NSW, QLD face looming shortage of gas

Giant LNG projects may hoover up gas for export

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Published November 29, 2013 1:41 pm AEDT

Within five years, New South Wales and Queensland consumers could be shivering through winter, as gas shortages loom.

The Australian Energy Markets Operator (AEMO), which manages the energy market, says gas prices are set to soar thanks to the imminent startup of operations at a number of Liquefied Natural Gas (LNG) projects in Queensland.

Santos (ASX: STO) is involved in the Gladstone LNG project, while Origin Energy (ASX: ORG) is one of the partners in the Australia Pacific LNG project, both located in Gladstone, Queensland. Both companies, along with the majority of Australia's energy players, including APA Group (ASX: APA) and AGL Energy (ASX: AGK), are members of AEMO.

Much of the gas produced for the LNG projects will be exported to countries such as Japan, Korea and China. According to AEMO, the export projects will consume up to 250 terajoules of gas a day in Queensland and between 50-100 terajoules redirected from NSW around 2019. Queensland gas exports are expected to rise from zero to reach 1,450 petajoules by 2020, more than 10 times the existing gas demand in NSW.

AEMO also warns that the Otway Basin, off the coast of Victoria, is likely to run dry in a little more than a decade, putting further pressure on gas resources. As a result, NSW could face potential shortfalls during winter peak demand days from 2018, while Queensland could see shortfalls if there is no further production investment.

On a positive note, AEMO sees opportunities for gas companies to develop new sources of gas, including unconventional (shale and coal seam) gas, as well as development of new gas pipelines, and enhancement of existing pipe networks. Santos is already drilling for unconventional oil and gas with partners Beach Petroleum (ASX: BPT) and Drillsearch (ASX: DLS), as well as in several prospective basins around Australia.

Foolish takeaway

Eastern states business and consumers will be hoping that the gas explorers can find sufficient gas to supply both the massive LNG export projects, as well as meeting their needs. That may require a massive inflow of capital for exploration and drilling, but could also be an opportunity to invest in those oil and gas companies drilling in NSW and Queensland.

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