Australian Competition and Consumer Commission chairman Rod Sims unloaded on LNG producers at the National Press Club in Canberra yesterday, saying the gas supply outlook for 2018 appeared worse than at the time of the regulator's first gas report in March 2016.

 

He claimed recent domestic deals by the Gladstone producers Santos and Origin Energy had not helped ease the gas shortfall issues.

 

"I said six months ago at a gas conference that if I were providing private advice to the LNG producers I would say they would be well advised to support the domestic market as much as possible at this crucial time," Sims said.

 

"They have largely not done so."

 

Sims said while Santos and its Gladstone LNG partners had taken "some highly visible steps" under the threat of the Australian Domestic Gas Security Mechanism, "none of these moves have made any serious inroads into the gas supply problem".

 

Shorten, dubbed "Blackout Bill" by his critics, said Turnbull could "pull the gas trigger, end the war on renewables, implement a clean energy target and stop the summer blackouts by developing more strategic reserves" to help "fix" the energy crisis.

 

With the federal government set to decide by November 1 whether to restrict LNG exports next year based on reports from the ACCC and the Australian Energy Market Operator, Wood Mackenzie has updated its supply demand modelling for east coast gas market to incorporate recent announcements. 

 

Prime Minister Malcolm Turnbull sought a meeting with gas industry leaders in March, following up in June with the ADGSM gas exports restriction policy.

 

As Wood Mackenzie expected, any gas supply shortfall has been made up for by diversions of gas from Queensland, on a commercial basis in response to price signals.

 

Since March, Shell, Santos and the GLNG JV have announced additional supply to the domestic market, which Wood Mackenzie said "should eliminate any material supply gap for 2018". 

 

However, the government may still declare a gas shortfall anyway and restrict exports, in continuation of the tough populist stance it has taken with the industry. 

 

While gas buyers have been lobbying for the government to restrict exports in the hope of creating downward pressure on prices, Wood Mackenzie said it "may achieve a Pyrrhic victory here, because even if the export restrictions mechanism is triggered, it is unlikely to have a material impact on gas supply or prices". 

 

"I fear that even if the export restrictions policy is triggered for 2018, we will inevitably still see similar - or even louder - calls from gas buyers next year, concerned about high gas prices, requesting further government intervention," Wood Mackenzie's Australasian oil and gas lead Saul Kavonic told Energy News.

 

"The reason prices are unlikely to be affected by export restrictions is because there is no obligation to deliver gas 'freed up' by restricting exports to the domestic market."

 

GLNG has the option of turning down wells, putting gas into storage and drilling less marginal wells, keeping some of that gas in the ground. 

 

The JV must drill new wells every year to maintain production, and Kavonic said that given the high costs of drilling, the ability to sell gas at the lower prices buyers were used to in the past would come up against an immovable economic wall. 

 

"The spectre of the ADGSM reducing exports, but seeing some of that gas stay in the ground rather than sent to the domestic market, is real," he said. 

 

"Damage to Australia's reputation for investment and lower taxes for Queenslanders will result, without achieving any material relief for gas buyers."

 

As previously reported by Energy News, Wood Mackenzie also believes the risk of blackouts could increase, as the ADGSM and other policies such as the Peak Supply Guarantee encourage electricity generators to become less conservative in their gas procurement and storage planning, instead relying on the government to intervene to make up for unexpected shortfalls. 

 

"This could increase the likelihood and frequency of short term-gas shortfalls actually occurring," he said.

 

 

Amid the renewed firestorm, Shell's new country chair, former University of WA graduate Zoe Yujnovich, came out swinging yesterday, saying the Anglo-Dutch supermajor had consistently produced more gas than it exported through its Queensland projects, with the balance sold to east coast customers.

 

She said Shell had responded to local market conditions, and for the past two winters had diverted gas bound for export markets to locations such as Melbourne.

 

This year Shell will sell 75 petajoules of gas to east coast customers - 10% of the entire east coast gas market from Queensland Curtis LNG.

 

Shell has also established a business based in Melbourne dedicated to selling Australian gas locally, which Yujnovich said signalled the oiler's long-term ambition to supply customers across Victoria and NSW.

 

"East coast customers are paying more than twice as much to get the gas from where it is produced to where it is used as customers on the west coast  - a cost that is ultimately paid by households and businesses," she said. 

 

"This cost will continue to be felt by customers until the pipeline access reforms identified by the ACCC in 2016 are fully implemented.

 

"The best interests of customers are served by producing more gas close to where the customers use it. That means lifting bans on onshore gas production in Victoria and NSW - while continuing with ACCC recommendations on pipeline reform and enhancing retail transparency."