Race on to Boost Gas Supply to Australia's East Coast

A pipeline across Australia and gas imports from as far away as the United States are on the drawing board as the country races to plug a domestic supply gap that is driving up east coast gas prices and threatening jobs. (Reuters Photo/Rebekah Kebede)

By : Sonali Paul | on 11:00 PM May 22, 2018
Category : International, Asia-Pacific

Melbourne. A pipeline across Australia and gas imports from as far away as the United States are on the drawing board as the country races to plug a domestic supply gap that is driving up east coast gas prices and threatening jobs.

Although Australia is the world's No. 2 liquefied natural gas exporter, much of its east coast gas is tied up in long-term export contracts while mainstay supplies in the populated southeast are drying up more quickly than expected.

Imports will be needed within four years, warn industry executives and experts, which means gas prices that have more than doubled in the past three years aren't going to fall and could even rise another 50 percent to match global spot prices.

"Some people still find the import of LNG to what is meant to be an energy superpower absurd, and they have a point, it does seem very weird," said Tennant Reed, national public policy adviser at the Australian Industry Group.

The government is under fire from angry household gas users and industry, particularly big gas users such as petrochemical and fertilizer manufacturers which have warned that high prices are making some businesses uncompetitive.

Coal seam gas from Queensland, which now supplies around 30 percent of the east coast market, costs around A$6 ($4.50) a gigajoule (GJ) to produce, then has to be piped at a cost of around A$1.85 to A$2.45 per GJ, which has driven up gas prices to well above A$8.

Shortages will grow from 2022 due to a steep output decline in the main gas field that has supplied southern Australia for five decades, the Australian Energy Market Operator has warned.

In the longer term, gas is expected to flow from developments around the country, including more coal seam gas from Queensland, new finds off the coast of Victoria, and shale gas from the Northern Territory, but these are years from development.

Ship or Pipe

The near term answer is to import LNG, either from west to east or from offshore.

"Some imports will be necessary," said Graeme Bethune, chief executive of advisory firm EnergyQuest.

At least two groups – AGL Energy and a consortium led by iron ore mining tycoon Twiggy Forrest – are looking to import LNG to eastern Australia to meet demand from around 2021.

Woodside Petroleum and Chevron Corp, the two big LNG producers in Western Australia, have expressed interest in supplying AGL's proposed floating storage and regasification facility.

LNG could also come from fields in Papua New Guinea and Indonesia to the country's north or from as far away as the United States, where the country's shale boom has led to gas exports, Bethune said.

The government, meanwhile, is studying the feasibility of building a A$5 billion, 4,000-kilometer pipeline from Western Australia.

Consultants Rystad Energy estimated gas could be delivered by pipeline from west to east for around A$7.50 a GJ in 2023, well below imported LNG, which it estimated would cost A$12.90, including regasification costs, by then.

But industry executives say a pipeline could only be built with government subsidies, given the huge cost.

"You can ship Australian gas around to the east coast a hell of a lot cheaper than building a pipeline from the Pilbara to Moomba [in South Australia]," Santos chief executive Kevin Gallagher told reporters this month.

Projects to Come

There are plenty of other projects in the pipeline.

"I think you'll start to see the upstream industry responding to higher prices," said Beach Energy chief executive Matt Kay, whose company is looking to beef up production in South Australia and possibly offshore Victoria.

Shale gas in the Northern Territory, which recently lifted a ban on fracking, is seen as a potential powerhouse source, but experts say it will take at least seven years to develop.

Royal Dutch Shell and PetroChina could bring on new coal seam gas in Queensland from their Arrow Energy joint venture, but have yet to hit the go button, and the output may end up in north Asia to fulfil export contracts.

Santos wants to develop a huge coal seam gas project at Narrabri in outback New South Wales state, but has yet to get state approval as it battles opposition from green groups.

But even if any of those start producing within the next five years, their high costs are unlikely to drive down prices.

Reuters

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