East Coast Gas: Where to from Here?€¦ · Supply: bad news and good news • Queensland reserves write-downs • Declining conventional production offshore Victoria • Northern

EUAA National Conference

Graeme Bethune

East Coast Gas: Where to from Here?

3 May 2018

Energy analysis and strategy | Copyright © 2018 EnergyQuest 2

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§ Consulting: east coast gas supply and costs, gas buyers, gas sellers, governments

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§ Higher demand and restricted supply.

§ Focus on developing east coast gas for LNG. LNG a major

development success. ~$800 million per month now in export

revenue. Supplies 30% of China’s LNG

§ However, east coast CSG reserves oversold. Cooper Basin

diversion to LNG

§ Neglect of domestic gas developments, especially in the southern

states

§ Exacerbated by low oil prices, southern development restrictions

and low oil prices

§ Plus more recently increased gas demand for power generation

How did we get here?


Current state of play

§ Gladstone LNG shipments reasonably stable at ~1.7 Mtpa per

month but 300 PJ/a below capacity (~80% capacity compared

with ~97% in WA)

§ Exports generally not responding to external market signals

§ Queensland now largely gas supply self-sufficient, only modest

imports

§ But declining southern production

§ Gas-fired generation increasing in Victoria and SA following

closure of coal stations and increased renewables

§ Marginalising industrial customers


Changed external environment

§ Previous conventional wisdom was low oil prices, LNG glut, low spot prices, market incentive to divert LNG to domestic gas

§ However oil prices back to US$75/bbl

§ Despite rising Australian and US LNG and low HH prices, spot prices reached US$11/MMBtu in northern winter, still ~$8 in northern Spring

§ LNG companies are talking about new LNG projects

§ Higher prices are good for drilling and reserves, not for oil-linked contracts or net back estimates


Supply: bad news and good news

• Queensland reserves write-downs

• Declining conventional production offshore Victoria

• Northern Gas Pipeline

• 70 PJ LNG diversion

• Sole under development, possibly also Manta

• Santos/APLNG gas swap to enable more Cooper domgas

• Qld government acreage releases

• Companies driving down costs but fighting rising cost curve

• Arrow Surat gas moving towards sanction likely some domestic

• Strike Southern Cooper Project

• Narrabri back on the agenda


Australia’s gas reserves and resources

91% of eastern Australia’s 2P gas reserves are Queensland CSG

In 2017, 1,345 PJ of Queensland CSG reserves were written down

Source EnergyQuest


Long-term reserves risks§ Future east coast gas production will depend on more uncertain gas to

meet demand

Source EnergyQuest


Federal and Qld govts doing heavy lifting

§ Federal jaw-boning of LNG producers has been reasonably successful

§ Feds constrained in triggering the ADGSM

§ Limited impact so far on pipeline tariffs

§ Focus on reducing prices below netbacks rather than further

§ NEG to further increase domestic gas demand?

§ Queensland most active in boosting supply

§ Little NSW action and none in Victoria

§ New SA government to ban fracking in south east SA?

§ NT to allow fracking but heavily constrained

§ IF YOU CAN’T DRILL YOU DON’T KNOW


Market balance

§ Following the market shocks of 2016 and early 2017, the

market has have settled

§ Increased contract availability

§ Contract prices <$8-9/GJ but limited term

§ More competition

§ LNG producers more responsive to domestic market needs

§ Queensland largely self-sufficient in gas supply. Likely to

continue to see seasonal flows from and to Queensland

§ Large-scale diversion south unlikely and not cheap either

§ Significant risks still for southern gas buyers


Victorian gas price scenarios

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

2018 2019 2020 2021 2022 2023 2024 2025

Victoria DWGM gas price ($/GJ)

Source EnergyQuest


§ Numerous parties circling the east coast trying to work out how to

invest. But…

§ Lack of market transparency (production forecasts, prices, LNG

contracts, reserves, well results)

§ Government moratoria

§ Political uncertainty/sovereign risk

§ Market concentration on demand and supply side

§ Small and illiquid domestic gas markets

Barriers to entry for investors


LNG imports

§ Potential interim solution with leased FSRU’s

§ Provides cap on domestic prices and guarantees volume

§ Natural supply for AGL

§ More of a challenge in Sydney

§ Fairly quick to install

§ Need not be permanent

§ Has worked in other countries


§ East coast gas is undergoing long-term disruptive change

§ Particularly acute in southern markets

§ Companies need to actively manage their energy portfolio

§ Need to decide whether to rely on government solving the problem or taking control of own destiny

§ Energy efficiency a no-brainer

§ In southern markets connect with and support company efforts to increase supply

§ Explore energy alternatives

§ Politically support industry efforts to open up onshore acreage for exploration and development

Conclusion


EnergyQuest Reports


Thank you

Documents

East Coast Gas: Where to from Here?€¦ · Supply: bad news and good news • Queensland reserves write-downs • Declining conventional production offshore Victoria • Northern