Gas shortage feared over east coast supply crunch

Deep-seated doubts have been raised over the outlook for gas supply in Australia's eastern states in the face of the looming launch of a series of gas export projects in Queensland.

Deep-seated doubts have been raised over the outlook for gas supply in Australia's eastern states in the face of the looming launch of a series of gas export projects in Queensland.

The projects are due to start production from next year, raising the prospect of supply shortages emerging from 2015.

Domestic gas prices are already rising to international levels as producers scramble to take advantage of the dramatic shift in the industry's dynamics.

In a report released on Friday, the Australian Energy Market Commission queried whether existing new fields could be developed soon enough to meet prospective supply shortfalls. The commission, an arm of government overseeing the gas and electricity markets, is seeking to ensure appropriate policies are in place to avoid the emergence of problems.

In its report, it pointed to the possibility for new sources of gas such as from the Kipper field in Bass Strait, the Gunnedah and Gloucester basins in NSW, the Ironbark field in Queensland and unconventional gas from the Cooper Basin and possibly the Northern Territory, although this source of gas is yet to be technically proven.

"Production from existing sources in eastern Australia could increase," the commission report noted. "It is unclear at this stage though whether all of the proposed projects will proceed and if they do, whether they will be used to supply the domestic or export market."

The other uncertainty is whether any of the new fields could be developed soon enough to fill the gap that is expected to emerge from 2015, given the need for continuing exploration, government approvals and spending commitments to be made.

Reflecting the mounting supply concerns, Origin Energy recently turned to Exxon and BHP Billiton for a large new supply contract from the Bass Strait, agreeing to pay an oil price-linked gas price, among the first of these high-priced contracts to be seen in the local market.

Work is under way to launch a short term, or spot, gas market centred on Wallumbilla in western Queensland, along with making gas pipeline capacity more transparent, which could also help a short-term gas trading market emerge. At present, all gas is contracted on medium- to long-term contracts, with little transparency over the pricing.

The Australian Energy Market Commission study comes as the federal government is planning to intervene in NSW to break the impasse that has stopped the development of the coal seam gas sector amid deep-seated opposition in some quarters.

Earlier this year, the Victorian government established a taskforce to examine gas supply and pricing issues, with the federal government also reviewing the outlook.

Related Articles