Paul Balfe, ACIL Allen Consulting: Reviewing Gas Demand and Supply Outlook for Eastern Australia
 

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Paul Balfe, Executive Director, ACIL Allen Consulting delivered this presentation at the East Coast Gas Outlook conference. The event brings together industry professionals and government ...

Paul Balfe, Executive Director, ACIL Allen Consulting delivered this presentation at the East Coast Gas Outlook conference. The event brings together industry professionals and government representative to discuss opportunities and options to secure gas supply on the east coast of Australia.

For more information, please visit the conference website: http://www.informa.com.au/eastcoastgasconference.

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Paul Balfe, ACIL Allen Consulting: Reviewing Gas Demand and Supply Outlook for Eastern Australia Presentation Transcript

  • 1. Gas Supply & Demand Outlook for Eastern Australia East Coast Gas Outlook Conference Sydney Harbour Marriott Hotel Paul Balfe Executive Director 21 October 2013
  • 2. Topics • Eastern Australia gas demand outlook – The transition to LNG exports – Changing face of domestic gas demand • The supply situation – Current gas supply sources – New conventional sources – CSG – “Unconventional” gas: shale gas, tight gas • Price implications East Coast Gas Outlook Conference 2
  • 3. Topics • Eastern Australia gas demand outlook – The transition to LNG exports – Changing face of domestic gas demand • The supply situation – Current gas supply sources – New conventional sources – CSG – “Unconventional” gas: shale gas, tight gas • Price implications East Coast Gas Outlook Conference 3
  • 4. Back in 2010 - Eastern Australia domestic gas demand outlook 2,000 2,000 1,800 Total Electricity 1,600 Electricity 1,400 1,200 1,000 800 600 Gas Consumption (PJ/a) Total 1,600 1,400 1,200 1,000 800 600 400 200 200 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 400 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Gas Consumption (PJ/a) 1,800 • A carbon price corresponding to CRPS -5% could see 1,000 PJ/a gas-for-powergen by 2030 … … but in the absence of carbon pricing, gas-forpowergen falls to 400 PJ/a in 2030 East Coast Gas Outlook Conference Slide 4
  • 5. Eastern Australia domestic gas demand outlook, NOW QLD NSW VIC SA TAS ACT Gas consumption PJ/a 800 700 600 500 400 300 200 100 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 0 • Domestic demand is now falling and looks unlikely to return to current levels for at least 20 years!! East Coast Gas Outlook Conference Slide 5
  • 6. Why is domestic demand collapsing? • A Perfect Storm: – Competing demand from LNG Projects • Driving rising gas prices – Manufacturing industry declining • Strong A$; declining competitiveness • Manufacturing closures affect direct gas demand and indirect gas demand (via electricity) – NEM electricity demand falling • With gas-fired electricity generation most heavily affected – C-tax low to zero; rising gas prices; low electricity pool prices; black & brown coal running hard (no Contract for Closure); RET-driven renewables keep coming in • No new entrant base load plant before 2020 East Coast Gas Outlook Conference 6
  • 7. Domestic gas demand outlook, by sector PJ/a 800 Residential/Commercial Small Industrial Large Industrial Electricity generation 700 600 500 400 300 200 100 East Coast Gas Outlook Conference 2030 2029 2028 2027 2026 2025 2024 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 0 7
  • 8. Contraction in the NEM Scheduled and semi-scheduled 250,000 1.4% 0.7% 0.7% -0.8% 1.5% -1.2% 200,000 Energy GWh as generated 2.0% -2.1% -2.6% 1.0% Minus 6.7% 0.5% 150,000 0.0% -0.5% 100,000 -1.0% -1.5% 50,000 -2.0% -2.5% 0 Source: ACIL Allen based on AEMO data -3.0% 2005-06 2006-07 2007-08 NSW1 2008-09 QLD1 SA1 2009-10 TAS1 2010-11 2011-12 2012-13 VIC1 • Energy in the NEM turned the corner in 2008 – Sustained decline is without precedent in the history of the industry – Energy reduction from 2008-09 to 2012-13 = 13,400 GWh (scheduled and semi-scheduled basis as generated) – Equivalent to a 1,800 MW generator @ 85% capacity factor • Why? – Weak manufacturing/strong A$; renewables (wind/roof top solar); demand response to rising prices East Coast Gas Outlook Conference Slide 8
  • 9. Projected NEM generation mix • Resurgence of coal generation due to repeal of C- tax – Black coal output up 17% in 2020 compared with 2013 – Brown coal output up 5% • Natural gas < 9,000 GWh in 2020 – Wholesale gas costs and wind suppression 2013 2013 Wind Natural gas Solar 0.0% 2.1% 12.0% Hydro 8.7% Black coal 53.2% Brown coal 24.0% Forecast 250,000 GWh as generated 200,000 2020 2020 Natural gas 3.8% Hydro 7.8% 150,000 Solar 0.2% Wind 8.3% 100,000 Brown coal 23.1% Black coal 56.9% 50,000 0 2006 2007 2008 2009 Black coal 2010 2011 Brown coal 2012 Hydro 2013 2014 Natural gas 2015 Solar 2016 2017 2018 2019 2020 Wind East Coast Gas Outlook Conference Slide 9
  • 10. But TOTAL EA gas demand is growing strongly … QLD NSW VIC SA TAS ACT LNG Gas consumption PJ/a 3000 2500 2000 1500 1000 500 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 0 • LNG exports will see total gas consumption in EA more than triple by 2030 East Coast Gas Outlook Conference Slide 10
  • 11. Australia’s LNG construction boom Australia LNG Production: Existing, Committed & All Proposed LNG Capacity (mtpa) Arrow 2 Arrow 1 Timor Sea LNG 140 Sunrise Bonaparte 120 Scarborough Pluto 3 Browse 100 Pluto 2 Prelude 80 Ichthys Wheatstone APLNG 2 60 APLNG 1 GLNG 2 40 GLNG 1 QCLNG 2 QCLNG 1 20 Gorgon Pluto 1 Source: ACIL Allen compilation of public data East Coast Gas Outlook Conference 2030 2029 2028 2027 2026 2025 2024 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 0 Darwin LNG NWS Committed 11
  • 12. Topics • Eastern Australia gas demand outlook – The transition to LNG exports – Changing face of domestic gas demand • The supply situation – Current gas supply sources – New conventional sources – CSG – “Unconventional” gas: shale gas, tight gas • Price implications East Coast Gas Outlook Conference 12
  • 13. EA Production history 900 800 700 Production (PJ) 600 500 400 300 200 100 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 NSW CSG 1 1 1 2 2 3 4.5 5.1 5.5 4.8 5.9 5.8 5.9 Qld GSG 5.6 9.5 16.2 27.4 29.5 36.4 63.2 86.2 125.1 150.9 212.0 233.5 268.7 Otway/Bass 21.7 17.4 24.4 23.8 16.2 52.2 76.0 85.3 129.5 136.7 129.9 126.7 121.2 Bowen/Surat 22.5 22.5 23.1 24.9 26.7 25.7 28.2 46.4 52.7 9.7 14.8 10.7 3.2 Amadeus 19.0 18.1 18.8 19.4 18.4 20.5 20.4 30.1 19.7 18.7 3.1 1.8 4.2 Gippsland 182.3 222.6 213.5 223.7 259.9 241.8 238.2 289.6 290.3 224.3 239.5 235.5 262.4 Cooper/Eromanga 277.5 278.2 276.7 258.5 209.3 200.6 174.7 135.0 139.0 137.9 115.4 116.1 119.7 Source: ACIL Allen analysis of APPEA data East Coast Gas Outlook Conference 13
  • 14. Where will new gas come from? • Conventional: – Bass Strait (Gippsland, Otway, Bass Basins) • eg Kipper/Tuna/Turrum; Halladale/Blackwatch; Rockhopper • CSG – Queensland: best of the resource is LNG committed; marginal production economics??? – NSW: major resources but little recent progress – bogged down with policy/approvals issues and public opposition to development • Missed the boat? • “Unconventional” (Shale gas, tight gas) – For EA most promising is Cooper Basin tight/shale gas • Encouraging technical results • Large in situ resource established – Some “wet gas” • Early commercialisation under way (eg Moomba 191) • Cost structure/economics?? No cheap gas without associated liquids East Coast Gas Outlook Conference 14
  • 15. Topics • Eastern Australia gas demand outlook – The transition to LNG exports – Changing face of domestic gas demand • The supply situation – Current gas supply sources – New conventional sources – CSG – “Unconventional” gas: shale gas, tight gas • Price implications East Coast Gas Outlook Conference 15
  • 16. Interconnected East Coast Gas Market • Previously separated geographic markets now interconnected • Producers have options where they sell • Producers will seek the best prices for their products • Price trends are reflected throughout the interconnected market Townsville Northern Territory Mount Isa Moranbah Gladstone CSG LNG plants Queensland Gladstone Bowen CSG Surat CSG Ballera Wallumbilla Moomba Brisbane New South Wales South Australia Gunnedah CSG Newcastle Adelaide Sydney CSG Sydney Victoria Melbourne Iona Lang Lang Orbost Longford Tasmania Hobart East Coast Gas Outlook Conference 16
  • 17. Brisbane East Coast Gas Outlook Conference Jun 2013 May 2013 Apr 2013 Feb 2013 Mar 2013 Jan 2013 Dec 2012 Nov 2012 Oct 2012 Sep 2012 Aug 2012 Jul 2012 Jun 2012 May 2012 Apr 2012 Mar 2012 Feb 2012 Jan 2012 Dec 2011 Nov 2011 Oct 2011 Sep 2011 Aug 2011 Jul 2011 Jun 2011 May 2011 $6 Apr 2011 • Feb 2011 Mar 2011 • Jan 2011 $8 Dec 2010 $10 Nov 2010 Oct 2010 Sep 2010 Ex-post price ($/GJ) Wholesale gas prices: Brisbane STTM $12 Spot prices are moving up ahead of LNG start-up No apparent price suppression from “ramp gas” $4 $2 $0 28 per. Mov. Avg. (Brisbane) AEMO data 17
  • 18. Sydney East Coast Gas Outlook Conference Jun 2013 May 2013 Apr 2013 Feb 2013 Mar 2013 Jan 2013 Dec 2012 Nov 2012 Oct 2012 Sep 2012 Aug 2012 Jul 2012 Jun 2012 May 2012 Apr 2012 Mar 2012 Feb 2012 Jan 2012 Dec 2011 Nov 2011 Oct 2011 Sep 2011 Aug 2011 Jul 2011 Jun 2011 $8 May 2011 • Apr 2011 Feb 2011 Mar 2011 $10 Jan 2011 Dec 2010 Nov 2010 Oct 2010 Sep 2010 Ex-post price ($/GJ) Wholesale gas prices: Sydney STTM $12 The rising spot price trend is apparent in NSW … $6 $4 $2 $0 28 per. Mov. Avg. (Sydney) AEMO data 18
  • 19. East Coast Gas Outlook Conference Jun 2013 May 2013 Apr 2013 Mar 2013 Feb 2013 Jan 2013 Dec 2012 Nov 2012 Oct 2012 Sep 2012 Aug 2012 Jul 2012 Jun 2012 May 2012 Apr 2012 Mar 2012 Feb 2012 Jan 2012 Dec 2011 Nov 2011 Oct 2011 Sep 2011 Aug 2011 Jul 2011 Jun 2011 May 2011 Apr 2011 Mar 2011 … and also in Victoria 28 per. Mov. Avg. (Market Price ($/GJ)) 7.00 6.00 800 5.00 4.00 600 3.00 400 2.00 1.00 200 0.00 0 AEMO data 19 Withdrawals (TJ/d) Withdrawals (TJ) Feb 2011 Jan 2011 Dec 2010 Nov 2010 Oct 2010 Sep 2010 Aug 2010 Jul 2010 Jun 2010 May 2010 10.00 Apr 2010 Mar 2010 Feb 2010 Jan 2010 Price ($/GJ) Wholesale gas prices: Victorian Spot Market 1,400 9.00 Market Price ($/GJ) 1,200 8.00 1,000
  • 20. Adelaide East Coast Gas Outlook Conference Aug 2013 Jul 2013 Jun 2013 May 2013 Apr 2013 Feb 2013 Mar 2013 Jan 2013 Dec 2012 Nov 2012 Oct 2012 Sep 2012 Aug 2012 Jul 2012 Jun 2012 May 2012 Apr 2012 Feb 2012 Mar 2012 Jan 2012 Dec 2011 Nov 2011 Oct 2011 Sep 2011 Aug 2011 Jul 2011 Jun 2011 May 2011 Apr 2011 Feb 2011 Mar 2011 $9 Jan 2011 Dec 2010 Nov 2010 Oct 2010 Sep 2010 Ex-post price ($/GJ) Wholesale gas prices: Adelaide STTM $10 … and in Adelaide $8 $7 $6 $5 $4 $3 $2 $1 $0 28 per. Mov. Avg. (Adelaide) AEMO data 20
  • 21. Future price risk Will a “price bubble” emerge? How high? How long? Indicative wholesale gas price $/GJ $16.00 $14.00 Base Supply Low Supply High Supply No spike $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 Long-term settlement prices: indicative only $0.00 East Coast Gas Outlook Conference 21
  • 22. How would a supply/price squeeze affect the market? • Supply shortages – In the absence of new sources of gas supply, there is a risk that current levels of domestic gas consumption will not be able to be maintained in the future • Prices rise – effectively rationing demand to those customers best able to pay higher prices • Loss of gas-consuming industry – Price sensitive customers will exit the market » » “Demand destruction” will bring consumption into line with available supply Some of the exiting customers will not return, even if supply recovers and prices moderate – Worst-affected will be large industrial consumers, esp. feedstock users (chemicals, fertiliser) • Less gas-fired electricity generation – Reduced dispatch of gas-fired electricity generators will see increased dispatch of existing coal-fired plant East Coast Gas Outlook Conference 22
  • 23. Response options • Only two fundamental options: Demand is effectively locked in … – Increase Supply OR Reduce Demand • LNG export demand is effectively locked in – LNG projects have longterm offtake contracts with binding delivery commitments • The only effective response options are those aimed at stimulating supply – But supply response takes time QCLNG Project – June 2013 East Coast Gas Outlook Conference 23
  • 24. Issues for gas users • Supply risk – Risk to adequacy of supply greatest during the period of LNG commissioning & ramp-up 2014 – 2016 – Risk around future performance of CSG fields • Price risk – Prices trending upward now – “Price bubble”? • Re-contracting risk – Lock in now or later? For how long? Cost of flexibility? East Coast Gas Outlook Conference 24
  • 25. Gas Supply & Demand Outlook for Eastern Australia East Coast Gas Outlook Conference Sydney Harbour Marriott Hotel Paul Balfe Executive Director 21 October 2013