New gas sources needed as supply dries up

The southern states urgently require new sources of gas to fill a looming supply shortfall, consultancy ­EnergyQuest said.

Supply is reducing. Photographer: Brendon Thorne/Bloomberg via Getty Images

The southern states urgently require new sources of gas to fill a looming supply shortfall as production from offshore Victoria dries up, while revenue from the nation’s LNG exports fell 16 per cent to the end of August as a price crunch hit home, consultancy ­EnergyQuest said.

Offshore production from the Bass Strait is set to decline from 2023 while output from the Cooper Basin will fall away from 2026, raising concerns for users in Victoria, NSW, South Australia and Tasmania.

Even if Santos’s Narrabri coal-seam gas project in NSW proceeds, it will fail to offset declines from the two major gas sources.

“Additional gas supplies are urgently needed for the southern states, particularly Victoria, where gas is predominantly used for manufacturing and for commercial purposes such as restaurants and for home heating, cooking and hot water,” EnergyQuest chief executive Graeme Bethune said.

A raft of mooted LNG import projects dotted along the east coast “are the only means of securing supply sooner rather than later and at the necessary volume,” Mr Bethune said.

Forecasts from gas producers show several gas fields could end production from mid 2023 to mid 2024, the Australian Energy Market Operator says.

If they shutter supply sooner, southern states could face supply gaps in peak daylight hours as early as 2023 during winter, when average consumer demand is three times more than in summer.

Five import plants have been proposed, with two in NSW — the Andrew-Forrest backed Port Kembla facility and a South Korean-sponsored development in Newcastle — while in Victoria AGL Energy is battling planning delays for its Crib Point scheme on the Mornington Peninsula, with Viva Energy’s Geelong hub still in its infancy. Mitsubishi-backed Venice Energy also has plans for a South Australian project.

While the concept of Australia — the world’s largest LNG exporter — importing gas has been panned in some quarters, EnergyQuest said other big-producing countries such as the US, Indonesia and Malaysia also carry out the practice.

Transporting gas from the three Queensland LNG export plants at Gladstone down to Melbourne would be cheaper by LNG tanker than pipeline, according to EnergyQuest, although liquefaction costs need to be taken into consideration. It estimates a cost of 54c per gigajoule to ship LNG from Gladstone to AGL’s Crib Point, compared with $2.45 a gigajoule to move gas by pipeline from the Wallumbilla hub to Melbourne.

While liquefaction charges were likely to be $1.34 a gigajoule and regasification $1.43 a gigajoule, “LNG import terminals provide a virtual pipeline to large and competitive gas resources”, Mr ­Bethune said.

Falling Asian demand amid the COVID-19 pandemic and lower prices have also dented momentum for Australian LNG exports.

Australian LNG revenues fell 16 per cent for the eight months to the end of August compared with the same period in 2019, EnergyQuest said, while shipments in the six months from April fell 4 per cent. “While total Chinese LNG demand has grown, demand from Japan and Korea is down, leading to extended maintenance at some LNG projects,” it said.

“In a total context though a decline of 3.8 per cent is modest given the impact of COVID-19 on importing countries and the complexities of LNG production and shipping during a pandemic.”