Hi AGL folks.
I'm trying to understand where is the benefit for Victorians in this project - especially given the risks it presents to Westernport Bay. Could you please tell me, does AGL believe that this project would put downward or upward pressure on gas prices for Victorians?
Australia is a major exporter of natural gas; however, most of this gas is not available to the south-eastern states. It has been a difficult realisation for many that the abundant gas supplies Victoria once enjoyed are in decline. Declining production from Bass Strait’s big legacy fields has meant Victoria needs to seriously consider and prepare for alternative sources of supply.
Even if the supply of gas from unconventional fields in Queensland was available to the pipeline connecting them with Victoria, it would not be able to supply enough during peak winter gas demand due to the limited capacity of the pipeline. Gas supplies from the North West Shelf are not available to Victoria because there is no pipeline across the Nullarbor.
In addition, shortfalls in domestic supply are likely to result in higher and more volatile gas prices for Australian customers. Extreme weather events and contingency planning also contribute to increased need for gas-powered generation and energy market constraints. Increased contribution of renewable sources of energy that require time for shaping or ‘peaking’ will also add to the demand for gas-fired power generation and changing electrical supply conditions.
Therefore, securing gas supplies from alternative sources is required to maintain security, stability and affordability of gas supply.
The chances of gas returning to historical prices is slim. The reality is that the current price (about three times the historical price), will likely remain the price of gas even if this project is put in place. This is due to several factors but includes the international market and the dwindling supply. By increasing the supply of gas available, the LNG project will put a cap or ceiling on this value and in doing so, place downward pressure on the market.
The Gas Inquiry 2017-20 Interim Report released by the Australian Competition and Consumer Commission (ACCC) in December 2018 found suppliers expect to produce sufficient gas in the east coast to meet the expected demand in 2019, but domestic prices remain too high for many gas users.
Prices offered and agreed in mid-2018 for supply in 2019 ranged from nine dollars per GJ to 12 dollars per GJ. By August 2018, most offers to large commercial and industrial gas users were at, or above, the mid 10 dollars per GJ level, including some offers above 12 dollars per GJ.
When the interim report was published, ACCC Chair Rod Sims said:
“Some commercial and industrial gas users have told us that, at these prices, which are two to three times higher than historical prices, their operations are not sustainable in the medium to longer term. They are increasingly likely to relocate from the east coast or close their operations”.
“Gas is a raw material to production or largely irreplaceable source of energy for a diverse range of sectors such as mining, manufacturing, chemicals, agriculture and food production. Rising domestic gas prices are putting gas users which are exposed to global markets under strain, as they cannot pass on the increases in their costs.
“Once large manufacturers relocate or shut down their plants, they won’t come back.
Based on your reply it seems to me that at most an LNG import terminal could: (1) Increase supply (2) Reduce price volatility (but not bring gas prices below global LNG prices). Would you say that this is a fair characterisation of AGL's view?
Prices would most likely go up if they keep exporting gas from Queensland overseas and then having to buy it back to import to Victoria?
Why does not AGL buy it from Queensland and ship it to Victoria?
We’d just like to apologise for the delay in addressing your enquiry – we have received a large number of complex and detailed questions that we need to discuss with a few specialists.
This is not the way we want to deal with community concerns and we’re working to be more responsive in the future.
We’ll respond to your question shortly.
Most of the gas available worldwide is still produced from conventional sources, such as in Qatar and Africa, so this is also the most likely source of the gas that we would buy.
We do not have access to the gas in Queensland because the producers have long term contracts in place to sell the gas to other customers in SE Asia and even if we did the pipeline would not allow enough gas to flow to Victoria to meet peak winter demand.
As you have pointed out, this proposal can act as a ‘virtual pipeline’ to connect gas-rich areas of the country, such as Western Australia, to areas of large demand, such as Victoria.
Again, my sincere apologies for the delay in getting back to you.
Yes, this project could definitely increase supply to the market which is very important, as our traditional sources of gas supplies are rapidly depleting.
In the recent past, Victoria, NSW and SA experienced an unexpected reduction in the amount of gas available. With a limited number of suppliers able to supply the volume required, domestic prices rose above the global price level, for periods of time. Eventually, this led to the ACCC Gas Inquiry.
We believe that the proposal will place a ceiling (or cap) on gas prices, while importantly, also being a reliable source of supply for residents and businesses in the south-eastern states.