Australia’s east coast gas market is expected to have enough supply to meet overall demand in 2024, the Australian Competition & Consumer Commission’s (ACCC) June 2023 interim gas inquiry report reveals. But the outlook for winter this year and next is finely balanced, and the southern states will be reliant on Queensland’s surplus gas.
The report forecasts a 27 petajoule (PJ) east coast gas surplus for next year if the LNG producers export all their currently uncontracted gas. It predicts a 90 PJ surplus if the LNG producers export only their currently anticipated spot sales.
However, while there should be sufficient gas to meet forecast demand across the east coast in 2024, the southern states are expected to experience a shortfall. Considerable transport and storage capacity will be required to deliver Queensland’s surplus gas to those states.
“The significant improvement in the supply and demand outlook for next year is largely due to a drop in the forecast demand for gas-fired electricity generation,” ACCC Commissioner Anna Brakey said.
“Weather and electricity market conditions have a strong influence on the amount of gas-fired generation we need in the energy mix, so the demand outlook remains somewhat uncertain.”
“While the overall east coast is projected to have surplus gas next year, it is imperative that gas flows from Queensland to the southern states, and that there is enough storage for it,” Ms Brakey said.
The report also emphasises that the winter months will be challenging for gas markets as the supply-demand outlook in the third quarters of 2023 and 2024 is tight.
Availability of gas over the winter months will depend on whether LNG producers commit additional gas to the domestic market via contracts or time swaps. However, the quarterly outlook could deteriorate further if there are unexpected events such as last year’s floods, which disrupted energy supply.
Government intervention
Prices offered for 2023 supply on the east coast remained high last year until shortly before the Government introduced an emergency gas price cap on 23 December 2022.
Since the price cap came into force, the ACCC has observed an increase in the volume of gas sold under short term contracts for 2023 supply. Most of this gas has been sold below $12 per GJ, but the ACCC is continuing to carefully review the details and circumstances of any contracts that could be in excess of the $12 per GJ price cap.
There may be valid reasons for gas to be sold above $12 per GJ for supply in 2023. For example, where a gas company has been exempted from the price cap, or where the price was determined by a contract entered into before the price cap came into force on 23 December 2022.
“Based on our monitoring to date, we have seen a high level of compliance with the gas price cap. But we are ready to use our full enforcement powers in response to any possible contraventions,” Ms Brakey said.
Fewer offers for supply in 2024 and higher prices
The ACCC has observed fewer offers for supply in 2024 compared to previous years, despite contracts for next year not being subject to the price cap. This may be due to a combination of factors, including seasonal slowdown and the industry’s response to regulatory uncertainty.
“Contracting activity for 2024 supply has slowed down considerably compared to previous years. However, the imminent commencement of the new mandatory Code of Conduct is expected to provide industry with the certainty they have been seeking to enter into supply contracts into the future,” Ms Brakey said.
Prices offered by producers for 2024 supply peaked at just under $50 per GJ in August last year, before falling to just over $12 per GJ at the end of last year.
Despite not being subject to the cap, most recent producer offers for 2024 supply have settled at slightly over $12 per GJ, while retail offers have averaged about $20 per GJ.
C&I users report unsatisfactory market practices
Australia’s commercial and industrial gas users reported in April 2023 that the prices they were quoted for supply in 2023-24 by retailers, who are not subject to the price cap, fell to about $19 per GJ.
Despite prices easing, users have reported receiving fewer offers for supply, and a deterioration in contract flexibility and selling practices since the ACCC’s January 2023 report.
“The difficulties that users have reported to us about their contract negotiations with gas producers underscore the importance of the mandatory Gas Code of Conduct that the Government is finalising,” Ms Brakey said.
“We expect the code will improve selling practices and level the negotiating playing field through various conduct provisions, including a requirement for producers and buyers to negotiate in good faith.”
The code – expected to come into force in early July – effectively sees the government take on the responsibility of matching market demand with supply, through bilaterally negotiated agreements with gas producers.
The Australian Petroleum Production & Exploration Association (APPEA) Chief Executive Samantha McCulloch said there is ongoing uncertainty around how the market will operate under the Mandatory Code of Conduct.
Ms McCulloch said: “It remains unclear how the market will function following the introduction of the Code, with the real test being whether it can bring on new gas supply needed to meet demand and avoid forecast shortfalls.”
