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10 June 2015

Functional market will avoid gas train wreck



Australia’s eastern gas market risks a 20% shortfall in supplies by 2019 as upstream producers rein in spending because of low oil prices. Rising demand from upcoming LNG export projects in Queensland could also limit flows into the local market should suppliers prioritise more lucrative Asia Pacific buyers in the years ahead.

The warning was flagged by consultants EnergyQuest, who identified what they claim to be assumption errors in data used to monitor future demand and support policy and investment decisions.

In its 2015 Gas Statement of Opportunities (GSOO) published in April, the Australian Energy Market Operator (AEMO) said there will be "no supply gaps for any of Australia’s eastern and southeastern gas markets over the short term to 2019". This is because of lower-than-forecast consumption levels, including a 17% drop in gas consumption in New South Wales (NSW) and upgrades to gas market infrastructure, AEMO said.

But, according to EnergyQuest Chief Executive Graeme Bethune, AEMO’s forecast is "unrealistically optimistic" – brushing aside public and industry concerns about tightening gas supply, and threatening future onshore gas investment in NSW and Victoria.

EnergyQuest has highlighted three main areas where it believes AEMO analysis is inaccurate.

"First, AEMO’s estimates of demand for gas by the Queensland LNG projects appear to us to be too low and would be insufficient for them to meet their contracts," Bethune said.

"Second, AEMO’s estimates of production from the Cooper Basin are too high – higher than the producing companies themselves expect – particularly in view of cuts to capital spending due to the fall in the oil price.

"Third, AEMO significantly underestimates gas reserve risk, relying on production from fields to which geoscientists might only assign a probability of success of 10% or which are not yet demonstrated to be technically or economically producible," he added.

"Correcting these factors changes the east coast gas demand and supply balance from AEMO’s meagre surplus of 22 PJ in 2019 to a 133 PJ shortfall in that year. A significant short-term supply gap has re-emerged, which increases to over 200 PJ per year early next decade," Bethune warned.

The claims have been rejected by the regulator. "AEMO followed a rigorous consultation process to ensure the most up to date information was available in its the GSOO, and continues to monitor the market closely," a spokesperson told Interfax.

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