A gas crisis ... but demand crumbles

AEMO projects NSW could face gas shortages by 2018, yet domestic gas demand is crumbling and won't recover to 2012 levels until as late as 2030.

The Australian Energy Market Operator has issued a report finding that New South Wales faces a potential gas supply shortfall for a number of days during the 2018 winter peak period.

This 2018 timing is actually a few years later than what has been speculated by others, including Energy Minister Ian Macfarlane, who had suggested shortages might occur as soon as 2016. This provides more time for new supply optionTurnbull must stop shifting the NBN goalposts to come to market, whether they be upgrades in pipeline capacity to import into NSW, or, development of NSW coal seam gas resources.

It should also be noted that such a shortfall would only occur if developer Santos chose to prioritise gas supply from the Cooper Basin to its LNG export plants in Gladstone over demand from NSW. NSW can get a large proportion of its gas from Victorian pipelines as well as small amount from its existing approved NSW CSG fields. But during winter demand peaks, the Victorian pipeline capacity is insufficient. This hasn’t historically been a problem because there is plenty of additional pipeline capacity from Moomba in South Australia. Unfortunately, Santos has suggested that the amount of gas it can supply from Moomba will be redirected to Queensland to meet LNG export contracts, leaving the pipeline into NSW under-utilised.  

The chart below, one of the charts of the week, illustrates AEMO’s projected daily supply and demand for NSW in 2018, in a scenario where Santos chose to prioritise LNG over NSW demand.

Note that for much of the year, NSW demand is adequately met through a combination of imports from Victorian the Eastern Gas Pipeline (yellow) and the NSW-Vic interconnector pipeline (light blue) as well as AGL’s Camden CSG resource in NSW (orange, at bottom). But over winter, demand picks up and the red sections at the very top of the spikes indicate points where demand would not be met. AEMO projects shortfalls, without new supply capacity coming to market, in the realm of 50-100 terajoules per day.

Figure 1: Projected NSW gas demand and sources of supply in 2018

Graph for A gas crisis ... but demand crumbles

Source: AEMO – Gas Statement of Opportunities 2013

It’s important to realise that Australia is not lacking in available gas under the ground but rather gas processing and transport infrastructure to take it from under the ground and deliver it to customers. AEMO analysis suggests that sufficient reserves are likely to be commercially viable to satisfy projected gas demand for, at least, the next 20 years.

Another interesting insight from the report is that Australian eastern states gas demand, outside of LNG exports, is expected to take a dive. As the chart below illustrates, use of gas in power generation (indicated in light blue) is expected to drop away markedly from next year while usage in households and commercial businesses (orange) and large heavy industry (yellow) grows at around 1 per cent per annum. The end result is that they foresee gas use won’t return to 2012 levels until we get to around 2030. This is an incredible turnaround from just a few years ago, when it was thought domestic gas use would surge as it was employed to help reduce Australia’s carbon emissions in power generation.

Figure 2: Projected annual Australian eastern states gas demand

Graph for A gas crisis but demand crumbles

Source: AEMO – Gas Statement of Opportunities 2013

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