Terms of Reference
Study on the Eastern Australian Domestic Gas Market
Background
Australian gas markets are undergoing a significant period of development. In particular, the
eastern Australian gas market is undergoing a period of substantial transformation, with the
development of Coal Seam Gas (CSG) and the associated creation of an east coast Liquefied
Natural Gas (LNG) export industry.
Once the LNG plants come into operation (expected from 2014) there will be a massive
increase in demand for gas in the eastern Australian market, with total demand forecast to rise
from 697 petajoules per annum (PJ/a) in 2012 to 1,395 PJ/a in 2015 and 2,386 PJ/a in 2020
(Gas Statement of Opportunities 2012). The Commonwealth’s National Energy Security
Assessment and follow up consultation with industry indicated that this increase in demand
could lead to a period of tightening between the demand for and the supply of gas from
around 2015.
While the LNG industry is helping to expand Australia’s gas market by bringing on new gas
supplies and greater pipeline infrastructure, the timing of these activities and the increasing
exposure to international markets is creating considerable uncertainty in relation to the
availability and cost of domestic gas. Specific uncertainties include the extent, duration and
significance of any potential tightness in gas supply in the eastern market in the critical
period between 2015 and 2020 and how any tightness will manifest itself, in particular the
degree of contracting risk faced by consumers.
Current information on the gas market is limited, with information gaps around forecast
domestic supply of gas, particularly given the commercial sensitivities. Some major
industrial users of gas have reported they are unable to secure domestic gas supply contracts
during this period at any price. Others are reporting being offered short term contracts at
much higher prices than existing contracts. While many gas producers are reporting that they
are willing to sign gas contracts but it is a question of price and term. There is also limited
information about the relationship between international and domestic supply conditions and
pricing and how this interaction will play out over time.
This Study will help address this information asymmetry and inform Government’s decision
making with respect to effective resource management and development of both the domestic
and LNG market. Specifically, the Study aims to provide analysis of the expected gas
demand-supply situation and identify potential constraints on domestic supply availability
over the period 2015-2020 and its consequences for the price of gas. International linkages
will also be considered.
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Gas Market Study Objective
The Study will be a joint project between the Department of Resources, Energy and Tourism
and the Bureau of Resource and Energy Economics. The objective of the Study is to produce
a comprehensive report on Australia’s gas markets, the state of play and barriers to domestic
gas supply, focusing on eastern Australia but including analysis of the operation of the West
Australian gas market. It is intended to provide a comprehensive view of the level of activity
and competitive structure within the domestic supply industry covering tenement holders,
upstream producers, pipeline owners/managers and shippers. It will also seek to estimate the
current level of demand, price for gas and volumes of both short and long-term gas contracts.
Importantly, it will also explicitly consider linkages between these domestic gas market
variables and international markets and thereby facilitate exploration of the impact on the
domestic gas market of alternative international market scenarios.
The Study will utilise a scenario approach to identifying market trends over the period 20132023, to provide a clear picture of the demand-supply situation in the eastern Australian gas
market over the 10 year period with a particular emphasis on the period of 2015-2020.
In addition, the Study will seek to identify the potential constraints on domestic supply
availability. This may include physical barriers (eg pipeline constraints) or non-physical
(eg regulatory barriers) and the implications of competition with international gas demand
and supply. An array of potential policy responses to mitigate any identified constraints and
options to assist in improving the market dynamics to respond to emerging price signals will
also be considered.
Study Scope
Building on an understanding of the developments in Australia’s gas markets over the
previous two decades, the Study will include scenarios over the time period 2013-2023
drawing on the following data:
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gas reserves;
gas production rates;
gas market demand (including but not limited to short and long-term gas contracts);
pipeline capacity;
wholesale and retail gas market prices; and
state and federal government regulatory and policy settings regarding gas field
developments.
As the supply and demand dynamics of the eastern gas market are interlinked with the export
LNG market, the Study and scenarios will consider market trends for the international gas
market, especially in the Asia-Pacific region.
The scenario-based Study will also need to account for the following market conditions:
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general macroeconomic environment;
LNG project developments;
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conventional, shale, tight and CSG gas development and production rates; and
gas market infrastructure developments.
Stakeholders and Consultation
It is proposed an industry reference group be set up comprising relevant stakeholders,
particularly gas users and producers, to put their views, experience and expectations about the
development of Australia’s gas markets forward. Other Commonwealth agencies and state
and territories governments will be kept informed throughout the project’s development.
Timing
The project is expected to commence mid 2013 with a final report to be completed by the end
of 2013. The report would be made public by the Minister for Resources and Energy in
consultation with the Prime Minister.
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