Page 5 - GLNG Week 46

GLNG COMMENTARY GLNG
unit will be capable of meeting more than 80% of the state’s gas demand. The developer has said it expects to order a newbuild FSRU once regula- tory approvals have been secured. If the compa- ny’s FID timetable is met then the facility could be operational as early as 2022.
Another proposed FSRU-backed import project for NSW has run into some difficulty, however, with local buyers beginning to ques- tion the sense in signing up to long-term supply agreements.
Australian Industrial Energy (AIE) had orig- inally intended to begin first gas deliveries from its Port Kembla project in late 2020. However, AIE-backer Squadron Energy revealed this month that the company was struggling to win over potential buyers.
AIE is understood to be stepping up efforts to sign up Origin Energy, Australia’s biggest gas retailer, in a bid to get the project built. However, Squadron’s CEO, Stuart Johnson, refused to be drawn by Reuters on a proposed FID timeline fortheproject.Instead,hesimplysaidthefacility could begin delivering gas within 16 months of a decision.
Import projects have sprung up in response to predictions of a major gas shortage hitting the country’s south-east within the next 5-10 years.
Gas shortages
Energy consultancy Wood Mackenzie has warned in a new report that Australia’s East Coast market could experience a domestic gas supply shortfall by 2023, seven years ahead of a similar prediction made by the country’s energy regulator.
While the Australian Energy Market Opera- tor (AEMO) has repeatedly warned that the East Coast is on track to witness a shortfall, it does not envisage this happening until 2030.
Wood Mackenzie, however, believes the current oversupply in the global LNG market will evaporate by 2023, driving up international prices in the process. Oversupply has seen prices drop steeply over the past year, encouraging Aus- tralian export projects to divert gas from the spot market to local buyers.
“As such, with the East Coast market still con- tractually short of gas, there will be a call on gas contracted to or owned by the LNG projects. In turn, this could impact domestic prices,” Wood Mackenzie research director Nicholas Browne said.
Browne added that supply tightness was anticipated to lead to previously controversial upstream projects being given the green light.
He pointed to the Narrabri coal-bed methane (CBM) development in NSW as one such project ripe for development.
“Looking at first gas from 2023, we are fore- casting about 36 PJ [937.75mn cubic metres] per annum of gas production with potential of up to 73 PJ [1.9 bcm] per annum when it becomes fully operational,” Browne said. “This is timely as we expect a lower Gippsland Basin supply through the 2020s. Narrabri would have a sig- nificant impact on the balance of the southern gas markets and particularly New South Wales, which would become increasingly self-reliant.”
Yet Browne added that regardless of new domestic resources being brought into play, the East Coast would need to import LNG to meet demand by 2025 at the latest.
“We believe that a terminal in Victoria is more urgently required and would see higher utilisation than a terminal in New South Wales. But ultimately, if a terminal in New South Wales moves ahead first, this could also supply Victo- ria,sothereisaclearfirst-moveradvantage,”the analyst said.
What next
This scenario, however, makes no reference to the supply-side scenario should the Australian government decide to implement a national gas reservation scheme.
Western Australia has had a 15% reserve policy in place for years and in August, the fed- eral government said it would study the system for possible implantation at the national level. Queensland, meanwhile, has ringfenced a por- tion of all acreage awarded since 2015 for the domestic market.
As it stands, the Australian government is more likely than not to adopt some sort of system to ensure that domestic gas prices do not balloon too far. The political ramifications are too grave otherwise. The petroleum sector does not appear to be overly concerned with the possible public relations nightmare that building import termi- nals represents.
It can be difficult to rally an electorate in anger against something so ephemeral as high gas prices. How do you apportion blame? But simplify the concept, by presenting voters with a clear villain – gas imports – and suddenly it becomes much easier to win them to your cause. Elections have been won and lost on far less; which is why any government would be mad not to introduce a gas reserve policy.™
Week 46 21•November•2019 w w w . N E W S B A S E . c o m P5