Queensland coal seam gas flowing to Melbourne alters market dynamics and could drive wholesale prices down

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Coal seam gas from Queensland is being exported South, drastically altering the dynamics of the market which could hopefully lead to a drop in wholesale prices.

For the past 18 months, Queensland gobbled up gas resources from as far south as the Bass Strait. But market adviser Energy Edge says that it has technical evidence that shows gas from the Surat Basin coal seam gas fields has found its way some 2,400 kilometres south for the first sustained period since early 2015.

If this trend is sustained, it would shift the balance in a stretched market, which could also result in a reduction of wholesale prices.

Coal Seam Gas has not been exported to Melbourne since 2015

Energy Edge says Queensland coal seam gas hasn’t regularly been seen in the Melbourne market since the Gladstone LNG industry was in its start-up phase in late 2014 and early 2015, when surplus “ramp” gas was swamping the east coast market.

Josh Stabler
Josh Stabler

Explaining the shift, according to Energy Edge’s Josh Stabler, is the gradual catch-up of coal seam gas production in the Surat Basin to match the increased demand from the six LNG trains, which are now fully operational.

Coal seam gas production capacity has grown by more than 3000 terajoules per day in the past three years, doubling the first 3000 TJ/day of gas output on the east coast that took 50 years to build up.

The growth has turned around Queensland’s supply deficit for the LNG plants, allowing coal seam gas to flow south through the QSN Link interconnector to New South Wales for the first time on a sustained basis since late 2015. The mild winter so far in the southern states has helped the supply-demand balance, as has a drop in local gas use in Queensland for manufacturing and power generation, partly due to high prices. The result is a turnaround from the situation in late 2016, when southern markets were exporting up to 300 terajoules a day of gas to Queensland, to today with the roles reversed and Queensland exporting about 100 TJ/d to the south.

The pending completion of performance testing at Origin Energy’s APLNG plant offers hope for a further loosening in the market. Once those tests are completed later this month, APLNG would be able to cease running its export plant flat out and divert gas from the low-priced Asian spot LNG market to domestic customers.

Gas flow South could drive wholesale prices down

Action to force a further pullback in LNG exports from Queensland beyond the self-imposed decision by GLNG to limit production to contracted deliveries may not be needed. Supply pressures in east coast gas have not gone away, but Mr Stabler suggested that there is hope for a moderation in gas wholesale prices back towards $6 a gigajoule or below, from recent levels closer to $7 in Queensland and more than $10 in Victoria.

It may be too early for industrial buyers to expect much relief. Energy Edge’s conclusions are based on a sudden change in the composition of the gas at a compressor station to Melbourne’s north. An increase in the methane content of the gas which jumped up about 5 per cent can be explained by the gas coming from coal seams rather than conventional sources.

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