South Oz Faces 30-PJ Gas Shortfall by 2024: ACCC
Australia's southern states face a gas supply shortfall in the next few years the Australian Competition & Consumer Commission (ACCC) warned in a February 16 report.
It recommended the timely development of north-south pipeline infrastructure and east coast LNG import terminals as potential solutions.
The slump in gas prices last year was good news for manufacturers and other gas users on Australia's east coast, where prices were still higher than export parity, the ACCC said. But these low prices may not last. While east coast gas supply is expected to cover demand in 2021, a shortfall of up to 30 PJ could emerge by 2024 in the southern states, and the broader east coast market could see shortages in 2026, the watchdog said.
"There are new sources of supply and related infrastructure that could be brought online to avoid a potential shortfall," ACCC chairman Rod Sims said in a statement. "It is crucial that investment decisions are made now to ensure there’s enough supply, and to provide downward pressure on future price rises."
Prices have fallen as a result of record low international oil and LNG spot prices, as the coronavirus pandemic exacerbated a pre-existing glut in global LNG supply. The ACCC notes that price offers for supply in 2021 fell from $8-14/GJ in the second half of 2019 to $6-8/GJ by the middle of last year.
"We welcome the narrowing of the once-large gap between domestic and export parity prices, but despite some improvement domestic customers are still paying more than overseas customers,” Sims said. "LNG producers have not provided an adequate explanation as to why this is the case, or why we should accept it."
ACCC's preliminary analysis shows that competition between suppliers has not constrained prices as it should, and suppliers seem more concerned about the threat of regulatory intervention.
"This is not the sort of behaviour you'd expect to see in a well-functioning competitive market," Sims said. "Southern states face the greatest risk of shortfall in the future. We continue to recommend governments encourage timely investment in north-south transportation infrastructure, or import terminals on the east coast."
Local governments should do more to spur competition, for example through active tenement management, to encourage more producers to supply gas to the market. Victoria for example has imposed bans on hydraulic fracturing onshore, despite the large gas reserves.
Australia's government recently entered into a heads of agreement with LNG exporters, and the industry is working on a voluntary code of conduct to level the playing fields between suppliers and buyers. The ACCC will review upstream competition on the east coast market in 2021 and continue to study domestic prices, potentially making further recommendations to the government.
The watchdog will also review its LNG netback price series and methodology this year. An issues paper will be released in March 2021 and industry and stakeholder consultation will take place. The review is expected to be completed by the end of September 2021.