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Gas surplus predicted for Australia in 2024, southern states remain vulnerable

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By Colin Hay - 
Gas surplus predicted Australia 2024 southern states ACCC ADGSM

While a recent increase in new gas supplies from discoveries and the injection into the domestic pipeline of product initially marked for LNG exports has reduced concerns over energy shortages for the rest of this year, that forecast may potentially change in a number of ways in 2024.

The Australian government recently revealed it will not activate its Australian Domestic Gas Security Mechanism (ADGSM) for the October to December 2023 quarter.

Under the ADGSM LNG suppliers may need to limit exports or find new gas sources if a gas supply shortfall is forecast for Australia.

The minister’s decision not to enforce the mechanism was informed by data in the Australian Competition and Consumer Commission’s (ACCC) June 2023 interim gas inquiry report which forecast sufficient gas supply to meet demand in Queensland and the southern states.

That is even if producers export all their uncontracted gas.

Confidence in strong supply numbers

This meant the government was confident Australia’s gas market is likely to have enough supply from October to December 2023 and that any supply shortages can be addressed without reducing gas exports.

The ACCC has forecast that while Australia’s east coast gas market is expected to have enough supply to meet overall demand in 2024, the outlook for next winter is finely balanced and the southern states will be significantly reliant on Queensland’s surplus gas.

The report forecasts a 27 petajoule (PJ) east coast gas surplus for next year if the LNG producers export all their currently uncontracted gas.

It predicts a 90 petajoule surplus if the LNG producers export only their currently anticipated spot sales.

Southern states facing uncertainty

However, while there should be sufficient gas to meet forecast demand across the east coast in 2024, the southern states are expected to experience a shortfall at peak demand periods.

The ACCC believes considerable transport and storage capacity will be required to deliver Queensland’s surplus gas to those states.

“The significant improvement in the supply and demand outlook for next year is largely due to a drop in the forecast demand for gas-fired electricity generation,” said ACCC commissioner Anna Brakey.

“While the overall east coast is projected to have surplus gas next year, it is imperative that gas flows from Queensland to the southern states, and that there is enough storage for it.”

Winter shortfall concerns

The ACCC said availability of gas over the 2024 winter months will depend on whether LNG producers commit additional gas to the domestic market via contracts or time swaps.

The ACCC also reported that prices offered for 2023 supply on the east coast remained high last year until shortly before the government introduced an emergency gas price cap on 23 December 2022.

Since the price cap came into force, the ACCC said it has observed an increase in the volume of gas sold under short term contracts for 2023 supply.

Most of this gas has been sold below $12 per gigaloule, but the ACCC is continuing to carefully review the details and circumstances of any contracts that could be in excess of the $12 per gigajoule price cap.

Fewer offers for supply in 2024

Interestingly, the ACCC has observed fewer offers for supply in 2024 compared to previous years, despite contracts for next year not being subject to the price cap.

The commission said this may be due to a combination of factors, including seasonal slowdown and the industry’s response to regulatory uncertainty.

Prices offered by producers for 2024 supply peaked at just under $50 per gigajoule in August last year, before falling to just over $12 per gigajoule at the end of last year.

Despite not being subject to the cap, most recent producer offers for 2024 supply have settled at slightly over $12 per gigajoule, while retail offers have averaged about $20 per gigajoule.

Global LNG facing uncertainty

On the other side of the gas story, Australia’s LNG export volumes held steady at 21 million tonnes in the March 2023 quarter, up 4.6% year-on-year led by above nameplate capacity performances from the Wheatstone, Pluto, APLNG and Gorgon LNG projects.

The result was enough to offset lower output from QCLNG, which experienced unplanned outages, and Darwin LNG, which is running out of feed gas from the Bayu-Undan field.

While Australian LNG exports have been running at record pace in recent years, the federal department of industry and resources says volumes are forecast to fall from 82 million tonnes to 79 million tonnes in 2024–25.

This will be led by volume drop offs at several LNG facilities on the north and west coast as they face delays in backfilling their operations with gas from new fields.

For example, output from the North West Shelf is forecast to decline in 2024 as current fields continue to decline. While the gas from the Browse joint venture will eventually backfill the project, the first gas is not expected until after 2030.

Tolling arrangements will allow third parties’ gas to be processed through the NWS facilities in the meantime (mainly from the Waitsia and Pluto JV), but these upstream fields will only slow down rather than offset the decline in the NWS’ LNG output over the outlook period.

IEA predicts softening gas market

Meanwhile, the International Energy Agency’s (IEA) latest medium-term market report is tipping that global gas demand will slow after a decade of unprecedented expansion and growth.

The report forecasts a demand drop for natural gas as consumption declines in mature markets.

IEA’s new medium-term forecast says global gas demand is on course to grow by an average of 1.6% a year between 2022 and 2026, down from an average of 2.5% a year between 2017 and 2021.

The report notes that the advent of the global energy crisis in 2022, triggered by Russia’s invasion of Ukraine, has ushered in a different era for global gas markets after their decade of strong growth between 2011 and 2021.

Overall gas demand from mature markets in the Asia Pacific, Europe and North America peaked in 2021, and is forecast to decline by 1% annually through to 2026, according to the report.

An accelerated rollout of renewables and improved energy efficiencies are among the key drivers behind the downward trend for natural gas in these markets.

For Europe, the loss of piped gas from Russia, following its invasion of Ukraine, has pressed governments to seek alternative solutions to maintain energy security.