EnergyQuest has released its December 2022 EnergyQuarterly report, warning of a looming east coast train wreck as coal closes faster than renewables ramp up.

Key points of the report include:

• The federal government is poised to intervene in the east coast gas market. Moves to cap gas prices would not only increase east coast gas demand and reduce supply, but it would also amount to a whopping and inefficient fossil fuel subsidy of over $20/GJ. Only two weeks ago at COP 27, Australia, committed to “phase-out of inefficient fossil fuel subsidies”. Targeting temporary financial support for consumers who are most vulnerable to energy price shocks would be a far better solution than price caps. The Treasurer is getting $50 billion of windfall gains to his budget through the increases in company tax and PRRT from the spike in fossil fuel prices. The states already have a mish-mash of energy grants for energy cost relief that could be much better targeted through the Commonwealth welfare payment system.
• NEM electricity prices have fallen since the winter power crisis but spot gas prices are still relatively high. This does not appear to be explained by changes in fundamental demand or supply. It may be that government actions (ACCC netbacks and promises of government intervention) are at least partly responsible.
• In the light of Friday’s decision on Santos’s Barossa project, we take a look at the future of Australian gas and coal generally. Gas exploration is in the doldrums and the reserves to production ratio is only 22 years. The expected life of operating coal mines is only 20 years. According to the IEA World Energy Outlook the world will still need Australian gas and coal in 2050 but unless there is more exploration and development there will not be any to be had. Without a return of exploration to the levels of 2000 to 2010, Australia’s gas industry is shrinking towards zero.
• The third quarter was marked by announcements of the accelerated closure of 10,000 MW of coal-fired power capacity but with only 127 MW of new renewable capacity going online during the quarter. It is much easier to close things than to replace them. Investment in firm renewables needs to ramp up massively to avoid high future electricity prices and blackouts.

Other highlights include:

• Short-term east coast gas prices averaged $25.97/GJ in Q3, up by 139.6% from an average $10.84/GJ in Q3 2021 but down 10.7% from the Q2 2022 average of $29.09/GJ.
• There is a big difference between volatile spot prices and prices realised by producers. Producer prices ranged between $6.40/GJ for Armour and $13.12/GJ for Santos (up 75.2% qoq). STTM prices eased slightly compared with Q2 2022 but still continued at their astronomical levels in Q3. STTM prices were close in all hubs, ranging from $23.59/GJ in Victoria, up to of $27.29/GJ in Adelaide.
• While generally above US prices, east coast producer prices were significantly lower than European prices in Q3 and lower than LNG landed prices in North Asia: A$33.38/GJ in South Korea, and $28.91/GJ in Taiwan, A$27.42/GJ in Japan and $22.46/GJ in China.
• East coast gas supply (production plus NT imports) decreased by 16.0 PJ qoq from 512.7 PJ in Q3 2021 to 496.8 PJ in Q3 2022. Production was 494.7 PJ, down by 12.6 PJ from 507.3 PJ in Q3 2021. NT imports were 3.3 PJ lower qoq. The decrease in east coast production resulted from lower CSG production (down 11.4 PJ qoq) compounded by lower conventional gas production (down 1.3 PJ qoq).
• Western Australia continued to stand out as having low domestic prices in Q3. Spot prices in WA are increasing with an average in Q3 of $5.66/GJ compared with $5.13/GJ in Q3 2021. Santos’ west coast price was $6.00/GJ in Q3, 6.6% lower qoq. WA prices continue to be the lowest prices on our map of international and Australia gas prices.
• Gas supply for West Australians continued to rise strongly thanks in large part to WA’s envied gas reservation policy. WA conventional domestic gas production increased by 14.2% in only three months, up from 94.4 PJ in Q2 2022 to 107.8 PJ in Q3 2022. The increase was primarily due to record production from Wheatstone’s domestic gas train.
• NEM wholesale spot prices averaged a Q3 record high of $216/MWh, $158/MWh (271%) higher than Q3 2021 but down $48/MWh from the highest recorded quarterly price of $264/MWh in Q2 2022. In Q3 average prices in all NEM states ranged between $191/MWh and $231/MWh. These contrast with the Perth average of $72/MWh.
• The gas power generation (GPG) share rose to 6.5%, up from 5.9% in Q3 2021. The GPG share in NSW and Victoria was 3.0% and 5.0% respectively. The share in Queensland was 8.1% and in South Australia it was 34.3%.
• National LNG production eased slightly in Q3 2022 and is unlikely to set a new record in 2022, but further growth in realised prices is sending export revenues to all-time highs. Australia exported 19.4 Mt of LNG in Q3 2022, operating at an average of 87% of nameplate capacity of 88.6 Mtpa. The latest quarter puts Australia on track for production of about 79 Mt in 2022, steady with 2021 but down from the record of 82.6 Mt in FY 2022.
• All Australian LNG producers in Q3 2022 enjoyed price increases qoq, ranging from 110.0% for Woodside to 66.1% for Origin. The average ABS export price almost doubled, up by 94.9%.
• The exceptional realised prices drove export revenue in Q3 2022 to a record level for the second successive quarter. EnergyQuest estimates export revenue was $25.4 billion in Q3 2022, up from $19.5 billion in Q2 2022 and almost twice the level of Q3 2021.
• National natural gas production in Q3 2022 was 4.6% lower qoq at 1,353.7 PJ, reflecting a significant decrease in LNG production compared to the record LNG shipments of Q3 2021.
• National oil production was 10.3 MMbbl in Q3 2022, steady with Q2 2022 but 4.8% lower than in Q3 2021. Realised oil prices for Australian oil producers fell slightly in Q3 2022 compared to Q2 2022 but remain at large premiums to prices in Q3 2021 (Beach up 42%, Santos up 40% and Woodside up 24%).
• National condensate production fell for the third consecutive quarter from the record of 26.3 MMbbl set in Q3 2021. Production decreased 23.7% qoq to 20.1 MMbbl in Q3 2022.
• National petroleum production decreased by 6.3% qoq in Q3 2022. Total petroleum production was 270.6 MMboe, down 18.0 MMboe.
• Chevron re-claimed the title of largest petroleum producer on an annual and quarterly basis, thanks to a strong quarter at Gorgon and Shell’s shutdown at Prelude for nearly all of Q3. Woodside also overtook Shell to become the second largest producer with the benefit of its first full quarter as the merged business of Woodside and BHP Petroleum.