RISC’s Martin Wilkes thinks Woodside might be closer to the mark than Wood Mackenzie

No gas shortfall for WA: Coleman
Wednesday, 31 August 2016
Anthony Barich

WOOD Mackenzie is sticking with its forecast of a Western Australian gas shortage by the early 2020s despite Woodside Petroleum CEO Peter Coleman telling Energy News the consultancy firm has got it wrong, and that the state will still be swimming in gas then.
Coleman said there is twice as much capacity in the system as there is demand, and that demand is only forecast to grow at 1%, with more domgas capacity coming online with the Gorgon and Wheatstone developments and still more additional potential growth in the Perth Basin to be assessed.

And that was before AWE announced on Monday that its Waitsia field started gas sales.

Adequate gas

“There’s adequate domgas,” Coleman said.

He said that in forecasting a supply shortfall of 150 million cubic feet per day when many of the current gas supply agreements are up for recontracting from 2021, Wood Mackenzie had missed the “nuances” of the recent Greater Western Flank state agreement.

“Under that original contract, we have produced the domestic gas requirement from the North West Shelf if you take it back to the original resource,” Coleman said.

“As part of the GWF2 negotiations with the state government we agreed to reserve more gas for domestic, so there is more domestic gas available.

“Where Wood Mac may be missing it is once those contracts roll off we still have a requirement to keep the plants available, and there is domestic gas allocation that has not been produced from the North West Shelf that will be available to produce.”

Then there is domgas player Quadrant Energy, which underpinned Macquarie Capital and Brookfield Asset Management’s $US2.1 billion ($A2.7 billion at the time) acquisition of Apache Corporation’s Australian assets with a 12-year gas supply agreement with Alcoa for 120 terajoules per day of gas starting in 2020.

At the time Alcoa said that the deal, combined with a number of smaller agreements, meant it had secured roughly 75% of its WA natural gas requirement, replacing long-term contracts that expire at the end of the decade.

As for the North West Shelf, Coleman said that while the gas was available for sale, the plant is also required to be kept available to sell gas into the market, although he said he had no buyers post-2020.


Wood Mackenzie’s lead analyst for Australasia Saul Kavonic told Energy News yesterday that the firm’s WA gas supply forecast incorporates additional domestic gas supply associated with the GWF2 and Persephone developments at NWS, as per its understanding of the domestic gas reservation policy outlined within the latest 2014 state agreement.

“Wood Mackenzie forecast the domestic gas market as well supplied through the end of the decade,” Kavonic said.

“But the story changes next decade as domestic fields decline, with a domestic gas shortage forecast by the mid-2020s unless higher prices are achieved than we have seen in a number of historic contracts, in order to justify the sanction of new field developments.”

NWS Venture partners BHP Billiton, BP, Chevron Corporation, Japan Australia LNG, Shell and Woodside all became equity sellers of domestic gas as of July 1, which Coleman said meant more competition in the market.

“I think you’ll see some optimising over the next few years around where the gas flows and so forth,” he said.
“In my view, the infrastructure is being built, the security of supply issue has been dealt with because you now have Macedon, Reindeer, the Perth Basin with AWE feeding in, you have Wheatstone, Gorgon, North West Shelf … there’s a lot of gas going into the pipe.

“So over the next few years the challenge will be, as new supply comes in for that domestic gas, how does it get into the pipe – through an existing facility or through new-build?

“Those who put the [gas reservation] policy in place will argue that we now have more capacity in the system than they had before. If that was an objective then they’ve achieved that.”

Other options

RISC Advisory’s principal Martin Wilkes told Energy News this morning that the LNG players are in slightly different positions, so there is more incentive for Wheatstone and Gorgon to contract domgas as their LNG facilities will be full for the foreseeable future.

“This may, in turn, mean that they would accept lower prices than say the NWS,” Wilkes said.

“Other domestic gas-only focused players are generally smaller than the LNG players, but may be able to deliver gas at competitive prices too.”

It is yet to be seen whether those smaller players are lower-cost as many of these opportunities are still in early stages.

Though WA gas spot prices are currently depressed, RBC Capital Markets said upon starting coverage on AWE in May, when domgas was selling from between $A3-4/gigajoule that the prospects for a recovery in WA gas prices depended on much of the NWS domestic gas production being redirected to LNG exports.

RBC believes the gradual exit of the NWS domestic gas – which was recently less than 500TJ/d – is critical to rebalancing the domgas market.
“Recovering gas prices are critical to the development of AWE’s Waitsia and Senecio fields,” RBC’s Ben Wilson said.

“AWE’s Perth Basin assets are adjacent to existing pipeline and processing infrastructure and would therefore benefit from potential tariff savings in supplying Southern WA demand centres over gas produced further north.”

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