East coast gas commitments fail to ease shortfall worries

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Producers of gas on the east coast have so far declared they have between 188 and 237 petajoules of uncontracted gas for sale over the next two years, but the disclosure has failed to eliminate worries about declining supply that could mean shortages next winter.

Woodside Energy, Shell and Santos were among at least six companies that on Monday published the volume of uncommitted gas they have available over the next 24 months, as required under the deadline given in the Albanese government’s new code of conduct for producers in the eastern states.

The figures are being watched with interest in the market as producers look to see what volumes their rivals declare, and as buyers contemplate how they use the information to gain leverage in contract negotiations.

East coast domestic gas demand – excluding LNG for export – is about 550PJ and government ministers said in June that producers had tentatively offered supply of at least 260PJ out to 2027 that would reduce the risk of shortfalls as assessed by the Australian Competition and Consumer Commission and the Australian Energy Market Operator.

“Those disclosures will be of great tactical interest to individual buyers and sellers, but it will be a little while before they tell us much about the market as a whole,” said Tennant Reed, director for climate change and energy at Ai Group.

“It will take everybody a bit of time to put all these pieces together. The government and the ACCC [Australian Competition and Consumer Commission] will be in a better position than the rest of us at least at first.”

The figures do not give a whole picture of the market, because it remains unclear how much gas has already been sold under long-term contracts for the next two years. It also excludes Origin Energy’s Australia Pacific LNG venture, which only intends to publish its figures on Tuesday, and Beach Energy, which had yet to declare its available gas but later said it had 56 PJ available across five different businesses.

Decisions on exemptions

One gas industry source said the information only provided “incremental transparency” to the market, and that the more significant pointers on how vulnerable the east coast is to potential supply squeezes remained the Australian Energy Market Operator and the ACCC.

They said the next pointer could be the quarterly assessment by Resources Minister Madeleine King, due by the end of this month, on whether the Australian Domestic Gas Security Mechanism – the government’s export control policy tool – should be triggered for the March quarter of 2023. She determined on June 30 that supply would be sufficient for this December quarter.

“I hope there is not a big backlog of customers hoping today would provide this incredible new set of information,” the gas executive said. “I suspect some customers may have been hanging out for this information.”

Industry sources also said that pending federal government decisions on exemptions for east coast producers to the $12 a gigajoule price cap add further uncertainty on the outlook for supply and prices.

Energy analyst Saul Kavonic said the disclosure highlighted more than 100PJ of uncontracted volumes over the next two years from non-Queensland producers that would seek exemptions.

“In effect this means around 40 per cent of the 260PJ supposedly ‘secured’ by the government over the next several years is not really additional supply at all,” he said.

“Labor’s gas price policy increasingly appears as though it will not have any meaningful impact on prices, despite all the damage it has caused to Australia’s reputation and investment environment.”

The publication of the information is intended to increase transparency in the troubled east coast gas market and strengthen the hand of gas buyers in their negotiations with producers on purchase contracts.

Woodside, one of the biggest producers of gas used within the east coast since its acquisition of BHP’s 50 per cent share of the Gippsland Basin joint venture, said it had 51PJ of gas uncontracted that was likely to be available over the next 24 months.

It would offer about 13PJ of that in an “expressions of interest” process in 2024. ExxonMobil, its partner in the venture, said it had 54PJ.

Shell gave a wide range of the uncontracted gas its QGC operation in Queensland has available, of between 64PJ and 113PJ, leaving uncertainty over how much would be on offer from one of the east coast’s biggest suppliers. It pointed to several variables that played into the range, including weather, plant outages, land access and flexible demand from LNG customers.

Steep decline in output

Santos gave a figure of 11.8PJ and junior Cooper Energy of 7.2PJ, while the Santos-managed GLNG venture in Queensland said it would not have any extra gas over and above its contracts.

Adding tension to the outlook is the steep decline in output from the Bass Strait. Production slumped 34 per cent in the June quarter from 12 months earlier, according to research firm EnergyQuest.

Gas industry sources said the declarations did not change the outlook for a worsening shortfall of gas on the east coast later this decade.

AEMO warned in March that within three years, LNG exporters on the east coast may have to break into long-term sales contracts with Asian customers to prevent domestic customers running short amid declining Bass Strait output and slow investment in new fields.

“It doesn’t increase the supply of gas. It doesn’t deal with the fundamental issue, which is the availability of gas,” one executive said, pointing to a “complete mismatch” in the trajectory of the supply and demand curves on the east coast.

Source: Financial Review