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| Gas production and trade | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Natural gas is becoming increasingly important for Australia, both as a source of export income and as a domestic energy source. Around 50 per cent of Australia’s gas production is exported. In 2007-08, the value of Australian LNG exports was $5.9 billion, an increase of 12 per cent from 2006-07. Natural gas is the third largest source of Australia’s primary energy consumption, following coal and petroleum products. Since 1996-97, natural gas consumption in Australia has increased at an average rate of 3.5 per cent a year, compared with an average rate of 2.4 per cent for coal and 1.6 per cent for petroleum products. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Production | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Around 96 per cent of Australian conventional gas production is sourced from three petroleum basins; the Gippsland Basin (Victoria), Cooper-Eromanga Basin (central Australia) and the Carnarvon Basin (north-west Western Australia). Western Australia is the largest producer of gas in Australia, accounting for nearly two-thirds of national production in 2007-08. The Carnarvon Basin accounts for 99 per cent of state gas production, with the North West Shelf accounting for a significant proportion of the Carnarvon Basin production. In total, Western Australian gas production was 1141 petajoules in 2007-08, an increase of 1.1 per cent on 2006-07 production. Despite this modest growth, gas production in Western Australia has grown at an average annual rate of 6.8 per cent over the past seven years. In 2007-08, Victoria, the second largest gas producing state, accounted for around 20 per cent of Australia’s natural gas production, or 312 petajoules. The majority (75 per cent) is sourced from the offshore Gippsland Basin. The offshore Otway and Bass Basins in south-west Victoria supply the remaining 25 per cent of gas into the Victorian market. Gas production in Victoria has been increasing at an annual average rate of 3.2 per cent over the past seven years. Gas production in the Northern Territory totalled 22 petajoules in 2007-08. All of this production was sourced from the onshore Amadeus Basin in central Australia. Gas production from the Amadeus Basin has been increasing at 2.3 per cent a year over the past seven years. The ENI Blacktip project will be the first offshore gas project to supply the Northern Territory market and is expected to commence production in early 2009. Production of coal seam methane (CSM) has increased significantly in the past seven years with its share of total Australian gas production increasing from 2 per cent in 2001-02 to 7 per cent in 2007-08. CSM is only produced in Queensland and New South Wales, accounting for around 90 per cent and 100 per cent of total gas production, respectively. Production of CSM is expected to continue to grow with five projects planned in Queensland and another three in New South Wales. Accompanying these projects are five planned LNG plants in Queensland with a combined capacity of around 17 million tonnes, equivalent to the LNG capacity of the North West Shelf Joint Venture. |
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| Trade | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The geographical distance between Australia and its key natural gas export markets prevents trade by conventional pipeline transport. Instead, by cooling the gas to –161° Celcius, so that it becomes a liquid known as liquefied natural gas (LNG), its volume is reduced and this enables storage and transport. Australia’s major LNG trading partners include Japan, Chinese Taipei, the Republic of Korea and China. With future expansions to Australia’s LNG capacity, LNG trade with countries such as India and the United States is likely. Most of Australia’s exports of natural gas are sourced from the Carnarvon Basin off the north-west coast of Western Australia, with the rest coming from Darwin. Australia’s two producing LNG projects are the North West Shelf Joint Venture, and Conoco-Phillips Darwin LNG project. The North West Shelf Joint Venture began exporting in 1989, and in September 2008 reached a production capacity of 16.3 million tonnes a year after commissioning of the fifth LNG production train. The Darwin LNG project began production in 2006 and has a capacity of 3.5 million tonnes a year, sourcing its natural gas supply from the Bayu-Undan gas field in the Timor Sea. Australia’s LNG exports are forecast to increase by 15 per cent in 2008-09 as capacity is increased at the North West Shelf and the Darwin LNG plant returns to full capacity following a maintenance shutdown in 2007-08. As a result of increased exports and higher prices, the value of LNG exports is also forecast to increase in 2008-09. LNG exports are expected to continue increasing over the next five years. Substantial growth in Australia’s LNG production is planned over the medium term with the development of the Pluto LNG project, as well as the possibility of various LNG projects using CSM as a feedstock (Appendix 1). |
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| Prices | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic gas prices on the east coast, Australia’s largest gas market, have increased significantly over the past eight years as demand for gas from households and power generators has increased. Over this period, wholesale gas prices in the Victorian spot market have increased at a real average annual rate of 2.9 per cent. Domestic gas prices have increased significantly since 2005-06 as water scarcity reduced the amount of electricity generated from coal-fired power plants, increasing demand for gas used in the generation of electricity. LNG contract prices are generally indexed to world oil prices with higher world oil prices leading to higher LNG contract prices. Reflecting higher oil prices, LNG import prices have increased significantly over the past four years, with the prices of LNG imports in Japan, the Republic of Korea and the United States undergoing average annual growth of 14 per cent, 20 per cent and 7 per cent, respectively. Higher world LNG prices have led to a corresponding increase in Australia’s average LNG export price. Between 2004-05 and 2007-08, Australian export prices increased by an average 18 per cent per annum. Despite this, the average Australian export price declined in 2006-07 reflecting increased shipments under lower priced contracts. |
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