan
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Mar 2013
Ap
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May 2
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Aug
2013
Ex-p
ost p
rice ($/G
J)
Adelaide 28 per. Mov. Avg. (Adelaide)
Wholesale gas prices:
Adelaide STTM
East Coast Gas Outlook Conference
AEMO data
20
… and in Adelaide
Future price risk
East Coast Gas Outlook Conference 21
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
Indicative wholesale gas
price $/GJBase Supply
Low Supply
High Supply
No spike
Long-term settlement prices: indicative only
Will a “price bubble” emerge? How high? How long?
How would a supply/price
squeeze affect the market?
• Supply shortages – In the absence of new sources of gas supply, there is a risk that current
levels of domestic gas consumption will not be able to be maintained in the future
• Prices rise – effectively rationing demand to those customers best able to pay higher
prices
• Loss of gas-consuming industry – 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)
• Less gas-fired electricity generation – Reduced dispatch of gas-fired electricity generators will see increased
dispatch of existing coal-fired plant
East Coast Gas Outlook Conference 22
Response options • 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
East Coast Gas Outlook Conference 23
Demand is effectively
locked in …
QCLNG Project – June 2013
Issues for gas users
• Supply risk – Risk to adequacy of supply greatest during
the period of LNG commissioning & ramp-up 2014 – 2016
– Risk around future performance of CSG fields
• Price risk – Prices trending upward now
– “Price bubble”?
• Re-contracting risk – Lock in now or later? For how long? Cost
of flexibility?
East Coast Gas Outlook Conference 24
Gas Supply & Demand Outlook for
Eastern Australia
East Coast Gas Outlook Conference Sydney Harbour Marriott Hotel
Paul Balfe
Executive Director
21 October 2013
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