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In the newly released Future gas strategythe Australian government has said that “gas will be needed until 2050 and beyond,” but IEEFA research suggests that this claim should be viewed with some skepticism.
Key points from the analytical report that support your strategy include:
- Additional gas investment and supplies will be needed to avoid supply gaps in the domestic market and ensure sufficient supply for households, generators and industry.
- Liquefied natural gas (LNG) in Australia is expected to be in strong demand until 2035 (to meet existing LNG contractual commitments).
- Major trading partners rely on Australian LNG and demand for Australian LNG is “expected to persist through the transition period”.
- Carbon capture, utilization and storage (CCUS) will be needed to help the industry decarbonize and reduce emissions.
IEEFA's analysis raises serious doubts about these findings. In the domestic market, both the Australian Energy Market Operator (AEMO) and the Australian Commission and Consumer Commission (ACCC) have called for increased gas supply for at least the past five years to avoid expected supply gaps. It's here. However, IEEFA research shows that cost-effective and targeted measures to reduce residential demand can eliminate the risk of supply gaps throughout the year and on peak demand days, while also reducing household energy bills. Shown. The option of increasing gas supply or importing LNG could have the opposite effect of increasing utility costs.we discovered it Installing new gas appliances costs Australian households $1.2 billion in unnecessary costs each year.
Tight supply prospects in recent years have had a severe impact on Australia's industrial gas users. Manufacturers Incitec Pivot and Qenos have idled or announced plans to shut down plants due to insufficient affordable gas supplies. However, a focus on increasing gas supplies is unlikely to improve market conditions for industrial users, given that gas costs are likely to rise as marginal gas fields are developed. Sho. In IEEFA's opinion, reducing domestic gas demand is more effective in ensuring adequate gas supplies for industries that do not yet have access to fossil gas alternatives.
Without significant investment in new exploration, the gas supply outlook is unlikely to change significantly, a point acknowledged in the report. Future gas strategy. However, Australian oil and gas exploration spending has fallen significantly over the past decade to levels not seen since the early 2000s (see Figure 1). Remarkably, total investment has changed little since 2017, when concerns about supply gaps prompted the Australian Government to introduce the Australian Domestic Gas Security Mechanism.
Australian gas analyst Graham Bethune said: “Australian energy companies, like their global peers, are cutting exploration budgets, laying off explorers and shifting investment to renewable energy. “We are returning funds to shareholders.” this is, Future gas strategy It will actually drive additional investment.
In contrast, the LNG market is undergoing an investment boom, with an unprecedented wave of low-cost new LNG supply. IEEFA estimates that global LNG liquefaction capacity will increase by 40% over the next five years, driven primarily by Qatar and the United States, which have lower LNG production costs than Australia.
This new supply will create an LNG glut in the second half of the 2010s. Already, expectations of a “buyer's market” have led some LNG buyers to seek lower LNG contract prices or renegotiate existing contracts. S&P Global Commodities Insights points out that: “Changes in market dynamics have left sellers in a quandary as they compete for a shrinking share of high-value customers like Japan and South Korea, and are under pressure to agree to different terms and conditions to appease LNG buyers.” is. ”
This new LNG supply enters the market at a time when global gas demand is expected to peak. The International Energy Agency (IEA) predicts that even under the most conservative scenario, global gas demand is likely to peak by 2030. The IEA predicts that global gas demand will decline rapidly once countries fulfill the climate commitments they have already announced.
Much of this new LNG supply has not yet been sold to end users under LNG contracts, so the LNG market will soon be flooded with available LNG. Qatar, the world's lowest-cost supplier, is expected to have an increasingly increasing amount of surplus LNG from 2025 (see Figure 2).
Figure 2: Qatar will be able to sell large amounts of LNG
Source: IEEFA analysis of ICIS LNGEdge data.
Portfolio traders who have added large amounts of LNG supply to their portfolios in recent years cannot continue to sell this LNG. The IEA estimates that a portfolio trader has contracted just over half of his LNG portfolio with end buyers.
LNG demand in Japan, Australia's largest LNG buyer, has been declining since 2014 and will continue to decline as Japan continues to bring more nuclear power plants online. Japan currently has a surplus of LNG, and competition with Australia for LNG supplies to emerging markets in Asia is intensifying. Between 2020 and 2022, Japanese companies sold more LNG to third countries than they imported from Australia, highlighting that Japan doesn't actually need Australian LNG.
LNG demand is also decreasing in South Korea, Australia's main export destination for LNG. China, which is expected to lead the growth in global LNG demand, is likely to have an excess supply of LNG by 2030.
of Future gas strategy It also suggests that the future of Australia's LNG sector will rely on CCUS to meet emissions reduction targets. However, IEEFA's analysis found that CCUS is an expensive and unproven technology with a history of failures and underperformance.
of Future gas strategy lists Western Australia's Gorgon CCS project as “one of the most successful CCUS projects in the world”. However, IEEFA points out that despite the project's massive cost of $3 billion, it is significantly underperformance, with carbon dioxide (CO2) injection rates less than half of the recovery target. Globally, CCUS captured approximately 0.1% of global energy-related CO2 emissions in 2022.
CCUS projects also face various risks such as carbon leakage and water pollution. Even in highly regulated Norway, successful CCUS projects have resulted in unexpected CO2 transfers, indicating continued risks.
However, in Australia there is limited protection against failure of CCUS projects. If CCUS projects proceed in Australia, more stringent warranty requirements will be required to cover the ongoing costs associated with monitoring CCUS sites.
Questions about the viability of CCUS and the need to increase supply and the long-term outlook for the international gas market Future gas strategythe government should take action.
