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ACCC warns of precarious gas supplies on Australia's east coast

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2023-07-03

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Australia's east coast is treading a precarious path in meeting its domestic gas demand throughout 2024, with the grid relying on favourable weather conditions to stave off price spikes, according to the Australian Consumer and Competition Commission (ACCC).

Despite being one of the world's leading liquefied natural gas (LNG) exporters, the east coast is grappling with dwindling gas supplies and challenges in obtaining approvals for new projects amid mounting social pressure.

The ACCC's outlook sheds light on the vulnerable state of Australia's east coast gas market, where potential shortfalls in 2024 could drive up costs for households and businesses while potentially disrupting major manufacturers' operations.

ACCC Commissioner Anna Brakey cautioned, "If the LNG producers export all their currently uncontracted gas, we expect a surplus of 27 petajoules (PJ) on the east coast in 2024. However, if they only export their anticipated spot sales, the surplus could reach 90 PJ." The transport of this surplus gas across the east coast poses a challenge, particularly as southern states are projected to experience a shortfall. The ACCC emphasised the need for significant transport and storage capacity to deliver Queensland's surplus gas to these states.

Brakey further emphasised the influence of weather conditions on the gas market outlook, stating, "Weather and electricity market conditions have a strong influence on the amount of gas-fired generation we need in the energy mix, so the demand outlook remains somewhat uncertain. While the overall east coast is projected to have surplus gas next year, it is imperative that gas flows from Queensland to the southern states, and that there is enough storage for it."

However, the gas industry argues that the ACCC's report fails to address the structural challenges facing the east coast. The replenishment of gas storage during the summer months, when domestic demand is lower, becomes critical for the projected surplus to materialise.

In recent months, frequent interruptions in gas supplies have heightened risks for New South Wales and Victoria, which cannot afford any disruptions. These challenges persist despite APA Group's recent expansion of east coast gas pipelines.

Furthermore, the tightness in the gas market may worsen as traditional gas sources decline. ExxonMobil, a major domestic gas producer, has observed a rapid reduction in producing wells in the Gippsland Basin joint venture, historically responsible for supplying over 70% of gas demand in southeastern Australia. The number of producing wells is expected to decline from 122 in 2010 to 36 by winter 2024.

This structural deficit raises concerns about the future of Australia's east coast gas market. Development opportunities in New South Wales and Victoria have been curtailed, while unlocking potential gas supplies in Queensland and the Northern Territory would require new pipeline infrastructure. Additionally, recent government interventions to cap gas prices have deterred new projects, although concessions from the Labor party may incentivize developers to resume work.

State government policies are also poised to dampen domestic gas demand, with Victoria and the Australian Capital Territory aggressively promoting a shift away from gas by offering affordable financing options for households transitioning to electricity.

However, gas remains essential for manufacturers, and while many aspire to embrace renewable energy, widespread transition feasibility remains limited, particularly in the near future.

To address the impending gas supply shortfall, billionaire Andrew Forrest has proposed a gas import terminal in New South Wales. However, industry response has been lukewarm thus far. The looming gas supply deficit may renew interest in Forrest's Port Kembla LNG import terminal business, especially as power generators struggle to secure alternative supplies.

The ACCC's warning underscores the delicate balance between supply and demand in Australia's east coast gas market, with potential implications for consumers, manufacturers, and the broader energy landscape. 

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