LNG

July 5 (LNGJ) - The Australian Competition and Consumer Commission (ACCC) has issued a warning to the nation on East Coast natural gas supplies and the trend for LNG exports. “The long-term supply outlook for gas makes shortfalls possible from 2027,” said the report.

   “The East Coast gas market may experience gas supply shortfalls as early as 2027 unless new sources of supply are made available. The potential emergence of supply shortages is one year earlier than previously reported,” the ACCC warned. The short-term outlook concluded that there was “sufficient gas” for the fourth-quarter of 2024 and early 2025. “There is expected to be enough gas to meet East Coast demand, even if all un-contracted gas of LNG producers is exported,” the report added.

Australian company Elixir Energy is proceeding with appraisal drilling at the Grandis Gas Project in Queensland, located close to the Wallumbilla gas hub and main infrastructure connections to liquefied natural gas export plants and also gave an update on its coal-seam gas exploration in Mongolia.

Elixir has said that government agencies such as the Australian Competition and Consumer Commission (ACCC) and the Australian Energy Market Operator (AEMO) had recently noted a rapidly emerging shortfall between gas demand and supply on the East Coast.

“The new policy does not change demand - but arguably does reduce supply options,” said Elixir, which is listed on the Australian Securities Exchange.

“Advantaged projects such as Grandis are, therefore, placed in an even stronger competitive position,” said the company.

Elixir’s Managing Director Neil Young said he was confident that the Grandis Gas Project has underlying advantages already in place.

Low-risk play

“We've picked up here a very low-risk play in terms of drilling an appraisal well in a location that is advantaged now from a global gas market perspective,” said Young whose company owns 100 percent of the licence.

“The Queensland well can be the most impactful well the company has drilled in this nearly 20 years of being listed on the ASX,” Young added.

“In the location we can access international LNG prices too. A stimulation programme which will follow early in the New Year and then that will take a month or so and then we'll get flows at the end of that,” added Young.

He said that there would be further news coming through as the company passed various stages in the drilling campaign and conducted other activities lasting into the New Year of 2024 because of the depth of the well.

“In Queensland it's going to take a while to get down to the depths,” Young explained.

BG-Shell activities

“This is an appraisal well near where BG Group, later Shell, drilled and spent a few A$100 million about 10 years ago and most of the data from that programme became public as is the case in countries like Australia and we use that data in the proximity to our permits,” he said.

“The contingent resource will actually be near infrastructure and the assets are located about 50 kilometres from what's called the Wallumbilla gas hub, which is both a physical and a market-based trading hub and connects this asset potentially to markets across Queensland and also to Australia’s southeast states of Victoria and NSW,” he added.

“There are also a number of pipelines going Northeast to the LNG plants in the Port of Gladstone which can currently supply East Asian markets but which have declining resources of their own from their foundation assets so there's a wealth of optionality here to target some domestic markets across Australia and also international markets,” Young said.

Young went on to acknowledge that the Nomgon coal-bed methane (CBM) project in the South Gobi Basin of Mongolia had not yielded expected results in terms of flow rates, though the drilling campaign was continuing with new operations.

“The Big Slope-7 appraisal well spudded just over a week ago and has already intersected gaseous coal,” said Young on Elixir’s 100 percent-owned Nomgon IX project.

“The well is now undergoing Injectivity Fall Off Testing (IFOT) to measure permeability in this upper coal section. Big Slope 7 is situated west of the Big Slope-4 well drilled in 2022 and has a planned total depth (TD) of 800 metres,” Young explained.

Mongolia contractor

The well is being drilled by the Mongolian contractor Erdene Drilling LLC and is the first of a number of wells Erdene is contracted to Elixir for drilling in the region.

Elixir added that exploration was also progressing at Bluebill-1. That well has intersected gaseous coal and drilling was ongoing.

“It is a pleasure this year to be working with Erdene Drilling again - they were pioneer drilling contractors with us from 2019 to 2021 - but took a break from CBM work for a year after that,” said Young.

“We look forward to the results of the appraisal drilling program over the coming months. Drilling results from both wells underway are encouraging - and if successful could open up significant new areas to the East and West of Nomgon,” he added.

“Last month Elixir also engaged the services of the THREE60 Energy Group to assist with the production management of the pilot and to boost the company’s drilling support,” Young concluded.

One of Australia’s leading energy market regulators has said that the events in Ukraine had pushed global energy markets further into the unknown and that gas supply problems for Europe could get much worse and LNG exporter Australia is also on course for severe gas shortages.

The Australian Competition and Consumer Commission said it would not oppose the proposed acquisition of Refinitiv Parent Limited (Refinitiv), the analytics and data firm covering financial and energy markets, by the London Stock Exchange Group in a £24 billion (US$31Bln) deal.

Australia exported a record 79.1 million tonnes of LNG in the 12 months to June 2020, up 5.9 percent from 74.7MT a year earlier while domestic gas consumption grew on both the East and West coast markets in the second quarter in contrast to the experience during Covid-19 across most of the developed world.

Australian domestic gas consumption on the East Coast was 7.7 petajoules higher quarter over quarter in the second three months of the year, according to the monthly report from consultants EnergyQuest.

“Gas-use-for-power (GPG) was down by 5.9 petajoules in the quarter, though other gas-use (residential, commercial and industrial) increased by 13.6 petajoules with increases in all states except New South Wales,” said the report.

EnergyQuest noted that as one of the world’s major LNG producers Australia is to some extent becoming a price-maker
in relation to spot prices.

The Platts Japan-Korea Marker has increased from US$2.15 per million British thermal units at the start of July to US$4.66 per MMBtu on 4 September.

“This coincides with unexpected outages at the Western Australian Gorgon LNG project due to the shut-downs for repairs,” said the report.

The national regulator, the Australian Competition and Consumer Commission publishes East Coast netback gas price estimates based on the Platts JKM.

This means that unexpected developments in Western Australia that affect spot prices will directly feed in to East Coast netback
estimates and possibly East Coast prices.

“To this degree any domestic contracts indexed to LNG spot prices will be hostage to unexpected shutdowns by West Coast projects, as well as projects elsewhere in the world,” EnergyQuest explained.

The overall Australian LNG export market followed the rest of the world on the score that towards the end of the year the industry began to buckle under the weight of a global glut of the fuel.

Production of LNG in the second quarter of 2020 fell to 19.1MT, the lowest since the third quarter of 2018. 

In July. Australian projects shipped a total of 5.8MT (85 cargoes), only marginally lower than 5.9MT (85 cargoes) in June, but well below the record level of 7.0MT in December 2019.

“From May onwards, the effects of Covid-19 on Australian LNG (in an already oversupplied LNG market) began to hit home,” said the report..

“Projects began extending maintenance periods to rein in production and experienced cargo deferrals. Of the 85 Australian cargoes shipped during June, 33 cargoes were delayed during the month,” it added.

The immediate impact on LNG price realisations was mixed.

Producers such as Woodside Petroleum, operator of the North West Shelf and Pluto LNG export plants, with a relatively high proportion of spot cargo sales, felt the biggest price impact.

However, the East Coast Australia-Pacific LNG facility and the Santos-run Gladstone LNG saw out the full year to end-June 2020 with little deterioration in realized prices.

Total export revenue for the year to June was A$47.8 billion (US$34.8Bln), down only 3.8 percent from a year earlier.

However, the negative impact on prices and revenues was accelerating thereafter.

Export revenue in the second quarter of A$10.5 billion was down 16.1 percent from $12.6 billion in first quarter.

“Queensland’s LNG projects finished the financial year strongly. All three projects shipped record tonnages in FY 2020,” said the report.

“Queensland LNG export revenues were steady at A$4.16 billion between Q2 2019 and Q2 2020 and up slightly from the first quarter. However, revenues are likely to have turned down from July,” it added.

The latest round of quarterly reports by Australian oil producers laid bare the full effect of the pandemic-led collapse in oil prices.

Realised oil prices for Woodside Petroleum, which emerged in Q2 2020 as the country’s largest oil producer, plunged to US$31 per barrel in the second quarter of 2020, down 55 percent from US$69 per barrel in the same period of 2019.

“The latest price was also down sharply from Woodside’s average realised price of US$52 per barrel in the first quarter of 2020,” said the report.

“The country’s second and third largest oil producers, Beach Energy and Santos, suffered a similar fate to Woodside,” it added.

Australia Pacific LNG’s acquisition of the Ironbark coal-seam gas project in Queensland from Origin Energy has been approved by the country’s regulators who do not see the deal affecting East Coast domestic natural gas supply.

Australia has released an interim report as part of its Gas Inquiry and says that concern about prices in the East Coast market could be alleviated if there was more investment by LNG producers in resource development and key infrastructure.

Australian regulators said they would not oppose the A$13 billion (US$9.8 billion) acquisition of natural gas pipeline company APA Group by the CK Consortium of Hong Kong after the Chinese company agreed to sell-off some assets in Western Australia.

Operators of liquefied natural gas plants in Western Australia and the Northern Territory have been authorised by regulators to coordinate maintenance activities at their liquefaction facilities even as there would be some competition consequences.