The ramp-up of CSG production volumes is now clearly evident in production data published by the Australian Energy Market Operator on the National Gas Market Bulletin Board (see Figure 2). Queensland CSG production in October reached almost 57 PJ – an annualised rate of more than 680 PJ/a – with ten new production facilities having come on line over the past 12 months. This is a significant production milestone with the Queensland CSG facilities for the first time producing at a rate in excess of the domestic demand level for the entire eastern Australian market.
Figure 2: Queensland CSG Production
Source: ACIL Allen analysis of National Gas Market Bulletin Board data.
The results from the Wallumbilla Gas Trading are shown in Figure 3. The Wallumbilla Hub provides a market in which buyers and sellers can trade gas on a short term basis across three transmission pipeline systems: the Roma–Brisbane Pipeline (RBP), the South West Queensland Pipeline (SWQP) and the Queensland Gas Pipeline (Wallumbilla to Gladstone & Rockhampton, QGP).
The RBP continues to be the most actively traded location at the Wallumbilla Hub.
As shown in Figure 3 prices at Wallumbilla (RBP) fell to less than AU$1.00/GJ in November and early December 2014 before rising sharply, reaching AU$8.00/GJ at the beginning of January. Over the course of 2015, the Wallumbilla (RBP) price has been very volatile, trading in a range from less than AU$1.00 to almost AU$8.00/GJ, with repeated rapid fluctuations.
Trading volumes have also increased significantly, particularly since mid-year, with trades of more than 20 TJ/d now relatively common.
The data confirms earlier expectations of increased short-term price and volume volatility reflecting fluctuations in the supply-demand balance as LNG production at Gladstone ramps up.
Figure 3: Wallumbilla Hub Price and Volume
Source: ACIL Allen analysis of data published by the Australian Energy Market Operator.
After dropping sharply through the second half of 2014, global oil prices stabilised to some extent over the course of 2015.
However, continuing price softness is evident with Brent crude having retreated from a high of almost US$65 per barrel in May to around US$47 per barrel in September. There seems to be little prospect of a sustained oil price recovery in the short term.
As shown in Figure 4, US Henry Hub gas prices have continued to drift lower and now stand at around US$2.50/MMBtu, a level last seen in mid-2012.
Japan LNG prices under oil-linked long-term contracts slumped sharply in April and May 2015, following oil prices down (with a lag) to less than US$9/MMBtu.
Spot LNG prices have remained depressed, with data published by the Japanese Ministry of Economy, Trade and Industry showing prices for spot LNG cargoes contracted for delivery to Japan in September 2015 standing at US$7.4/MMBtu.
The fall in oil prices has seen a dramatic collapse in drilling activity across all of the major US shale oil and gas plays. Data published by the US Energy Information Administration shows that the number of active drilling rigs has slumped by 57 per cent from a peak of 1,308 in October 2014 to 564 in September 2015.
Figure 4: US spot gas prices (henry hub) compared to oil and lng
Source: Data published by the US Energy Information Administration and World Bank.
US oil and gas production continued to rise for several months after the rig count collapsed, reflecting lags in completing and tying in production wells after drilling.
However, both oil and gas production have now peaked, with oil production in September 2015 some 6 per cent below the April 2015 peak of 5.54 million barrels per day (Figure 6). For gas, the corresponding data shows that production is down 1.5 per cent since peaking in June at 45.9 billion cubic feet per day (Figure 7).
With the sharp cutback in drilling activity, these production rates can be expected to continue to fall over the coming months.
Figure 5: US active rig count
Figure 6: US shale oil production
Figure 7: US shale gas production
Source: US Energy Information Administration data.