RISC sees pressure potential

RISC sees pressure potential
Friday, 18 November 2016
Anthony Barich

A RISC Advisory expert has told Energy News he sees “potential” downward price pressure on Western Australia’s gas market as the government prepares to delve deeper into the reliability of the Gas Statement of Opportunities board.

In January, the DomGas Alliance brought Wood Mackenzie’s warning, delivered via Energy News – that WA faced a gas shortfall of more than 150 million cubic feet per day when many the supply agreements are up for recontracting from 2021 – to the attention of the Legislative Assembly’s Economics and Industry Standing Committee.

The committee, chaired by Geraldton MLA Ian Blayney, issued its report on The compilation of the WA GSOO last week after an all-too-brief consultation period that was cut short by the election being called.

The committee canvassed the views of Wood Mackenzie, the Australian Petroleum Production and Exploration Association, DomGas Alliance executive director Matt Brown, Fortescue Metals Group director external relations Tim Langmead, WA gas producer Santos and the Australian Energy Market Operator, which runs the GSOO.

The committee was not sure whether the GSOO’s more optimistic forecast or Wood Mackenzie more pessimistic prediction was closer to the truth.

However, Blayney “strongly encouraged” the EISC in the next parliament, to be re-formed after the March 2017 election, to give “serious consideration to further scrutiny of the compilation of the GSOO”.

He warned that an inaccurate GSOO could “lead to complacency in government in relation to domestic gas supplies”, and that an accurate and transparent GSOO was essential for WA’s economy.

While Santos asserted that “the domestic market is currently oversupplied with WA gas, as evidenced by $3 [per gigajoule] spot prices”, Brown told Energy News current prices were irrelevant to industrials seeking long-term security of supply in their investments.

Following on from that Wood Mackenzie’s Perth-based lead analyst for Australasia Saul Kavonic told Energy News there was a “degree of alignment” in the underlying analysis essentially indicating that maintaining supply depended on sufficient long term gas prices.

“We expect that additional gas supply will come online to address our forecast shortfall from around the mid-2020s if buyers are willing to contract gas at prices sufficient to justify producers sanctioning the development of new fields,” he said.

“We forecast that this will require higher price levels than the prices contained within a number of current contracts.

“It is also possible some LNG project partners would consider delivering additional gas into the domestic market above DMO [domestic market obligation] commitments if prices economically justified it, also indicated the likelihood of higher prices.”

Fresh perspective

However, RISC’s Perth-based principal Martin Wilkes told Energy News that his firm sees “potential” for downward price pressure on the gas market.

“If global LNG prices remain subdued – and indications are that that is quite likely – then the attractiveness of domgas to the LNG players increases, and this may actually put downward pressure on domgas prices,” he said.

He also believes that not all new gas contracts require the sanctioning of new projects, as there are commitments made on existing fields that have not yet been fulfilled.

“We anticipate a range of development costs dependent upon the nature of the development (onshore/offshore greenfield/brownfield etc). There are clearly some opportunities out there with low development costs.”

Chevron Australia general manager, asset development Gerry Flaherty addressed how WA LNG producers have competitive shipping, finding and production costs last month when addressing the Society of Petroleum Engineers’ Asia Pacific Oil & Gas Conference in Perth.

He said that, according to Wood Mackenzie data, Chevron’s upstream development costs in the Carnarvon have been between $US5-7/bbl, which includes all subsea, drilling, completion, manifolds and trunkline installation costs – all-in-costs other than liquefaction capacity.

Broadly speaking, Wilkes says that given all these considerations, his firm believes gas prices don’t necessarily need to rise.

“If you want to attract new downstream industry and expand the domgas market then you need to compete with other international gas markets. This could also keep prices down,” Wilkes said.

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