Study shows urgent need for gas supply

The Australian Government’s Offshore South East Australia Future Gas Supply Study has confirmed the urgent need to develop new offshore and onshore gas supply for eastern Australia.

The study, part of a $90 million investment in the domestic gas supply, was conducted after the accessibility and price of gas were identified as key risks for Australian business competitiveness and cost of living pressures.

The report also noted that with an investment of more than $200 billion in the past decade, Australia is on track to being one of the world’s largest LNG exporters.

Key findings

The study estimates that there are 3.8 Tcf of known gas reserves and 3.7 Tcf of contingent resources to be produced offshore in southeast Australia, as well as 4.3 Tcf of undiscovered volumes that could provide additional future gas supply.

Short term prospects include Cooper Energy’s Sole Project in the Gippsland Basin, offshore Victoria, and Lattice Energy’s Black Watch development in the Otway Basin, offshore Tasmania.

Other short-term prospects identified that the major known gas fields of southeast Australia are significantly depleted, two potential projects for the short to medium term have limitations connected to infrastructure and commerciality, and that the Greater Dory prospect on the edge of the Gippsland Basin has potential as an exploration prospect, but would take 7 to 10 years to bring to market if successful.

The study found that short-term opportunities for increased gas supply from offshore southeast Australia are limited, with titleholder forecasts showing that supply levels could continue at the current level over the next 1 to 5 years, before declining over the 5 to 10 year period.

A number of infrastructure limitations were identified, including:

  • The Gippsland Basin is the dominant source of offshore gas supply to south east Australia; approximately 50 per cent of the gas required to meet domestic demand comes from the Longford Gas Plant with the other five gas plants in Victoria providing approximately 10 per cent of domestic demand.
  • The Longford Gas Plant only supplies the market at levels approaching its full capacity during periods of high seasonal demand.
  • The supply from the Longford Gas Plant may also be constrained by the capacity within the recently completed gas conditioning plant to process increasingly higher CO2 gas streams.
  • Four of the other five gas plants process gas from outside the Gippsland Basin and have spare capacity, but there is no significant gas supply on the horizon which would allow utilisation of this capacity.
  • Resources held under petroleum retention lease and petroleum exploration permits are expected to be developed through existing onshore infrastructure – in the Gippsland Basin, timing of this development will depend on capacity becoming available within nearby infrastructure and securing off-take agreements at prices that support the required investment.

The study also showed that structural and strategic barriers to entry and third party access have the potential to impede the development of offshore resources in southeast Australia, with low oil prices and declining gas resource quality also a contributing factor.

Industry response

“The report confirms what industry has been warning for years: that there is a pressing need to develop new gas supply to meet the energy demands of businesses and homes,” said Australian Petroleum Production and Exploration Association (APPEA) Chief Executive Dr Malcolm Roberts.

“A single sentence from the study sums up the transition occurring in the east coast market:

Future [offshore] production sources will continue to shift from the high volume, shallow depth, high-quality gas fields to low volume, deeper, low-quality gas fields, and most will effectively backfill existing capacity rather than create net new gas volumes for the market.

“The major established gas fields of offshore south-east Australia are mature and are costly to develop.

“Offshore gas will continue to be vital to the market but the challenges and costs of creating new supply will only grow.

“Companies such as ExxonMobil, BHP, Cooper Energy and Beach Energy are committing billions in risk capital to find and develop new offshore gas supplies.”

Dr Roberts said the report was yet another wake-up call for governments to support developing onshore gas supply.

“The Australian Competition and Consumer Commission recently warned that Victorians can pay a 25 per cent premium in transport costs when they import interstate gas, a cost they could avoid if the State Government followed the lead of Queensland and South Australia to support local gas projects,” he said.

“Maintaining a ban on onshore gas restricts supply and drives prices up. Victoria has the opportunity to safely develop onshore gas which will be needed more and more, to complement offshore supply.

“Playing short-term politics with energy guarantees long-term and unnecessary pain. Victoria needs to get on with developing new supply.

“As the report clearly states, successful exploration and appraisal will be required to maintain production over the longer term. All jurisdictions need to be part of the solution.”

 

Click here to read the full study.

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