Morning all -

I believe a key point that's being missed is that given the majority of COI's reserves are uncontracted today, in a market where gas supply is extremely short, means that any long-term GSAs signed in coming months on the East Coast may command $15/GJ + , which is 25% higher than Chris Bowen and Labor's 'price cap' (aka price flop) of $12/GJ. I believe gas suppliers /producers like Comet Ridge will have leverage in any gas sale or divestment discussions which re-rates Comet's intrinsic value depending on the price agreed upon for the gas. As @Autosime has mentioned in the past, each $1/GJ increase results in approximately a 5c increase to COI's valuation. It's panic stations on the East Coast, and I blame politicians in charge over the past 10 years, the looming supply gap was there for all to see years ago.

Santos, AEMO issue warnings on gas

Ben PotterSenior writer

Mar 21, 2024 – 5.00am

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KEY POINTS

• Why it’s important: Industry and households depend on gas to keep the lights on as coal power closes down
• Context: Supply from Victoria’s Bass Strait gas fields will fall sharply from mid-year
• What’s next: AEMO says new investment is urgently needed to avert shortfalls in supply from 2028

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Santos boss Kevin Gallagher says new gas project approvals need to be fixed in Australia and the US to prevent Asian buyers falling into the hands of Russian and Middle Eastern suppliers.

He made the comments on the same day as the energy market operator warned of a fresh deterioration in the supply outlook for Victoria due to looming east coast gas shortfalls.

Mr Gallagher said activists were using the legal system to frustrate new liquefied natural gas projects such as Santos’ Barossa, PNG, Gladstone and Darwin facilities which could provide 7 million tonnes annually to Asia, and if similar US hurdles were maintained “it would leave a hole that I don’t think in the long term any of us could fill”.

“If it is going to be filled, it is going to be filled by countries like Russia and the Middle East. I’m not sure that is the best long-term security, going back to energy security, solution for a lot of those Asian economies,” Mr Gallagher told the CERAWeek conference in Houston on Tuesday.

Kevin Gallagher, CEO, Santos. Dion Georgopoulos

The call to arms came as the Australian Energy Market Operator confirmed previous warnings of looming east coast gas shortfalls and said the outlook for production in Victoria is set to fall by 48 per cent by 2028 – forcing the state that historically supplied two-thirds of southern Australia’s gas to become an importer.

Output from the Bass Strait gas fields off Victoria’s coast is set to fall faster than previously expected thanks to ExxonMobil’s decision to close one of three plants at Longford, Gippsland, that process gas from its Bass Strait joint venture with Woodside Energy.

Gippsland’s production is expected to be down 58 per cent by 2028, while production from Port Campbell is forecast to fall 9 per cent, swamping a forecast 11 per cent fall in peak day consumption in Victoria thanks to state government electrification incentives.

Peak gas demand days occur during winter extremes when gas heating surges and gas generation is needed because of a lack of solar and wind generation.

Supply gaps

“From 2028, supply gaps will increase in size as Bass Strait production falls significantly,” AEMO chief executive Daniel Westerman said, and diesel might have to be used in gas generators as a temporary measure.

AEMO’s Gas Statement of Opportunities 2024 and Victorian Gas Planning Report show the East Coast market approaching a tipping point. They say new investment is urgently needed to fill a forecast supply gap for the southern states from 2028, and warn shortfalls could hit on peak days under extreme winter conditions as soon as next year, with small seasonal supply gaps possible from 2026.

“The warning bells are getting louder as report after report forecasts gas shortfalls and exposes the urgent need for new east coast gas supply,” said Samantha McCulloch, CEO of Australian Energy Producers, the oil and gas lobby.

Victorian Chamber of Commerce and Industry boss Paul Guerra said a survey of member firms confirmed the transition from natural gas to clean energy was their top concern. The VGPR says it “is clear more supply for Victoria is required” but projects face challenges and “investment uncertainty remains high”.

But federal Climate Change and Energy Minister Chris Bowen said that Albanese government measures to better manage supply shortfalls, boost storage and lower prices had pushed back forecast supply gaps by two years to 2028.

The short-term warnings have been softened slightly. The 2023 GSOO warned of peak-day shortfalls as early as last winter – which did not eventuate – and that LNG export contracts might need to be broken by 2026 to keep domestic customers supplied.

But they say new investment will be urgently needed from 2028 in the southern states and from 2026 in the northern regions to meet both export – the majority use for gas produced in northern Australia – and domestic demand.

Production from Bass Strait through ExxonMobil’s Longford processing plant in Gippsland is forecast to be higher this year than in the 2023 GSOO, at least until the mid-year closure of the Longford plant.

Offsetting that, newly completed storage and pipeline projects – including an expansion of the Iona storage facility at Dandenong – have bolstered gas supplies to the southern states, and previously delayed projects such as Beach Energy’s Enterprise and Thylacine West developments are expected online in the September quarter.