The Western Australian Independent Market Operator recently released its fourth Gas Statement of Opportunities providing an assessment of the Western Australian domestic gas market over the calendar years 2016 to 2025.
The Gas Statement of Opportunities (GSOO) is prepared annually and provides a comprehensive medium to long term outlook of WA natural gas supply and demand and includes information relating to natural gas reserves, production, transmission and storage capacity in WA, along with trends in the national and international LNG markets. It also discusses other issues relevant to the sector.
Key finding of the GSOO is that:
- The domestic gas market remains in excess supply,
- Domestic gas supply has been affected by falling oil prices but is forecast to grow over the forecast period,
- Domestic gas demand is forecast to grow very slowly,
- The end of joint marketing will bring greater competition to the supply market and may provide Gas Market Participants the opportunity to rebalance their gas requirements,
- There is greater opportunity for gas suppliers in the north of WA than in the South West,
- The domestic gas market will benefit from greater transparency.
The GSOO reports that the potential gas supply is at least 107 TJ per day greater than demand over the next four years in the base forecast scenario. This excess supply is forecast to rise to more than 400 TJ per day by the end of the forecast period as several large domestic gas production facilities commence operation.
Domestic gas market balance, 2016 to 2025
Source: NIEIR and IMO forecasts, 2015
The GSOO also reports potential gas supply over the forecast period is lower than was presented in the 2014 GSOO. This is due to the recent fall in international oil prices, which has reduced domestic gas prices and caused uncertainty in the market. Gas producers will likely be less willing to supply the domestic market in the short-term, at least until prices increase (or stabilise) or additional production capacity comes online.
However, the Independent Market Operator (IMO) expects potential supply to increase towards the end of the period as international oil prices recover, which should lead to a higher domestic gas price and a more attractive domestic market. The commencement of the Gorgon and Wheatstone domestic gas projects in 2016 and 2018 will also increase production capacity and the availability of gas supply.
The expected expiry of the joint marketing authorisation for the North West Shelf Joint Venture (NWS JV) and the Gorgon Joint Venture (Gorgon JV) will expire on 31 December 2015. This is a significant change to the dynamics of the WA domestic gas market as it will increase the number of individual gas suppliers, which is likely to increase competition. Greater competition will provide opportunities for customers to renegotiate their gas requirements, or secure a more competitive price.
This fourth GSOO said that other emerging issues that are likely to impact the WA gas sector in the near future including:
- The introduction of full retail contestability in the WA retail electricity market, which carries the potential for major energy retailers to enter the retail gas market;
- The Australian Energy Market Commission’s proposal to introduce a wholesale gas price index for Australia, which would increase pricing transparency including in WA;
- The use of domestic LNG and compressed natural gas facilities, which has the potential to make gas supply accessible to remote areas of the state, while increasing gas demand as a substitute for diesel; and
- Changes to the pricing of the LNG in the international gas market which are likely to have an impact on domestic gas prices.