Gas Shortfall Likely in 2018

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The Australia Government has released the ACCC’s first interim report into the supply of, and demand for, wholesale gas in Australia and the outlook is not pretty.

The ACCC Gas Inquiry 2017-20 Interim Report focusses on likely supply and demand conditions for 2018 and according to ACCC Chair Rod Sims we can expect shortages.

He says further steps are needed to address the underlying problems of lack of gas supply.

“The interim report projects a supply shortfall in the east coast gas market of up to 55 petajoules (PJ) in 2018, which could be as high as 108 PJ if domestic demand is higher than expected.,”

“One PJ is enough gas to supply the residential needs of Warrnambool, Wollongong or Penrith, or a large industrial user for a full year. The significant shortfall is reflected in prices being offered to commercial and industrial customers for 2018 supply which are multiples of historical price levels of $3-4/GJ.”

Mr Sims says the effect of higher gas prices is felt right across the economy, from households to big business.

“Gas and gas-powered generators are also an important part of electricity generation, so higher gas prices feed in to higher electricity prices, leading to a double hit for many.”

“Over a third of the commercial and industrial users the ACCC interviewed are considering either reducing production or closure due to high gas prices.”

Mr Sims says the expected shortfall could be reduced to a significant extent if the expected sales on international LNG spot markets were instead redirected to the domestic market.

“It is unclear why we are not seeing more steps being taken by the LNG projects to supply more gas into the domestic market. Although we accept some additional coordination costs would be likely and agreement of the joint venture parties of the LNG projects is required.”

“The situation in the east coast gas market is serious and options to address the problems in the immediate term are limited.”

“Export controls may go some way to addressing this shortage in the short term. However, further steps are needed to address the underlying problems of lack of gas supply and lack of diversity of suppliers in the east coast gas market”

“Supply-side solutions are needed to bring more supply and suppliers into the domestic market, particularly in the southern states.”

“Blanket moratoria and other restrictions on developing new supply should be replaced by case-by- case assessments to allow for new sources of supply to respond to high domestic prices.”