Gas Supply & Demand Outlook for

Eastern Australia

Gas Compressor Stations ConferenceStamford Plaza, Brisbane

Paul Balfe

Executive Director

29 April 2014

Key Messages1. LNG exports are transforming the Eastern

Australia gas market– Tripling total gas demand while domestic demand outlook

is depressed

2. The ramp up of demand for LNG will put great pressure on current supply sources– Creating opportunities for new conventional sources, CSG

and other “unconventional” gas: shale gas, tight gas

3. Gas prices are already rising to about triple historical levels

4. High levels of ongoing activity in CSG drilling and associated field services

Gas Compressor Stations Conference Slide 2

Domestic gas demand

outlook, by sector

Gas Compressor Stations Conference Slide 3

Source: ACIL Allen modelling

Why is domestic gas

demand collapsing?

• A Perfect Storm:

– Competing demand from LNG Projects• Driving rising gas prices

– Manufacturing industry declining• Strong A$; declining competitiveness

• Manufacturing closures affect direct gas demand and indirect gas demand (via electricity)

– NEM electricity demand falling• With gas-fired electricity generation most heavily affected

– C-tax low to zero; rising gas prices; low electricity pool prices; black & brown coal running hard (no Contract for Closure); RET-driven renewables keep coming in

• No new entrant base load plant before 2020

Gas Compressor Stations Conference Slide 4

Projected NEM generation mix

Black coal53.2%

Brown coal24.0%

Hydro8.7%

Natural gas12.0%

Solar0.0%

Wind2.1%

2013

Black coal56.9%

Brown coal23.1%

Hydro7.8%

Natural gas3.8%

Solar0.2%

Wind8.3%

20202013 2020

Gas Compressor Stations Conference Slide 5

Source: ACIL Allen modelling

But TOTAL EA gas demand

is growing strongly …

• LNG exports will see total gas consumption in EA more than triple by 2030

Gas Compressor Stations Conference 6

Source: ACIL Allen modelling

EA gas production history

Gas Compressor Stations Conference

Source: ACIL Allen analysis of APPEA data

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

NSW CSG 1 1 1 2 2 3 4.5 5.1 5.5 4.8 5.9 5.8 5.9

Qld GSG 5.6 9.5 16.2 27.4 29.5 36.4 63.2 86.2 125.1 150.9 212.0 233.5 268.7

Otway/Bass 21.7 17.4 24.4 23.8 16.2 52.2 76.0 85.3 129.5 136.7 129.9 126.7 121.2

Bowen/Surat 22.5 22.5 23.1 24.9 26.7 25.7 28.2 46.4 52.7 9.7 14.8 10.7 3.2

Amadeus 19.0 18.1 18.8 19.4 18.4 20.5 20.4 30.1 19.7 18.7 3.1 1.8 4.2

Gippsland 182.3 222.6 213.5 223.7 259.9 241.8 238.2 289.6 290.3 224.3 239.5 235.5 262.4

Cooper/Eromanga 277.5 278.2 276.7 258.5 209.3 200.6 174.7 135.0 139.0 137.9 115.4 116.1 119.7

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Where will new gas come

from?• Conventional:

– Bass Strait (Gippsland, Otway, Bass Basins)• eg Kipper/Tuna/Turrum; Halladale/Blackwatch; Rockhopper

• CSG– Queensland: best of the resource is LNG committed; marginal

production economics???

– NSW: major resources but little recent progress – bogged down with policy/approvals issues and public opposition to development

• Missed the boat?

• “Unconventional” (Shale gas, tight gas)– For EA most promising is Cooper Basin tight/shale gas

• Encouraging technical results

• Large in situ resource established– Some “wet gas”

• Early commercialisation under way (eg Moomba 191)

• Cost structure/economics?? No cheap gas without associated liquids

Gas Compressor Stations Conference Slide 8

Brisbane

Gladstone

Moranbah

Townsville

Newcastle

Sydney

Hobart

Melbourne

Adelaide

Mount Isa

Bowen CSG

Surat CSG

Gunnedah CSG

Sydney CSG

Ballera

Iona

Lang LangLongford

Orbost

WallumbillaMoomba

Gladstone CSG

LNG plantsQueensland

New South Wales

South Australia

Victoria

Tasmania

Northern Territory

Gas prices now reflect

market interconnection• Previously separated

geographic markets now interconnected

• Producers have options where they sell

• Producers will seek the best prices for their products

• Price trends are reflected throughout the interconnected market

Gas Compressor Stations Conference 9

Wholesale gas prices:

rising throughout EA

Energy Networks 2014

AEMO data

Slide 10

Will CSG LNG projects be

short of supply?

Gas Compressor Stations Conference

ACIL Allen analysis based on Santos 2013 Reserves Statement

Slide 11

Future gas price risk

Gas Compressor Stations Conference

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

Indicative wholesale gas

price $/GJBase Supply

Low Supply

High Supply

No spike

Long-term settlement prices: indicative only

Will a “price bubble” emerge? How high? How long?

Slide 12

CSG drilling requirements

Gas Compressor Stations Conference

The CSG LNG Projects will require a high level of on-going

drilling and associated field services

Slide 13

ACIL Tasman, 2011: Titan Energy Prospectus

Gas Supply & Demand Outlook for

Eastern Australia

Gas Compressor Stations ConferenceStamford Plaza, Brisbane

Paul Balfe

Executive Director

29 April 2014