Australian gas outlook

Gas Seminar 2017 – Gas Vision 2050ZINC, Federation Square, MelbourneWednesday, 28 June

About APPEA

• The Australian Petroleum Production & Exploration Association (APPEA) represents the collective interest of Australia’s upstream oil and gas industry.

• APPEA has around 200 members; oil and gas explorers and producers active in Australia and companies providing goods and services to those explorers and producers.

• APPEA member companies produce around 98% of Australia’s oil and gas.

www.appea.com.au

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Australia’s upstream oil and gas

industry – by the numbers

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• Share of primary energy 62%

• Value of production $30 billion

• Share of Australia’s GDP 1.9%

• LNG capital investment since 2010 $200 billion

• LNG exports (2016-17) $23.7 billion

• Share of commodity exports (2016-17) 11%

• LNG exports (2020-21 forecast) $44 billion

• Share of commodity exports (2020-21 forecast) 20%

• LNG operating expenditure $8–$9 billion per annum

• Employment 55,000 to 65,000

APPEA is a member of the

Gas Vision 2050 group

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Four points along the road (with

some detours) to 2050 …

• Gas’ critical role in the Australian economy.

– Industry, power and export.

• The role of gas as a cleaner energy source.

–Energy and climate change policies should be integrated: some observationspost-Finkel Review.

• The role of natural gas in complementing renewable energy.

–Gas is essential as we move towards a low emissions economy.

• The future of the east coast gas market and the challenges facing the market in sourcing adequate gas supply to avoid further market disruption.

–More supply is critical.

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Natural gas: key to a low

carbon world

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Source: International Energy Agency (2016)

The global context: growing gas

demand

7Source: International Energy Agency (2016)

Source: International Energy Agency (2016)

Source: International Energy Agency (2016) 8

The global context: growing gas

demand

The Finkel Review Final Report

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The Finkel Review Final Report

12Source: Blueprint for the future: Independent Review into the Future Security of the National Electricity Market (2017)

Fuel switching – the US example

Source: Energy Information Administration (2016) 13

• Natural gas can and should play a key role in complementing renewables in the move to a cleaner energy future.

• Gas-fired generation has quick ramp-up times and lower capital costs than traditional baseload technologies.

• Renewables and fast-reacting gas-fired power generation technologies appear as highly complementary and they should be jointly installed to meet the goals of cutting emissions and ensuring a stable supply.

• This mean that as the penetration of renewable energy increases, so will the requirements for increased back-up capacity.

• A debate that sets up renewables and gas as being in opposition misses this important point.

Natural gas and renewables

can be partners

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Source: Department of Industry, innovation and Science (2016)

Australia’s LNG projects

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• Long-lived assets Up to 40 years (Australia’s NWS project exporting since 1989)

• High upfront capital expenditure ~$54 billion (Gorgon), ~$44 billion (Wheatstone), ~$42 billion (Ichthys)

• Price takers in global market Linked to volatile oil prices and global supply/demand balance

• Footloose capital 18 LNG exporting countriesCompetition for investment

LNG – a long-term game

Australia’s LNG industry is source of long-term competitive strength and opportunity for the nation, not some sort of problem we have to “solve”.

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• Which sustainable supply options can fill any gaps?

• What new investments are required over what timeframe to bring these supplies to market?

• What is the impact of policy decisions on supply availability and cost?

• What are the implications for Australian gas markets?

Source: Australian Energy Market Operator (2016)

Source: Australian Energy Market Operator [NB:- TO BE UPDATED] (2017)

The future of the east coast gas

market

17Source: Australian Energy Market Operator [NB:- TO BE UPDATED] (2017)

• Developed and planned gas resources are not enough to meet projected demand.

–McKinsey & Co estimate around $50b in new investment is required between now and 2030.

• Multiple options exist to balance demand and supply, all of which are commercially or politically challenged today:

–Develop more onshore gas resources in Queensland; develop new onshore gas resources in NSW and Victoria; build pipeline infrastructure to bring gas from NT.

• Enabling investments required to balance supply/demand in the long-term requires choices to be made today.

• The various gas market reform processes underway are important, but will be of limited value if more gas cannot flow into the market.

More supply is critical.

The future of the east coast gas

market

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• COAG Energy Council Gas Market Reform Package.

• Gas Market Reform Group.

• 2017-18 Budget package.

• Actions agreed with the Prime Minister in March 2017.

• ACCC wholesale gas market monitoring.

• The 2017 Review of Australia’s Climate Change Policies.

• Follow-up to the Petroleum Resource Rent Tax Review.

• And then there is the Australian Domestic Gas Security Mechanism …

A very “full” gas policy agenda

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All of this comes on top of a very active reform process over the last decade …

And this is just the national energy and climate change related policy agenda …

The Australian Domestic Gas

Security Mechanism

• The Regulations come into effect on 1 July 2017.

• The gas export controls are a short-term measure. They risk exacerbating tight market conditions unless accompanied by genuine reforms.

• Restricting exports in this way is almost unprecedented for Australia.

• At a time when we need $50b in new investment to develop more gas supply, and the industry has already invested, in good faith, over $200b in Australia, interventions that create sovereign risk are alarming.

• The main obstacle to developing more supply remains the opposition of some State governments. The way to ensure long-term energy security is to remove restrictions.

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The only enduring solution is more gas, not more regulation.

Gas prices

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Phil Coorey, 17th June 2017

Wholesale price levels by

country – 2016

22Source: International Gas Union (2017; forthcoming)

Wholesale price levels by

country – 2016

22Source: International Gas Union (2017; forthcoming)

Four points along the road (with

some detours) to 2050 …

• Gas’ critical role in the Australian economy.

– Industry, power and export.

• The role of gas as a cleaner energy source.

–Energy and climate change policies should be integrated: observations post-FinkelReview.

• The role of natural gas in complementing renewable energy.

–Gas is essential as we move towards a low emissions economy.

• The future of the east coast gas market and the challenges facing the market in sourcing adequate gas supply to avoid further market disruption.

–More supply is critical.

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THANK YOU!

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Australian gas outlook

Gas Seminar 2017 – Gas Vision 2050ZINC, Federation Square, MelbourneWednesday, 28 June