Squeeze on gas as imports delayed: new LNG plant by late 2023

A delay in Australia’s first LNG import plant, owned by billionaire Andrew Forrest, could cause further tightness in gas supply for NSW and Victoria next year.

Andrew Forrest’s Port Kembla LNG import plant will start later than planned in 2023.

A delay in delivering the nation’s first LNG import plant, owned by billionaire Andrew Forrest, is set to tighten a gas supply squeeze in southern states by mid-2023 during peak winter demand.

The iron ore magnate is bankrolling NSW’s Port Kembla gas import plant, a project which was identified a year ago by the Australian Energy Market Operator as averting a near-term deficit by adding an extra 500 terajoules a day of gas into the domestic market ahead of the 2023 winter.

However, sources told The Australian the Port Kembla project would now start delivering supplies to customers by the end of 2023, missing the critical winter window next year when average consumer demand is three times more than summer.

AEMO warned last year “any failure or delay in commissioning the project” may lead to a 100TJ a day gap in Victoria, NSW and South Australia by 2023 during winter under extreme conditions.

While the Morrison government is fast-tracking a series of gas infrastructure projects to bring more supply to the domestic market, including Snowy Hydro’s Hunter gas plant, the absence of the big Port Kembla LNG import development is seen exacerbating an already tight market outlook over the next few years according to consultancy EnergyQuest.

“If Port Kembla misses the winter peak we would expect that the Victorian gas situation will be finely balanced, depending on the weather, the amount of gas in storage, capacity to supply gas from Queensland and performance of Victorian fields. Everything would need to go right,” EnergyQuest chief executive Graeme Bethune said.

“The main impacts would be for Victorian home heating and commercial and industrial use.”

AEMO is due to issue its 2022 annual gas outlook before the end of March which will take into account the Port Kembla delay while also factoring in a raft of other new sources of supply announced in the last year.

Höegh LNG's floating gas terminal will be used for LNG imports at Andrew Forrest's Port Kembla project in NSW.

The gas crunch has in large part been sparked by the rapid depletion of supply sources in Victoria’s offshore Gippsland Basin by mid-2023, a year earlier than the last forecast, although Exxon last week committed to bringing more gas to the market.

The Port Kembla plant, being developed by Mr Forrest’s Squadron Energy, could have hit the original mid-2023 target for first supplies but pulled back on the timeline given limited buyer appetite to take LNG cargoes next year.

It’s targeting completion sometime after October 2023, but several sources said it was expected to come online by the end of next year. AEMO and Squadron declined to comment.

Victoria’s supply situation also hinges on supplies being sent south from Queensland’s big LNG export plants, which are major contributors to domestic markets in addition to their foundation buyers in Asia.

The competition regulator in February warned that in the southern states a shortfall of 10 petajoules was expected this year and gas would need to be directed from the north to meet demand.

Consultancy EnergyEdge said any delay in Port Kembla would add to the uncertain situation, while noting that the large Iona gas storage facility in Victoria is currently 85 per cent full.

“Delaying Port Kembla will not help the situation,” Energy Edge managing director Josh Stabler said. “Given the sheer volume of LNG exported each day – 71 per cent of all east coast gas production during 2021 – the Victorian supply/demand balance remains highly dependent on the decisions of the three LNG participants. In terms of preparation for winter 2022, Iona gas storage is currently sitting at 85 per cent full and two more months of autumn to continue filling the storage facility, which also provides marginal support in terms of preparedness for winter 2023.”

In next week’s budget, the government will pour nearly $50m in grants to accelerate “priority gas infrastructure projects” to increase storage and deliver more supply to the southern states.

This includes APA Group’s Southwest Pipeline Expansion project to transport gas from Queensland to Victoria, along with support for the company’s proposed greenfield gas processing facility in Queensland’s Surat Basin.

Grants will also go to expand storage through Lochard Energy’s Heytesbury Underground Gas Storage Project in Victoria.

In the Northern Territory, the government will fund a feasibility study into the most efficient infrastructure to deliver gas from the Beetaloo basin to east coast markets. Australia’s east coast gas market has been crimped in the last few years due to Queensland LNG exports, onshore development restrictions, falling Bass Strait production and the increasing cost of bringing new domestic supplies to market.

Five LNG import plants are in the works in Australia with two in NSW – the Port Kembla facility and a South Korean-sponsored development in Newcastle.

Viva Energy’s Geelong hub is accelerating plans to sign off on its venture, Venice Energy also has plans for a South Australian project while Dutch oil storage giant Vopak is considering developing a terminal near Geelong.

APA will use a speech on Tuesday to again criticise Victoria’s plans for gas substitution in favour of electrification.

“Moving customers off gas too quickly could completely cripple industry, and risk the security of supply and affordability. The UK is a real world example where plans to electrify heating in homes is proving to be an expensive option with heat pumps almost three times the price of a gas boiler,” APA chief executive Rob Wheals will tell the Australian Domestic Gas Outlook conference.

“Significant focus on electrification in the near term will create a self-fulling prophecy that locks in an electrification pathway in the long term. Governments should not mandate particular approaches or rule out choices valued by consumers in achieving net-zero emissions.

“We must avoid the mistakes we’ve seen elsewhere, including in Europe where they’ve been forced to restart coal-fired generators amid a long and cold winter.”

Additional reporting: Greg Brown

Originally published as Squeeze on gas as imports delayed: new LNG plant by late 2023