Gas: Industrial closure fears mount as east coast demand falls 16pc
Commercial and retail gas demand in the nation’s east has slumped a remarkable 16 per cent in the past year, sparking more warnings of widespread industrial closures as prices double in response to the ramp-up of Gladstone’s three big LNG plants and a lack of new supply.
And the situation is expected to get worse, according to consultant EnergyQuest, with potential industrial closures on the way as domestic contracts roll off and an investment freeze and onshore gas restrictions mean little in the way of expected new supply. Energy-Quest chief executive Graeme Bethune revealed the slump yesterday in the consultancy’s comprehensive quarterly review of the nation’s energy markets.
“A loss of underlying demand of nearly 20 per cent would be a crisis in any other market, but has largely gone unnoticed,” Mr Bethune said. “The big risk for the economy is that the past year represents just the beginning and that much more contraction has been locked in, but will not be visible for some time,” he said.
“Domestic businesses that need a reliable and affordable energy supply are increasingly having to look at alternatives to gas or consider relocation or closure.”
The fall has gone largely unnoticed because the underlying commercial and retail gas demand is not normally separated out from power station demand, and that used to run the LNG plants.
According to EnergyQuest, total east coast domestic gas demand fell by 2.5 per cent in the March quarter, compared with the same period in 2016.
But underlying gas demand is falling much faster in the face of high prices.
Excluding gas use for power generation, gas use fell by 8 per cent. Also stripping out gas used to fuel Queensland LNG plants, the fall in gas use was 16 per cent.
Mr Bethune said the demand destruction so far appears to be coming from small changes at operations, such as efficiency boosts or switches to substitute fuels.
Short-term east coast gas prices averaged $9.95 a gigajoule in the first quarter of 2017, double those of a year earlier, EnergyQuest said in the report.
“Average prices close to $10/GJ are clearly hitting demand,” Mr Bethune said.
Warnings are getting louder that companies will have trouble absorbing 100 per cent gas price hikes.
Incited Pivot, which has built a new plant in Louisiana in the US rather than in Australia because of rising prices, has said its Gibson Island fertiliser plant in Brisbane could shut down if it cannot get reasonably priced gas in a contract renewal.
Mr Bethune said tight east coast markets were not going away and the problems looked long-term.
“Paradoxically, high gas prices are not translating into a gas investment boom. Instead, the east coast is experiencing a drought of investment in domestic gas,” he said.
“As a result, there is a risk that the problems on the east coast are long-term, not short-term.”
EnergyQuest said undeveloped gas resources in the Cooper Basin have been constrained by low oil prices and low spending, while NSW onshore reserves are constrained by Lock the Gate campaigns against coal-seam gas.
He said the risk of government intervention in power and gas markets, after a decade of policy twists and turns, was contributing to the low investment.
“Any company considering investment in east coast gas faces a high degree of uncertainty, which drives investment into other markets and even other countries,” he said.
Mr Bethune says the Santos-led Gladstone LNG plant, which has been singled out for blame by Malcolm Turnbull because it draws from domestic markets for some of its export requirements, does not draw as much gas as many think.
“A substantial volume of other third-party gas contracted to the Santos-operated GLNG project appears to originate from other LNG projects and was never developed for domestic gas,” he said.
Thursday, June 08, 2017
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