Unconventional Resources to Restore Balance

THE CONFERENCE CALLER: Australia’s south-eastern energy market is facing a gas shortage which is almost at crisis point – and liquefied natural gas (LNG) producers will not be able to meet long term demand at attractive prices post-2020. By Mark Fraser

This grim prediction was made by RISC’s Joe Collins during the recent RIU Good Oil Conference in Perth, where he said energy uncertainty – particularly in Victoria and New South Wales – was partly being driven by electricity transition and government failure to adjust policy settings that would “allow more supply to come into the market”.

However, it was not all bad news according to Collins, who maintained there was not a shortage of gas on the east coast, but rather a shortfall of developed gas.

In fact, he noted, there was a “massive amount” of gas available to the markets in the form of unconventional resources.

“We’ve seen what happened in Queensland with the CSG (coal seam gas) boom – the massive amount of gas that they are now producing from a very modest total previously,” Collins said.

“The potential exists for them to do that in other basins across eastern Australia. They just need to prioritise the investment, prioritise the exploration and get after that gas.

“I wouldn’t over-invest on LNG import capacity given what we know of what happened in the United States, where they over-invested in LNG import capacity, and the high prices that were in place there just stimulated a supply-side response from the unconventional gas guys.

“The same thing could happen in eastern Australia. I’m not saying that it will happen, but it could happen.”

In Western Australia, however, it was a different story as oversupply and a lack of new demand were keeping gas prices down.

Collins said the reservation policy of the state’s DomGas Alliance – a member-driven industry body representing natural gas users, infrastructure investors and producers – was also impacting the supply side.

Furthermore, recent exploration success in WA, such as the Waitsia gas discovery in the Perth Basin, was contributing to this situation.

“So really, we’re waiting for some new projects to come to the market on the demand side in Western Australia, whether they be petrochemical-type projects or new gas-to-power projects for big mines or things of that nature,” he said.

“We really think that the picture is of continued oversupply going forward – it’s highly unlikely that the market will swing to undersupply … probably as long as five to 10 years, almost, and that should keep prices low for the foreseeable future as well.”