East coast gas surplus forecast for late 2024 but longer-term concerns loom large
The Australian government has elected not to activate an east coast gas supply protection tool this year, despite dire warnings of looming power shortages.
The Federal Department of Industry, Science and Resources has confirmed that the government has elected not to unlock the domestic gas security mechanism for the December 2024 quarter, although the Australian Energy Market Operator (AEMO) will have the capacity to respond should a localised gas supply emergency arise.
The minister’s decision was informed by the Australian Competition and Consumer Commission’s (ACCC) June 2024 interim gas inquiry report, which forecasts sufficient gas across the east coast to meet domestic demand.
East coast surplus
The latest ACCC report forecasts an east coast gas surplus of between 7 petajoules (PJ) and 19PJ for the fourth quarter.
According to the ACCC, Australia’s east coast gas market is forecast to have a surplus of between 69 and 110PJ in 2025 even if Queensland’s liquefied natural gas (LNG) producers export all of their uncontracted gas.
Despite the forecast surplus, the ACCC says there is a risk of a shortfall in the third quarter when demand for energy is typically higher due to the need for heating in winter.
The risk has been reduced by the extended operation of the coal-fuelled Eraring power station but, if a shortfall does occur, LNG producers will need to commit a small amount of additional gas to the domestic market to ensure sufficient supply.
Gas will also need to be sent from Queensland to the Australian Capital Territory, New South Wales, South Australia, Tasmania and Victoria to avoid local shortfalls in both the second and third quarters of 2025.
Looming shortfalls
The long-term gas supply picture, however, is not so positive.
The ACCC report also forecasts looming gas shortfalls and urges governments at all levels to “focus on removing unnecessary impediments to developing new gas resources”.
Australian Energy Producers chief executive Samantha McCulloch said that – with shortfalls forecast to hit in 2027, a year earlier than previously estimated – governments must act urgently to fast-track new gas supply projects.
“Governments cannot continue to ignore the warnings,” Ms McCulloch said.
“Without immediate government action to address the looming gas supply crisis, millions of Australians face higher energy prices and the real risk of blackouts.”
“The ACCC report spells out the government actions needed to address long forecast shortfalls, including removing moratoria on new gas developments, speeding up approvals and reducing the infrastructure, regulatory and capital barriers faced by producers.”
Wake-up call
AEP said the report and forecast surplus reaffirmed Australia’s gas industry continued commitment to the domestic market.
However, NSW and Victoria – which have stifled investment with bans and regulatory uncertainty – would rely on other states for gas supply, despite having their own untapped gas resources.
“The AEMO warned that Victoria almost ran out of gas a fortnight ago because of strong demand […] during a cold snap,” Ms McCulloch said.
“This should be a wake-up call that gas shortages and blackouts could happen as soon as this winter.”
Local options
There’s certainly no shortage of junior Australian oil and gas explorers ready to step up if called upon.
Vintage Energy (ASX: VEN)
Vintage and its joint venture partners (JV) are fast-tracking new gas supply into the system after approving the development of the new Odin-2 discovery.
They aim to start pumping Odin-2 gas into ENGIE’s Pelican Point Power plant in SA next month after receiving JV approval to proceed with the well’s development.
Recent pay analysis from the Queensland Cooper Basin appraisal well confirmed Odin-2’s potential as a multi-zone gas producer.
The JV also plans to try and increase production from the nearby Odin-1 and Vali-2 wells with new production optimisation programs.
BPH Energy (ASX: BPH)
While it’s all go for Vintage, BPH Energy and its investee company Advent Energy are being impacted by the government intervention the AEP spoke of, meeting continual roadblocks in their plans to drill a well on a large gas target in PEP 11.
The recent NSW government bill aimed at banning oil and gas activities off its coastline is the latest frustration for their efforts to find gas reserves.
While government regulatory issues remain, Advent is continuing its discussions with rig operators about drilling a well in PEP 11 when it gains the all clear.
A commercial discovery in PEP 11 could potentially be a game-changer for the east coast.
Blue Energy (ASX: BLU)
Further north, Blue Energy is confident it can become an important supplier to the energy-hungry east coast.
With significant land holdings in proven and prospective gas regions in Australia, the company has already amassed significant gas resources and inked agreements with a number of gas buyers in Queensland.
The company’s major focus at the moment is the Sapphire project in the North Bowen Basin, with a proposed 117-well development of up to 240 PJ sale spec gas.
Blue is also about to begin testing its significant Beetaloo Basin position in northern Australia and both areas have the capacity to make a major contribution to east coast gas reserves.
The company has already signed a number of gas supply offtake agreements with a range of companies including AGL Energy (ASX: AGL) and Origin Energy (ASX: ORG) for the supply of up to 600 PJ to Wallumbilla over the next ten years.