The latest ACCC gas report has highlighted the ongoing dysfunction of the East Coast Gas market, with prices for large users running well above the ACCC’s preferred benchmark of LNG netback pricing.
Existing government interventions to improve market dynamics by forcing LNG exporters to prioritise supplying the domestic market have evidently had little impact. User groups continue to call for greater diversity of supply to improve competition.
So where will this new supply come from? The table below shows the most recent additions and the likeliest sources over the next two years:
Table 1: East coast gas new supply sources
Source: ACCC report July 2020, producer/proponent websites
As can be seen, the largest impact on supply/demand come from two long-held acreages: Arrow’s Surat Basin and Santos’s Narrabri project or from the three proposed LNG import terminals.
Output from the Arrow project is contracted to QCLNG, so is effectively earmarked for export. At best it may displace other supplies into the domestic market. The Narrabri saga continues after over a decade of Santos effort to develop it and is still going through the planning and environmental approval process.
The NSW government has agreed with the Commonwealth that it will make every effort to deliver at least 70 PJ new supply to the domestic market by 2022. This effectively means either the Narrabri project or one of the NSW LNG import terminal proposals.
The extent to which these projects crowd each other out (i.e. is there the market to support all of them) is yet to be seen. But the challenges of flowing gas south into NSW or Victoria from Queensland supply means local supply has greater value in those states.
Recent releases of new acreage in Queensland come with a commitment to supply the gas to domestic users, such as the Atlas project. Senex’s small Gemba project is also supplying into the domestic market as the offtaker is ENGIE’s Pelican Point gas fired power station.
Unfortunately, the oil price crash and the operational challenges of COVID-19 restrictions have led to a hiatus in other new potential supply projects, including Beach’s drilling activity in the Otway basin and proposed NT exploration in the Amadeus and Betaloo basins. NT gas can now find its way into the east coast market via Jemena’s Northern Gas Pipeline, and there is still spare capacity on this pipeline.
Overall, the range of different proponents on these new and prospective sources is good news for gas users, bit there’s still some way to go for them to reap the benefits of increased competition.