Since the release of our first report in September 2017, we have seen a significant improvement in the gas supply outlook of the East Coast Gas Market. In contrast to the supply outlook in September 2017, which indicated a likely gas supply shortfall in 2018, the most recent gas supply outlook indicates that there will likely be sufficient gas for 2019. The improved supply outlook for 2019 compared to 2018 is primarily due to the following factors:
A significantly lower forecast by the Australian Energy Market Operator (AEMO) for gas consumption by gas powered generators (GPG) – from 176 petajoules (PJ) for 2018 to 88 PJ for 2019.
Higher aggregate production forecasts by producers in Victoria, including higher forecasts from Esso Australia and BHP Billiton as well as commencement of gas supply from Cooper Energy’s Sole Project – from 348 PJ for 2018 to 370 PJ for 2019.
Expected commencement of the flow of gas from the Northern Territory into the east coast following construction of the Northern Gas Pipeline later this year, which is expected to provide an additional 28 PJ in 2019.
Since our September 2017 report, there have also been a number of improvements in the operation of the East Coast Gas Market:
There are now more suppliers of gas active in the market. More producers, including the Queensland liquefied natural gas (LNG) producers, are actively selling gas domestically. The LNG producers have become more active due to a combination of factors, including completion of LNG plant testing and the commitment made to the Australian Government in the October 2017 Heads of Agreement.
At the retailer/aggregator level, new entrants in the market, such as Shell Energy Australia, are seeking to expand their presence. As a result, commercial and industrial (C&I) gas users are now more likely to receive offers from at least three retailers/aggregators.
Domestic price offers have reduced substantially and converged with export parity (LNG netback) prices at Wallumbilla. Prices offered for gas supply in 2019 are in the high-$8 to $11/GJ range. This is in stark contrast to prices offered in the first half of 2017, when domestic gas offers were significantly above LNG netback prices, peaking at offers as high as $22/GJ in March 2017.
There is increasing transparency around market operations, both in terms of commodity gas prices and gas transportation.
The ACCC has undertaken substantial work to monitor and report on both prices paid and offered in the market, and will soon commence publishing an LNG netback price series to address information asymmetry between gas suppliers and buyers.