Australian gas markets are expected to undergo significant change, particularly in the east, due to a rapid increase in LNG exports from the middle of this decade, the government's Bureau of Resources and Energy Economics said Wednesday in a report.
Over the next five years, wholesale gas prices could increase substantially as they converge towards international levels after the startup in the middle of this decade of LNG exports from three plants in the east coast city of Gladstone, BREE said.
"Higher gas prices in eastern Australia should support investment in gas supply and, ultimately result in an increase in gas production, which in turn would put downward pressure on gas prices," said BREE Executive Director and Chief Economist Quentin Grafton.
Seven LNG export projects are currently under construction around Australia. Three of those, with total capacity of 25.3 million mt/year, are being built in Gladstone.
In the financial year ending June 30, 2010, gas consumption in the eastern Australian market was around 20 Bcm, accounting for more than half the national total. The eastern region produced around 35% of Australia's gas in 2010-2011, with one third or about 6 Bcm of the total being coalseam gas.
"While the eastern gas market is likely to tighten over the next five years, overall gas availability does not appear to be the issue," BREE said. "Rather, it appears to be a question of price."
Gas prices on the east coast are widely expected to rise to international oil price-linked parity of between $6-9/gigajoule.
In May this year, Origin Energy announced a deal to supply 365 petajoules (9.4 Bcm) of gas over 10 years to the Santos-operated Gladstone LNG project, which is expected to start up in 2015.
"The Origin/GLNG agreement highlights the availability of gas if purchases are willing to pay oil-linked prices," BREE said. "At $100 a barrel, an oil-linked price equates to around $7 a GJ and is a much higher price than many industrial consumers are currently paying. This suggests that consumers in the eastern gas market will need to adjust to higher prices."
