The NSW gas market: is there a problem? Ai Group AGL Gas Summit The American Club, Sydney Paul Balfe Executive Director 12 July 2013.

The NSW gas market: is there a problem?

Ai Group AGL Gas SummitThe American Club, Sydney

Paul BalfeExecutive Director

12 July 2013

Slide 2

Topics• Context: Eastern Australia and the

transition to LNG export• The situation in NSW

– Heavily dependent on imports– Long-term contracts expiring– Uncertainty over contract roll-over,

particularly from SA– Risk of significant supply contraints

• Mitigating the risk– Stimulating supply– Local NSW CSG production

Ai Group AGL Gas Summit

3

Australia’s LNG construction boom


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LNG Capacity (mtpa)Australia LNG Production:

Existing, Committed & All Proposed Arrow 2

Arrow 1

Timor Sea LNG

Sunrise

Bonaparte

Scarborough

Pluto 3

Browse

Pluto 2

Prelude

Ichthys

Wheatstone

APLNG 2

APLNG 1

GLNG 2

GLNG 1

QCLNG 2

QCLNG 1

Gorgon

Pluto 1

Darwin LNG

NWS

CommittedSource: ACIL Allen compilation of public data

4

Eastern Australia gas demand forecast (8-train, 32 Mtpa LNG scenario)


Data source: ACIL Allen GMG Australia modelling

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PJ

Residential/commercial Small industrial Large industrial

Chemicals & Fertiliser Mining & mineral processing Electrical generation

LNG

Ai Group AGL Gas Summit 5

Interconnected East Coast Gas Market

• Previously separated geographic markets now interconnected

• Producers have options where they sell

• Producers will seek the best prices for their products

• Price trends are reflected throughout the interconnected market

Brisbane

Gladstone

Moranbah

Townsville

Newcastle

Sydney

Hobart

Melbourne

Adelaide

Mount Isa

Bowen CSG

Surat CSG

Gunnedah CSG

Sydney CSG

Ballera

IonaLang Lang

LongfordOrbost

WallumbillaMoomba

Gladstone CSG LNG plantsQueensland

New South Wales

South Australia

Victoria

Tasmania

Northern Territory

Slide 6

Wholesale gas prices: Brisbane STTM


AEMO data

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Ex-

po

st p

rice

($/G

J)

Brisbane 28 per. Mov. Avg. (Brisbane)

• Spot prices are moving up ahead of LNG start-up

• No apparent price suppression from “ramp gas”

Slide 7

Wholesale gas prices: Sydney STTM


AEMO data

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Ex-

po

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rice

($/G

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Sydney 28 per. Mov. Avg. (Sydney)

• The rising spot price trend is apparent in NSW …

Slide 8

Wholesale gas prices: Victorian Spot Market


AEMO data

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With

dra

wal

s (T

J/d

)

Pric

e ($

/GJ)

Withdrawals (TJ)

Market Price ($/GJ)

28 per. Mov. Avg. (Market Price ($/GJ))

… and also in Victoria

Slide 9

Spot Markets vs Long Term Contracts

• Outside Victoria, short-term or spot markets are a recent development

• The market continues to be underpinned by long-term bilateral contracts– 5-10 years, backed by dedicated 2P

reserves

• Industry investment still requires security of long-term contracts


Slide 10

The situation in NSW• Heavily dependent on gas imports ex South

Australia, Victoria• Long term contracts expiring• Uncertainty over roll-over of existing contracts,

particularly from South Australia• Q: If SA contract roll-over is not possible, can

Victoria substitute?A: No

• Q: What are the alternatives?A: Develop alternative supply (eg local CSG) or risk significant contraction of gas-using industry


Slide 11

NSW gas supply by source: 2012


ACIL Allen compilation of National Gas Market Bulletin Board data

-20

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1

Gas supply (PJ/a)

SA to Vic via Interconnector

NSW Local

From Victoria

From SA

Slide 12

NSW contracted supply vs demand


ACIL Allen analysis

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PJ/aPJ/aContracted supply NSW Demand East Australia demand (RHS)

Slide 13

Why is there a concern about contract roll-over? Is it just a question of price?• Remaining 2P Reserves in Cooper Basin

heavily committed to existing contracts• Very unlikely Queensland CSG will be

available for NSW• New reserves likely to be found in Cooper

(infill, tight/shale gas)– BUT availability/timing uncertain

• If available, alternative sale to Gladstone LNG plants means NSW will need to pay at least LNG netback prices to secure supply


Slide 14

Cooper Basin ReservesTotal remaining 2P = 1,804 PJAvailable 2P = 60 PJ


Core Energy 2012

Net Cooper supply to NSW in 2012 = 52 PJ

Domestic contracted, 363

LNG Contracted, 750

Domestic committed, 98

LNG committed, 533

Available, 60

Slide 15

If we can’t get gas from Cooper Basin, why not get it from Victoria? • Bass Strait fields have substantial

uncommitted reserves BUT– Existing pipeline capacity is inadequate

to meet peak demand– Existing gas processing capacity is

inadequate to meet peak demand


Slide 16

Bass Strait ReservesTotal remaining 2P = 5,309 PJAvailable 2P = 2,542 PJ


Core Energy 2012

Gippsland contracted, 1814

Otway contracted, 746Bass contracted,

207

Gippsland available, 2339

Otway Available, 156

Bass available, 47

Slide 17

NSW Gas Supply 2012


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TJ/dEastern Gas Pipeline Moomba Sydney Pipeline

NSW-VIC Interconnector Total

Data Source: National Gas Market Bulletin Board

Slide 18

NSW pipeline capacity


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900TJ/d

Eastern Gas Pipeline Moomba Sydney Pipeline NSW-VIC Interconnector


Slide 19

Existing pipelines cannot supply full NSW market ex Victoria


-200

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700TJ/d

Eastern Gas Pipeline Moomba Sydney PipelineNSW-VIC Interconnector TotalCapacity EGP +I'con

Implies EGP expansion from 294 TJ/d to at least 475 TJ/d


Slide 20

Bass Strait region gas production 2012


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1800TJ/d Longford Otway Iona Minerva BassGas Orbost


Slide 21

Bass Strait producers peak output in 2012 was less than aggregate nominal capacity



1111

195343

90 59 59

1857

1145

205

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81 70 90

2091

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Longford Otway Iona Minerva BassGas Orbost TOTAL

TJ/d 2012 Peak Nominal max capacity

Slide 22

Existing Bass Strait production capacity cannot meet the full Moomba load


-500

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2500TJ/d Longford Otway

Iona MinervaBassGas OrbostNSW ex Moomba 2012 Combined Peak


Slide 23

The risk to the NSW Gas Market• In the absence of new sources of gas supply, there is a

real risk that current levels of gas consumption in NSW will not be able to be maintained in the future

• Prices will rise, effectively rationing demand to those customers best able to pay higher prices– Price sensitive customers will exit the market

» “Demand destruction” will bring consumption into line with available supply

» Some of the exiting customers will not return, even if supply recovers and prices moderate

– Worst-affected will be large industrial consumers, esp. feedstock users (chemicals, fertiliser)

– Reduced dispatch of gas-fired electricity generators will see increased dispatch of existing coal-fired plant


Slide 24

NSW gas consumption vs demand: “CSG Freeze”


ACIL Allen modelling

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

Power Generation - cogeneration 7 9 8 10 10 10 10 10 9 10 10 10 9 9 9 9 8 9 9 9 9 9 9 8

Power Generation - CCGT 23 23 21 22 20 20 11 11 11 11 10 10 10 10 10 11 10 9 10 10 9 9 9 9

Power Generation - OCGT 2 1 2 1 1 3 3 3 3 3 3 3 3 4 4 4 3 3 3 3 3 3 3 3

Large Industrial 22 23 11 24 24 24 25 25 14 14 14 14 14 13 13 13 13 12 12 12 12 12 12 12

Small Industrial 65 65 64 67 67 67 68 68 67 67 67 67 67 67 67 67 66 66 66 66 66 66 66 66

Commercial/Residential 48 48 47 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50

BASE TOTAL 167 170 154 177 177 179 173 171 169 170 169 170 170 160 159 160 159 159 160 159 159 158 158 158

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Gas consumption PJ/a

Commercial/Residential Small Industrial Large IndustrialPower Generation - OCGT Power Generation - CCGT Power Generation - cogenerationBASE TOTAL

25

Response options• Only two fundamental

options:– Increase Supply OR Reduce

Demand

• LNG export demand is effectively locked in– LNG projects have long-term

offtake contracts with binding delivery commitments

• The only effective response options are those aimed at stimulating supply– But supply response takes

time


Demand is effectively locked in …

QCLNG Project – June 2013

26

NSW CSG supply: Base Case model assumptions



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Gas Production PJ/a Camden Clarence Moreton CSG Hunter Valley Gloucester Gunnedah

Current Queensland CSG production level

Slide 27

Economic impacts of NSW CSG supply expansionMeasure Impact

Total NSW gas consumption (aggregate 2013 – 2035) +193 PJ

NSW gas price (SYD city gate, 2013 – 2035 avg) -$1.03/GJ

NSW Gross State Product (aggregate 2013 – 2035) +$14.2 billion

NSW Real Income (aggregate 2013 – 2035) +$24.6 billion

NSW Government Royalties & Payroll Tax +1.9 billion

NSW employment 1,411 FTE jobs



Note: results represent difference between “Base Case” and “CSG Freeze Case”. Real 2012 dollars

The NSW gas market: is there a problem?

Ai Group AGL Gas SummitThe American Club, Sydney

Paul BalfeExecutive Director

12 July 2013

The NSW gas market: is there a problem? Ai Group AGL Gas Summit The American Club, Sydney Paul Balfe Executive Director 12 July 2013.

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