EUAA National Conference
Graeme Bethune
East Coast Gas: Where to from Here?
3 May 2018
Energy analysis and strategy | Copyright © 2018 EnergyQuest 2
§ Founded 2005
§ Independent oil and gas industry analysis and strategy
§ Expertise in economics, gas markets and petroleum engineering
§ EnergyQuarterly: Flagship report provides window on oil and gas. Proprietary statistics and analysis of Australian oil and gas reserves, production, developments, prices, companies and policies.
§ Monthly LNG Report: Proprietary Australian export statistics, linked with domestic gas.
§ Consulting: east coast gas supply and costs, gas buyers, gas sellers, governments
EnergyQuest
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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?
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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
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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
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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
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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
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Long-term reserves risks§ Future east coast gas production will depend on more uncertain gas to
meet demand
Source EnergyQuest
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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
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Market balance
§ Following the market shocks of 2016 and early 2017, the
market has have settled
§ Increased contract availability
§ Contract prices <$8-9/GJ but limited term
§ More competition
§ LNG producers more responsive to domestic market needs
§ Queensland largely self-sufficient in gas supply. Likely to
continue to see seasonal flows from and to Queensland
§ Large-scale diversion south unlikely and not cheap either
§ Significant risks still for southern gas buyers
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Victorian gas price scenarios
0.0
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2018 2019 2020 2021 2022 2023 2024 2025
Victoria DWGM gas price ($/GJ)
Source EnergyQuest
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§ 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
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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
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§ 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
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Thank you