Underlying domestic gas demand on Australia’s east coast is falling faster than might be apparent, according to a new report.

The report shows total east coast domestic gas demand fell by a modest 2.5% in the March quarter compared with the same period in 2016.

However, underlying gas demand is falling much faster in the face of high prices.  Excluding gas-use for power generation, gas use fell by 8% and excluding gas used to fuel Queensland LNG plants as well, the fall in gas-use was a staggering 16%.

These estimates are contained in the just released June quarterly review by respected independent energy consultancy, EnergyQuest.

EnergyQuest CEO, Dr Graeme Bethune, said that short-term east coast gas prices averaged $9.95/GJ in Q1 2017, double those of a year earlier.

“Average prices close to $10/GJ are clearly hitting demand,” he said.

High gas prices not driving domestic gas development

“Paradoxically, high gas prices are not translating into a gas investment boom.

“Instead, the east coast is experiencing a drought of investment in domestic gas.

“A major reason is the fall in the oil price.

“After the price rallying to around US$55/bbl following the OPEC meeting in November last year, the price is now softening in the face of rising US production. Australian gas development is likely to remain constrained by a sustained low oil price.

“As a result, there is a risk that the problems on the east coast are long-term, not short-term.

”There are significant undeveloped gas resources in the Cooper Basin and NSW but development of the former is constrained by the low oil price and the latter by Lock the Gate.”

Dr Bethune said Federal Government initiatives on the east coast gas crisis are welcome and the Prime Minister’s involvement appeared to be having positive results with some producers.

“However, there appears to be a view that the LNG projects are sucking vast volumes of gas from the domestic market and all would be well if this is stopped. This view is incorrect for two reasons.

“Firstly, the sale of Santos Cooper Basin gas to GLNG was all signed-off in 2010, nearly seven years ago, without any obvious government concerns. The horse has well and truly bolted so far as that gas goes.

“Secondly, a substantial volume of other third-party gas contracted to the Santos-operated GLNG project appears to originate from other LNG projects and was never developed for domestic gas. Gas bought from third parties is not necessarily taking gas from the domestic market.

“Overall, it is likely that the net draw of the new east coast LNG terminals on domestic gas supplies is quite modest.”

EnergyQuest pointed to some positive signs of potential increased east coast domestic supply.

“Shell has been working to facilitate increased supply from QCLNG and completion of the Reedy Creek to Wallumbilla Pipeline in mid-2018 will facilitate further supply into the domestic market from APLNG,” Dr Bethune said.

“Arrow is expanding Tipton West and Daandine, both likely precursors to further development. The Queensland Government is releasing domestic gas acreage and the South Australian Government is also encouraging gas development. AGL is working to develop an LNG import terminal in the southern states.”