Australia’s east coast domestic gas supply is expected to see a shortfall equivalent to the residential power needs of Wollongong for a year, 55 times over, according to analysis by the ACCC (Australian Competition and Consumer Commission).
The ACCC’s investigation, ordered by the federal government in April, shows a substantial shortfall of gas for the east coast likely in 2018, with a subsequent sharp rise in electricity prices, mainly due to increasing exports of LNG.
“The situation in the east coast gas market is serious and options to address the problems in the immediate term are limited,” says Rod Sims, the ACCC chairman.
The report projects a 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 likelihood and extent of a supply shortfall will partly be affected by difficult-to-forecast gas-powered electricity generation demand.
But the significant shortfall of gas is reflected in prices being offered to commercial and industrial customers for 2018.
“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,” says Sims.
More than a third of the commercial and industrial users interviewed by the ACCC are considering either reducing production or closure due to high gas prices.
The ACCC estimates showing expected demand and the shortfall in supply:
The ACCC reported last year, in its East Coast Gas Inquiry, that the Queensland LNG projects caused a significant disruption to the market.
In 2018, the LNG projects will together produce more than 70% of the east coast’s gas and account for two-thirds of the east coast’s gas demand.
“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,” says Sims.
“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 ACCC says domestic prices on the east coast are well in excess of the appropriate benchmark levels.
The Australian Government has recently implemented the Australian Domestic Gas Security Mechanism which can restrict LNG exports to meet domestic demand.
“Export controls may go some way to addressing this shortage in the short term,” says Sims.
“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.”
Business Insider Emails & Alerts
Site highlights each day to your inbox.