From today's AFR: Choke in gas supply makes imports, once unthinkable, almost inevitable Falling production at one of the country’s largest gas plants and a forecast slide in supply from fields off the south-eastern coast is making increasingly inevitable what had been dismissed as unlikely development only a few years ago: the need to import LNG. The market operator has warned for months of looming shortfalls in gas – used in everything from manufacturing to heating homes – and fears of supply problems have spread beyond the major energy retailers. Other major companies examining the possibility of importing LNG now include Snowy Hydro, Woodside Energy, Shell and industrial users, including explosives manufacturer Orica and steel producer BlueScope. The Longford gas plant is slowly being decommissioned, and supply has already been crunched. James Davies“Everyone is looking but no one is committing ... there are still no customers willing to lock in import-parity prices,” said MST Marquee energy analyst Saul Kavonic. “We may need to see a severe gas shortage event for someone to finally sign up for imports.” But that may be coming. ExxonMobil, the operator of the Longford plant east of Melbourne, has flagged it would close the facility, which processes gas from nearby offshore fields operated by its partner Woodside. While the shutdown of the first of three units is due by October 1, supply from the plant is already falling. EnergyQuest’s Rick Wilkinson said there was a big drop in Longford’s supply at the height of winter this year compared to two years ago. The winters of 2022 and 2024 were marked by particularly high demand for gas amid the cold weather. “The decline of Longford’s peak day supply capacity is already clear, with a drop of 28 per cent this winter compared to peak supply in 2022,” he said. It was “the equivalent of losing approximately half of Victoria’s existing gas storage capacity”, he added.Longford typically supplies about 40 per cent of the gas for the east coast. The fall in supply from Longford has come at the same time as ASX-listed Beach Energy said this month that reserves at its new Enterprise field in Victoria’s Otway Basin, one of few new sources of gas for the stretched market, would be lower than expected. The company had in June ditched separate development plans for several Bass Basin discoveries after deciding they do “not meet minimum investment requirements”.“Otway plus Longford equals a problem,” said one gas industry executive, who spoke on condition of anonymity, as they were not permitted to comment on the matter. There was increasing interest in LNG imports among industrial gas users, he said. Australia does not yet import gas. It is one of the world’s largest LNG exporters from ports in Western Australia, Queensland and the NT, thousands of kilometres away from where domestic demand is greatest – the country’s southeast. The squeeze in gas on the east coast comes after years of struggle by producers in the southeast to develop new projects, hindered by Labor’s intervention on gas prices and tight restrictions on gas development in Victoria and NSW. The Coalition, meanwhile, is hoping to use gas to keep energy bills affordable for the 13 years before the first of seven nuclear reactors it has proposed comes online.High spot pricesOne major impediment to importing gas, however, is the price. At current spot LNG pricing, imports would cost $20 a gigajoule, over 30 per cent more than domestic prices.Even longer term, LNG imports are expected to cost at least $1 a gigajoule more than domestic prices on average, MST Marquee’s Mr Kavonic said. “LNG imports may be able to shave the premium off-peak price periods and alleviate risks of temporal physical shortages,” he said. “But those periods where imports will compete and so temporary and unpredictable that it is hard for a gas buyer to commit to an otherwise out-of-the-money position on such an uncertain basis.” Frank Calabria, the chief executive of Origin Energy, said he believed that LNG imports would play “a major role” in maintaining gas supplies. “Overall, we’ll need more supply into the market, particularly to service those .... southern states,” he said last week. “And, looking at the timing of that supply and those constraints on the pipeline, we certainly feel that LNG imports are going to play a major role to secure or reliability of gas supply in those markets.” Origin is regarded as a prime candidate to sign up for LNG imports, despite walking away this year from talks with aspiring South Australian LNG import terminal developer Venice Energy to use the company’s proposed facility in Port Adelaide. The most advanced LNG import project, the Port Kembla venture, owned by Andrew Forrest’s Squadron Energy, is also thought to be talking to AGL Energy, Snowy Hydro, BlueScope and Orica. It already signed a preliminary deal with EnergyAustralia, but declined to comment on that agreement or any others. Squadron chief executive Rob Wheals has previously said that the terminal “will ensure we have the ability to supply gas to our and other firming projects”. Snowy Hydro, the federal government-owned energy generator and retailer, last month signed a 25-year deal for gas storage at the east coast’s largest storage plant near Port Campbell, also declined to comment. It buys about 20 petajoules a year of gas to supply its retail customers and three power stations in NSW and Victoria. A fourth gas-powered generation station, in Kurri Kurri near Newcastle, is due online in December. “We actively engage with the gas market to ensure a reliable supply for both our retail business and our power stations,” a Snowy Hydro spokesman said. If Snowy Hydro signs up to buy LNG imported through Port Kembla, it will mean the federal government is indirectly supporting that terminal. The Albanese government has already shown itself open to gas imports in a planning strategy released in May. “The idea that Snowy could sign up for imports is being mooted in the industry as the government has started to get worried about the political consequences of a gas shortage after the near-miss a couple of months ago,” Mr Kavonic said.
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