In a recent study, Wood Mackenzie forecasts Australia’s East Coast gas prices to rise up to 30 percent to between A$10 and A$13 /per gigajoule by the mid 2020s.
The industry analysts says it is no surprise gas prices in the East Coast have jumped up over the last three years, a situation driven primarily by declining cheap gas supply from the Cooper Basin and offshore Victoria. New gas supply sources are also proving far more expensive to develop than the cheap legacy supply sources that have maintained Australian gas supply for decades.
Meanwhile gas demand is in flux as power generation competes with industrial users for gas supply. The larger industrial plants that are major gas buyers, representing around 12% of domestic gas demand, are at most risk of closure as gas prices continue to rise.
“The current high prices are only going to continue to get higher next decade as LNG prices increase and transport infrastructure becomes increasingly congested,” said Saul Kavonic, principal analyst, Wood Mackenzie at the APPEA conference today. “A major new development in the market will be how gas flows and pricing change become increasingly seasonal and complex, and thus opening up new opportunities for gas trading and infrastructure investment.”
The East Coast presents a new high value opportunity for emerging gas storage, trading and optimisation operations. Importing LNG into an interconnected grid from which gas is also exported, alongside new investment in gas supply, transport and storage infrastructure, are all being pursued to capitalise on the increasing prices and seasonality in gas flows.
While the cost of importing and delivering gas to Melbourne, Sydney or Adelaide is marginal compared to diversions from the Queensland CSG-LNG projects, the former presents strategic options and supply diversity sought by gas buyers. The West-East pipeline, however, proves to be the most costly option of the three.
Ultimately, the new price signal will incentivise new supply from various sources to be brought online both in the near and longer term. This will impact internal gas flow dynamics within Australia, which are set to become more complex and seasonal in both flows and pricing.
In the longer term, as cost of renewables decline and battery technology improves, these alternative energy sources could become a viable option to mitigate East Coast gas demand.
“In our case study for South Australia, we see wind, solar and battery costs to fall by 15%, 25% and 50% respectively by 2025. By then, renewables and batteries could offer a lower cost alternative to both mid merit and peaking uses for gas-fired power in South Australia. While South Australia has so far seen the highest levels of renewable growth, falling costs could accelerate renewables investment in the East Coast,” concluded Nicholas Browne, research director.