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Swift action on CBM needed to avoid NSW gas supply crisis

The Australian state of New South Wales faces a gas supply crunch within three years unless the government overcomes community concerns and approves a number of coalbed methane (CBM) projects, analysts claim

Any significant delays to project developments threaten to exacerbate an already tight local gas market as appetite for the fuel is set to surge and the region has limited incremental supply options available. Gas demand on the east coast of Australia is forecast to rise by 54% to 2.5 billion cubic feet per day (cf/d) by 2020, consultancy Wood Mackenzie said.

The demand growth could be satisfied by new CBM projects, but opposition from landowners and environmentalists will likely put the brakes on development, the consultancy said.

Craig McMahon, head of Wood Mackenzie’s upstream research, says the domestic market will be undersupplied from 2016 if new CBM projects are not progressed in a timely manner.

A slowdown will result in delays to new gas-fired power and increase the state’s reliance on coal, contrary to policies to cut carbon emissions, while consumers will pay higher prices for energy.

Wood Mackenzie calculates that gas production in the eastern states will surge eight-fold by the end of the decade to hit 5.7 billion cf/d. But around 90% of that is earmarked for  liquefied natural gas (LNG) plants being built in the state of Queensland. Santos, Origin Energy, BG Group and the Shell-PetroChina joint venture are all leading separate CBM-to-LNG export projects to feed the lucrative Asian markets.

Currently, increased supply for the domestic market relies on ageing conventional fields, while meeting future demand will require production from as yet uncommitted CBM projects and exploration.

Rising demand

New South Wales imports 95% of its gas, but within five years sources from South Australia, Victoria and Queensland will increasingly be used to meet rising demand from the east coast LNG export ventures. Operators in neighbouring Queensland have multiple competing, domestic and export sales avenues. These options are more attractive than supplying New South Wales, which may find itself having to pay LNG netback prices to lock in gas supplies.

And, gas prices are already rising, reflecting the LNG export plans and expectations of a tight gas market. Recent supply deals have been sealed at close to $5.50/’000 cubic feet (cf), compared to historical prices of between $2.50 and $4.00/’000 cf in the eastern states. It’s widely expected that the rush for gas to fuel Queensland’s LNG export projects will triple local gas prices by the end of the decade.

McMahon said the biggest challenges in delivering new gas supplies are not technical or commercial, but rather the rising local opposition to CBM, as well as the uncertain and potentially onerous regulatory environment.

The state government is grappling with the regulations for the CBM sector under pressure from farmers, environmentalists and community groups opposed to the development of the industry.

Earlier this month NSW said it would introduce a new independent assessment process of CBM projects close to strategic agricultural land. The process will be carried out by a scientific panel empowered to make binding decisions independent of the government. A draft code of practice for CBM explorers and new guidelines for community consultation were also released.

Rick Wilkinson, head of eastern Australia for the industry lobby group Australian Petroleum Production and Exploration Association (APPEA), remains concerned at the slow progress of CBM developments in NSW and has stressed the need for more efficient regulation in both NSW and Queensland.

The warnings come as Santos, which holds the largest CBM acreage in New South Wales, faces fierce opposition to its drilling plans in the Gunnedah basin, in the state’s northwest, due to fears over potential pollution to water aquifers and agricultural land.

AGL Energy is the only firm producing relatively small volumes of CBM near Camden, south of Sydney, while Metgasco plans to produce CBM in the Clarence Moreton basin.

 

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