9.1.1 Market profile
9.1.2 Eastern market
9.1.3 Western market
9.1.4 Northern market
Australia’s gas markets are a key part of Australia’s energy system, servicing the manufacturing sector with a fuel source and feedstock, electricity generation, mining and residential consumers, as well as supporting the development of a world-class liquefied natural gas (LNG) export industry.
Australian gas resources are distributed through well-established pipeline networks to domestic markets and LNG terminals for export. The Australian domestic gas market consists of three geographically and economically separate markets: the eastern, western and northern markets (Figure 9.1).
In addition to our economically demonstrated reserves of 149 305 petajoules (PJ), we have large potential onshore shale and tight gas resources of around 450 000 PJ, although the extent to which they are economically recoverable has yet to be tested (RET, GA & BREE 2012).
This chapter describes each of Australia’s gas markets and its operating environment, examines emerging challenges, and sets out the Australian Government’s policy priorities for market development.
9.1.1 Market profile
Trading in Australian gas markets is largely through confidential long-term bilateral contracts, which means that market transparency is limited. In recent years, there has been an increase in the volume of spot market trading, but this remains a comparatively small proportion of the overall market.
In 2010–11, Australia produced 2095 PJ of gas, of which 1515 PJ was used domestically and 1086 PJ was exported (BREE 2012c). The industrial sectors (including manufacturing, electricity generation and mining) account for about 87% of domestic gas consumption; the residential sector consumes a further 10% (BREE 2012c). The largest industrial consumers include metal product industries (mainly smelting and refining activities), the chemical industry (fertilisers and plastics), and the cement industry. Most of our LNG exports go to Japan and China, but smaller volumes go to the Republic of Korea and other markets (RET, GA & BREE 2012).
Over the next two decades, Australia’s gas production is projected to increase almost fourfold, driven largely by LNG exports, which are projected to reach 5663 PJ by 2034-35. Supply to domestic markets is expected to reach 2611 PJ by 2034-35 (RET, GA & BREE 2012).
Seven Australian LNG projects are under construction and scheduled to come on line between 2014 and 2017, providing over 60 million tonnes of additional LNG export capacity (BREE 2012g:39). Three are in Queensland, exposing the eastern market to international gas export markets for the first time. Two projects are operating from the Carnarvon basin (Gorgon and Wheatstone), and two from the Browse basin—Prelude (floating LNG) and Ichthys, including the Darwin LNG plant (BREE 2012i:44). The outlook for LNG in the Asia–Pacific region is for continued strong demand. While there is growing supply competition, there are good prospects for further expansion of Australian LNG capacity (see Chapter 5: Energy resources).
This, along with the emergence of major new coal-seam gas (CSG) and, potentially, shale gas deposits, is driving important changes in the structure and operation of the eastern and western markets.
Australia’s overall gas resources exceed projected demand in domestic and LNG markets. Figure 9.2 shows projected cumulative production volumes to 2034-35, set against Australia’s current categories of gas resources. Over time, some of these resources are expected to be 'proved up' and available to supply the market.
9.1.2 Eastern market
Physically, the eastern market is the largest and most mature, competitive and interconnected gas market in Australia. It covers Queensland, New South Wales, the Australian Capital Territory, Victoria, South Australia and Tasmania.
In 2010–11, 664 PJ of gas was produced, mainly from the Surat–Bowen, Gippsland, Otway and Cooper basins but with smaller amounts from the Bass and New South Wales basins. Around a third was supplied from CSG production (BREE 2012g).
Domestic consumption has increased by 3% a year over the past decade, underpinned by increased gas-fired electricity generation (BREE 2012i:37). Exports of LNG are scheduled to start in 2014 and are projected to reach 1332 PJ by the end of the decade; at least six LNG 'trains' are expected to enter production (RET, GA & BREE 2012:26). The bulk of LNG gas production in the future will be supplied from CSG resources.
9.1.3 Western market
The western gas market is Australia’s largest in terms of production volumes. In 2010-11, 1393 PJ of gas was produced, 647 PJ of which was consumed in the domestic market (BREE 2012c). Domestic gas consumption has increased by 6% per year over the past decade, underpinned by strong demand from the mining, manufacturing and electricity generation sectors (BREE 2012i:33).
Around 60% of Western Australia’s domestic gas is supplied through long-term contracts from the North West Shelf Venture. The remaining 40% is supplied through the Apache-operated Varanus Island gas hub, along with a small amount from the onshore Perth Basin. The Apache-operated Devils Creek domestic gas plant has begun production, using gas from the offshore Reindeer gas field.
Further domestic gas projects have come on line or will do so over the next few years, including projects such as the Halyard, Spar and Reindeer gas fields. The Macedon gas field will also supply the domestic market from 2013. There may be opportunities for additional supply from onshore shale and tight gas resources, although their commercial potential has yet to be demonstrated.
9.1.4 Northern market
The northern market is the smallest of Australia’s gas markets. In 2010–11, 22 PJ of gas was produced for domestic use. In addition, the Darwin LNG project, sourced from the Joint Petroleum Development Area in the Bayu Undan field in the Timor Sea, exported 14 PJ of LNG (EnergyQuest 2011).
Supply into the domestic market was previously sourced from the Amadeus Basin, although this has been increasingly replaced by gas from the offshore Bonaparte Basin. Mining accounts for the largest proportion of domestic gas consumption.
The northern market is expected to grow in the coming decades, largely through LNG exports from the Prelude and Ichthys LNG projects, but also through the development of other downstream gas and related industries. Further expansion of gas supply from developments in the Timor Sea is also expected. In the longer term, additional expansion could occur through onshore tight and shale gas developments, although this would require significant new gas infrastructure.
Northern market gas prices for electricity generation and residential supply are locked in under contract for up to 25 years at a fixed price plus annual escalators. However, gas prices for new industrial users are expected to trend over time towards LNG netback levels 1(NT Government 2012).
1 The LNG netback price is based on the delivered price of the gas, less the costs of marketing, liquefaction and transport (BREE 2012i).