Keep gas plants on the frontburner

Proposed LNG import plants are still needed to meet a forecast supply gap on the nation’s east coast, says Rystad Energy.

Australia’s proposed LNG import plants were still needed to meet a forecast supply gap on the nation’s east coast despite the current dynamic of growing supplies and falling prices, consultancy Rystad Energy said.

Wholesale gas prices have fallen by a third and averaged under $6 a gigajoule in February for Victoria and NSW, potentially undermining the economics of gas import projects that are offering imported fuel to buyers in the $10 to $12 per gigajoule range.

However, Rystad pointed to official forecasts for gas shortages in southern states on peak demand days from 2023 as production from big offshore fields started to dwindle.

Short-term ructions from COVID-19 had not changed the overall need for new sources of supply, it said.

“Gas demand doesn’t appear to have been significantly impacted by the virus yet, with no massive reductions in demand,” Rystad Energy senior analyst Daniel Levy said. “Even if that does occur in the coming months, it’s unlikely to persist out until 2022 when the terminals would be due to start up.”

Four separate developers, including AGL Energy in Victoria and the Andrew Forrest-backed AIE in NSW, are working to open Australia’s LNG import terminals targeting east coast gas markets amid a backdrop of expected gas shortfalls as supplies fall from the Bass Strait.

Oil giant ExxonMobil in December canned the development of a gas import terminal in Victoria, blaming a lack of interest from customers to sign long-term contracts. The economics of projects should remain sound, given estimates by the Australian Energy Market Operator for shortfalls on peak demand days.

“The impact of the current market will make LNG imports more necessary,” Mr Levy said.

A shortage is forecast for the east coast of 90 billion cubic feet of gas by 2024, which will grow to 600bcf in 2030, according to Rystad estimates, with the supply gap growing further as Northern Territory shale gas projects were likely delayed.

The crimped markets on the eastern seaboard are due to Queensland LNG exports, onshore development restrictions, falling offshore production and the higher cost of bringing new Australian gas supplies to market.

A move by the Victorian government to lift a ban on onshore exploration won’t come into effect until July 2021, meaning any supply from sources such as the Otway Basin are unlikely to be ­developed in time.