Supply fears as southern gas goes to Gladstone LNG plants

Offshore Victorian gasfields have been consistently sending gas north to Gladstone’s LNG plants over the past year.

The Santos operations in Moomba, South Australia.

Offshore Victorian gasfields run by ExxonMobil and BHP Billiton have been consistently sending gas north to Gladstone’s LNG plants over the past year as big onshore gas resources in Queensland and NSW remain undeveloped and concerns grow about domestic gas supplies.

While the gas exploration moratoriums and hurdles of the Victorian and NSW government are firmly in the sights of gas producers and users, the latest data from the Australian Energy Market Operator shows that since the start of last year, other than on a few occasions, gas has been moving north from Victoria through NSW and central Australia and up to Gladstone.

The draw on southern gas supplies comes as concern about a ­potential shortfall and high prices grows among big domestic users, and as the nation’s biggest undeveloped onshore resource — owned by the Arrow joint venture between Shell and PetroChina — shows no signs of progress.

Analysis of AEMO data by The Australian shows that since the start of last year, gas from Victoria and the Cooper Basin gasfields have flowed consistently north through the Moomba gas hub in South Australia near the Queensland border, draining southern gas supplies and forcing southern domestic buyers to compete with export plants.

The 2016 gas flows show that demand from Queensland’s LNG export plants is outstripping that state’s supply and successfully competing with southern domestic users who are complaining of an inability to access gas at a reasonable price. This is despite Queensland having more undeveloped gas resources than NSW and Victoria, where the industry has been calling for more supply, citing restrictive state government policies.

Gas has headed from Moomba to Adelaide in the past two months, but this appears to be mainly excess Victorian summer gas that has come into Moomba via NSW while Queensland remains short of gas. The Moomba hub connects Queensland with the gas markets of South Australia, NSW and Queensland.

There is also pressure developing on joint marketing of Bass Strait gas from Exxon and BHP, which are profiting from a lack of Queensland gas development, the reluctance of NSW to develop its proven onshore gas reserves and a Victorian gas ban that prevents exploration to test whether the state has significant onshore gas.

It is understood the Australian Competition & Consumer Commission, which last year said it planned to investigate the joint marketing of the pair’s Gippsland Basin joint venture, is in the midst of a review and has been taking submissions from industry.

ACCC commissioner Roger Featherston said the joint marketing was being investigated after a year-long review of gas markets that had also recommended states consider gas developments case by case, rather than applying moratoria, and that gas pipeline regulations be tightened.

“There seems to be limited gas available to the domestic market, and more concerning, with respect to Victoria, is that the sources of supply were becoming more and more limited to the Gippsland Basin joint venture, which meant they have more and more power in terms of their ability to control the supply of gas to domestic customers,” Mr Featherston told The Australian.

“The allegation we are investigating is whether their marketing JV is an agreement that substantially lessens competition.”

A counterargument expected to be run by the venture is that having separate marketing may leave the pair unaligned on how quickly they can bring supply to the market and therefore may delay more development.

The Arrow joint venture between Shell and PetroChina was originally slated as a separate LNG project, but it is now seen as supply for shortfalls in the three LNG plants built at Gladstone in recent years at a cost of $70 billion.

It has proven and probable coal-seam gas reserves of about 9 trillion cubic feet, according to the ACCC, which is more than the 7 trillion cubic feet of recoverable gas that Exxon says remains in Bass Strait.

Shell has flagged development through its QCLNG plant at Gladstone, which it acquired with BG Group last year, but it is believed that alignment with PetroChina and fellow state-owned QCLNG partner CNOOC is taking time.

While NSW has proven gas projects which have been slowed down because of local, environmental and political concerns — namely the Santos-run Narrabri CSG project — Victoria’s onshore gas resources are less certain.

There is the potential for onshore gas in the Otway and Gippsland Basins, although this was not tested before the state Liberal government banned fracking in 2012 and the Andrews Labor government followed this up with a ban on all onshore oil drilling, even if fracking was not involved.

It is not all upward pressure on southern states gas users, at least at the retail level.

Gas distributor Australian Gas Networks this month said 650,000 households and small businesses connected to natural gas in Victoria and Albury would receive annual cuts of $40 to $180 in their bills, after submitting its final plan to the Australia Energy Regulator.

AGN was known as Envestra before it was taken over by Cheung Kong Group in 2014.