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Is 2018 the turning point for domestic gas?

Domestic gas – the outlook for 2018

Progress could be in the pipeline for Australia’s domestic gas sector. But will it be soon enough to weather a supply crunch?

On one hand, local gas demand is forecast to outstrip supply and keep prices locked in the $8-$10 GJ range this year.

On the other, a federal deal with the big three producers and a new pipeline connecting the Northern Territory to the east coast could offer relief for domestic users. But it’s obvious more needs to be done.

Demand from residential, commercial and industrial gas users, as well as gas-fired power generators, is forecast at 642 PJ in 2018, but supply is tipped to fall short at just 588 PJ according to the Australian Energy Market Operator.

The shortfall is down to a forecast four per cent fall in production driven by rising costs, a lack of local transport and storage infrastructure and the diversion of supply to international markets.

A new deal between the Australian government and Origin, Shell and Santos means the big three players will supply at least 54 PJ of gas to the domestic market, and potentially more in case of a bigger shortfall potentially brought about by increased demand.

Looking forward, the federal government has just announced a $26 million Gas Acceleration Program to fast track new supply to the East Coast, granting up to $6 million to new projects that can demonstrate good prospects for supplying gas to the market within three years.

It remains to be seen whether that will be enough to encourage producers facing various moratoriums in Victoria and New South Wales, and dealing with inadequate and congested transport infrastructure between Queensland and its southern neighbours.

However those issues could come to a head when the Commonwealth Heads of Government Energy Council has an important policy meeting in April.

Infrastructure development – any progress in the coming year?

On the infrastructure front there’s tantalising news that Western Australia Premier Mark McGowan is publicly backing the Browse Pipeline, linking Woodside’s LNG project northwest of Broome to the North West Shelf on the mainland.

McGowan revealed this week his government will expedite the development of the subsea pipeline, which will bring domestic gas to his state.

To the east, the first gas is due to flow through Jemena’s $700 million Northern Gas Pipeline (NGP) between the Northern Territory and Queensland by the end of the year, linking the NT and East Coast gas markets for the first time.

In Victoria, AGL is still awaiting state government approval of its plan to build a gas import jetty and pipeline at Crib Point in Western Port Bay, while Adelaide-based Cooper Energy continues to develop its $355 million offshore Sole Project.

Further north, Senex is on track to start producing CSG for the domestic market from its Project Atlas in southern Queensland by next year.

What can we learn from last year?

Higher gas prices are still squeezing domestic consumers, particularly commercial and industrial users.

Australia has enough gas to supply both the domestic and international markets, which is made apparent by the federal government’s supply agreement with Origin, Shell and Santos.

However, the government obviously wants to balance the need to ensure domestic gas supply while supporting the export market at the same time.

It had the ability to restrict exports in July under the Australian Domestic Gas Security Mechanism but instead opted to work with the big producers to avoid disrupting growing exports.

Challenges and how to avoid a crisis

The most critical challenge for the domestic gas sector this year will be keeping prices affordable and securing a viable long term supply.

Continuing high prices or a supply drought are likely to push end users toward alternative energy sources like renewables.

Keeping prices sustainable isn’t rocket science; what’s needed is more competition, better infrastructure and new reserves.

Some good ways to spur innovation and competition include fostering collaboration and making data on production costs and transportation pricing more transparent.

Australia desperately needs more pipeline capacity, especially between Queensland and the southern states. One solution is to expand access to current excess capacity to include all players.

Another option – which has been put forward by the Australian Competition and Consumer Commission – is to build better storage in southern states, so that stored gas can be used to back up supply when needed.

Developing new gas reserves in the southeastern states would solve many problems. It would open up more supply for the domestic market, reduce the transportation costs and in turn put downward pressure on end prices.

Finally, finding an acceptable political solution to the highly charged issue of various state moratoria on gas exploration and non-conventional production methods is critical to the viability of the domestic gas market both now and over the longer term.

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