Outlook for the
East Australian Gas Market
David Whitelaw
Resources and Energy Economics Branch
Office of the Chief Economist
November 2015
Office of the Chief Economist
1
The East Australian gas market
Market in transition
East Australian gas demand forecast
Impact of LNG exports
•
2500
• Higher wholesale prices
• Falling domestic demand
• Fears of gas shortages
•
•
2000
•
PJ
1500
1000
500
0
2010
2012
NSW
2014
Qld
2016
Tas
2018
2020
2022
SA
Vic
LNG
Source: AEMO National Gas Demand Forecast Project 2014
2
2024
State of the market
Inter-connection 1998–2003
Hub
Processing plant
Multiple sources of supply
Gas-on-gas competition
•
•
Cooper Basin
South
Bowen
Basin
BRISBANE
NSW
Basins
SYDNEY
ADELAIDE
CANBERRA
MELBOURNE
Bass
Otway Basin
Basin
Gippsland Basin
HOBART
Source: Industry, Innovation and Science (2015)
3
State of the market
Not yet fully inter-connected
Hub
Processing plant
North
• Queensland
(Brisbane, Gladstone and Mt. Isa)
• Cooper basin
• Surat / Bowen basins
•
•
Cooper Basin
South
Bowen
Basin
BRISBANE
•
NSW
Basins
SYDNEY
ADELAIDE
CANBERRA
MELBOURNE
Bass
Otway Basin
Basin
Gippsland Basin
HOBART
Source: Industry, Innovation and Science (2015)
4
South
• Victoria, NSW, South Australia and
Tasmania
• Gippsland, Bass and Otway basins
• NSW CSG basins
•
•
State of the market
Not yet fully inter-connected
Hub
Processing plant
North
• Queensland
(Brisbane, Gladstone and Mt. Isa)
• Cooper basin
• Surat / Bowen basins
•
•
Cooper Basin
South
Bowen
Basin
BRISBANE
•
NSW
Basins
•
•
SYDNEY
ADELAIDE
CANBERRA
MELBOURNE
Bass
Otway Basin
Basin
Gippsland Basin
HOBART
Source: Industry, Innovation and Science (2015)
5
South
• Victoria, NSW, South Australia and
Tasmania
• Gippsland, Bass and Otway basins
• NSW CSG basins
State of the market
Adequacy of gas reserves
Hub
Gas Reserves (proved and probable)
•
Processing plant
1.
2.
3.
4.
Cooper Basin
South
Bowen
Basin
BRISBANE
SYDNEY
ADELAIDE
CANBERRA
MELBOURNE
Bass
Otway Basin
Basin
Gippsland Basin
HOBART
Source: Industry, Innovation and Science (2015)
6
Queensland Surat / Bowen CSG
Victorian offshore
Cooper basin
NSW CSG
State of the market — in the South
Adequacy of gas production capacity
Maximum production capacity and forecast demand
600
Production capacity in the
South is adequate
Reserve depletion soon
becomes a problem
500
400
The South needs new gas
reserves to maintain
production:
Pj
300
200
• NSW CSG
• More exploration
• NT supply
100
0
2014
2016
Otways
2018
2020
Longford
2022
Other Vict
Source: Industry, Innovation and Science (2015)
7
2024
2026
NSW CSG
2028
2030
Demand
State of the market — in the North
Adequacy of gas production capacity
Maximum production capacity and forecast demand
Production capacity
(after LNG demand is
served) is very tight
•
500
450
LNG production can vary
between nameplate and
Take-or-Pay
400
•
350
300
The market needs more
production capacity
PJ
250
•
200
150
100
50
0
2014
2016
2018
2020
Min Domestic production
Source: Industry, Innovation and Science (2015)
8
2022
2024
2026
Max Domestic production
2028
2030
Qld Demand
Modelling results
Impact of market power
How market power determines domestic prices in the South
10
Perfect competition
Prices set by marginal cost
•
9
•
8
7
Oligopoly
Mark-up depends on strength
of market power
•
$/GJ
6
•
5
4
Conclusion
Increasing market
concentration as Otways
decline
•
3
•
2
1
0
2014
2016
2018
Market Power 1
2020
2022
Market Power 0.5
Source: Industry, Innovation and Science (2015)
9
2024
2026
2028
Perfect Competition
Modelling results
Impact of market power
Domestic demand in the South
500
Higher prices depress
demand
•
450
400
Mainly in gas-fired power
generation
•
350
PJ
300
Demand is supported by large
residential loads
250
•
200
150
100
50
0
2014
2016
2018
Market Power 1
2020
Market Power 0.5
Source: Industry, Innovation and Science (2015)
10
2022
2024
2026
2028
Perfect Competition
Conclusions
Key factors influencing the future development of the gas market
Queensland
•
1. LNG demand volatility
2. Incentives to add production capacity
•
•
The South
•
1. New gas reserves or sources of supply
2. Market power in a tight market
•
•
But gas pipeline capacity mostly OK
•
11
Further information
Contact details
•
David Whitelaw
Economist
Resources and Energy Economics Branch
Economic and Analytical Services Division
Phone:
Email:
02 6243 7158
david.whitelaw@industry.gov.au
industry.gov.au