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UPDATE 2-Gas export curbs loom as Australia's east faces gas shortfall
September 25, 2017 / 2:50 AM / in 3 months

UPDATE 2-Gas export curbs loom as Australia's east faces gas shortfall

* Gas shortfall seen at 8-17 pct of demand in 2018

* Government presses LNG exporters to plug 110 petajoule gap

* Government to decide by Nov 1 on export curbs (Recasts with Prime Minister’s comments)

By Sonali Paul

MELBOURNE, Sept 25 (Reuters) - Royal Dutch Shell, ConocoPhillips and Santos face curbs on exporting gas from Australia’s east coast in 2018 if they fail to plug a projected local supply shortfall, Prime Minister Malcolm Turnbull warned on Monday.

Eastern Australia faces a gas shortfall of up to 17 percent of market demand in 2018, the nation’s energy market operator and competition watchdog projected in reports submitted to the government on Monday that will be the basis for a decision by Nov. 1 on whether to limit exports.

The shortfall of around 110 petajoules (PJ) seen in 2018 is far worse than the market operator flagged in March.

“We are determined to ensure and we will ensure that that shortfall, which we’ve been advised of today - three times bigger than we thought it would be six months ago - is not going to occur,” Turnbull told reporters.

Turnbull said he would press the east coast LNG exporters - Shell at Queensland Curtis LNG, ConocoPhillips and Origin Energy at Australia Pacific LNG, and Santos at Gladstone LNG - for plans to plug the 110 PJ supply gap.

Gas has become a hot political issue as soaring prices are hurting households and threatening jobs at manufacturers like food, building materials and chemical producers, and at the same time driving up electricity prices, as gas-fired power is needed to back up wind and solar energy.

To deal with the crisis the government passed a law earlier this year that would allow it to limit exports from any of the three LNG plants on the east coast to beef up local supply.

“Gas supply remains tight in eastern and south-eastern Australia in 2018 and 2019, and there remains a risk of a supply shortfall,” Australian Energy Market Operator Chief Executive Audrey Zibelman said in a statement.

For 2018 the shortfall risk is between 54 petajoules and 107 PJs, the market operator said, in line with the gap that the competition commission found.

The three LNG exports plants, which were completed between 2014 and 2016, have long-term contracts to sell gas to customers in Asia, but have also been selling spot cargoes overseas instead of locally due to high costs and access issues on pipelines in Australia.

“The expected shortfall could be reduced to a significant extent if the expected sales on international LNG spot markets were instead redirected to the domestic market,” competition chairman, Rod Sims, said in a statement.

Under the terms of the Australia Domestic Gas Security Mechanism, the LNG plant that has been seen most at risk of being forced to divert gas from exports to the domestic market is the Gladstone LNG plant, operated by Santos Ltd.

Shell, Origin and Santos have already announced plans to step up local supply, but the commission said that was insufficient.

Reporting by Sonali Paul; Editing by Richard Pullin

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