EnergyQuarterly March 2022: Implications of the European crisis, accelerating decline of coal in the NEM, east coast gas still finely balanced

EnergyQuest has just released its March 2022 EnergyQuarterly report.

The cover highlights the accelerating closure of coal in the NEM. Are all these coal closures good news for gas-fired generation (GPG)? Probably not for gas volumes but gas is still likely to play an important role.

East coast gas remains finely balanced. Southern production did well in Q4 but in Queensland Arrow’s Surat Gas project is yet to start and both QGC and Arrow wrote down reserves.

To date, east coast gas prices have resisted the wild swings seen overseas. EnergyQuest is of the view that east coast domestic prices are on the way up but GPG demand destruction  and the threat of political intervention will moderate the wild swings seen overseas in the short term.

The European crisis has quickly become a global crisis. Not only is Russia the biggest gas supplier to Europe, it is now the world’s fourth largest LNG producer, with more than half Russian LNG going to Asia, where Japan is the biggest Russian customer. Japan is also a significant investor in Russian LNG projects.  

However, at the same time that Japan’s LNG imports from Russia are under a cloud, Australian supplies to Japan are under threat from the looming cessation of gas from Bayu-Undan for Darwin LNG, the decline of the North West Shelf and the problems with Prelude. The end of Bayu-Undan also means the end of Timor-Leste’s major revenue producing asset.

With the European crisis, the demand for Australian LNG is likely now to be even greater, which is an opportunity to win more contracts for current new projects. Woodside should be able to contract more of Scarborough and Santos more of Barossa. The second priority would be to keep existing plants full, particularly the North West Shelf in the face of its looming decline. A third priority would be brownfield expansions to existing projects but they would need to be able to demonstrate at least net zero Scope 1 & 2 emissions.

New Australian greenfield projects are unlikely. We already have 10 LNG projects and brownfield expansions would be the most cost effective. Browse has already had three attempts at development and none have succeeded so Browse is pretty unlikely. Papua LNG in PNG is probably the most likely new project in the neighbourhood. It would be great for Timor-Leste if Sunrise could be developed but it has challenges..

Other highlights include:

  • Total east coast gas demand in Q4 (both export and domestic) was 494.5 PJ, almost flat.
  • Total Q4 Gladstone LNG exports were 6.24 Mt, steady qoq.
  • Gas production from fields offshore Victoria was up by 4.9 PJ qoq in Q4.
  • West coast LNG exports increased by 6.0% qoq in Q4. WA domestic consumption fell by 3.2%.
  • Western Australia continues to have low domestic prices but these prices are starting to increase. Santos’ average west coast price was $6.33/GJ in Q4, up 26.1% qoq.
  • Santos’ east coast domestic gas price in Q4 2021 was $8.66/GJ, 52.6% higher qoq.  
  • In Q4 2021 Australia exported 21.0 Mt of LNG, marginally below the record level of the previous quarter.
  • Average Australian LNG prices continued to increase from their low point in Q3 2020 and in Q4 averaged $15.87/GJ more than twice the level of $6.67/GJ in Q4 2020.
  • LNG export revenue in January 2022 was $5,984 million, an increase of 113% from a year before and an average $62 million per cargo.
  • Total natural gas production increased yoy in 2021 by 53.8 PJ (1.0%) to a record 5,367.8 PJ. Total LNG production increased by 129.2 PJ to 4,413.4 PJ while domestic gas fell by 75.4 PJ. LNG production increased in WA and Queensland. Domestic gas production decreased in all regions yoy.
  • National oil production decreased significantly in 2021. However, national condensate production in 2021 increased by 5.8% yoy to a record level of 93.4 MMbbl thanks to record production from Prelude, Ichthys and Wheatstone and high levels of output from the NWS and Gorgon.  Production in Q4 2021 increased by 11.0% qoq to 24.2 MMbbl in Q4 2021.
  • National petroleum production achieved a new record in 2021, thanks to a strong performance by most LNG projects. 

The 170-page report also has 83 Tables and 73 Charts, providing the latest numbers on Australian energy in 2021.

Further infomation, including the brochure with full table of contents, can be obtained by clicking here.