The Australian Energy Market Operator (AEMO) recently published an update to the Gas Statement of Opportunities. The sticking point of the publication is a forecasted 54 petajoule and 48 petajoule (PJ) shortfall in 2018 and 2019 respectively. The forecast shortfall is three times higher than the forecast earlier this year. The report estimates aggregate gas production in 2018 to be 1,891 PJs and a shortfall of 54 PJs, or as a percentage, 3% of total production. This is a very small margin and given the level of assumption contained in the report Edge believe it should be considered cautiously.
Putting aside the potential inaccuracies of the report, it is important to consider the wider implications of federal government intervening into the gas market and how this will be perceived by international investors. Australia is the second largest gas exporting country in the world, has close proximity to Asia and AAA credit rating. Political intervention into markets is viewed as a sovereign risk and may be the difference between investment here or abroad. The longer term outcome of less capital coming into the Australian gas market is that prices will eventually rise.
Malcolm Roberts the Chief Executive of the Australian Petroleum Production & Exploration Association said “Looking ahead to 2018, there is a large supply of uncontracted gas available for domestic customers. The industry has made it clear that it will ensure that sufficient gas is available for the domestic market”. These comments are in complete contrast to the AEMO update and suggest that there will not be shortfall of gas.
There are a broad range of stakeholders who will be impacted by the actions of the federal government whether that is intervening or not. The federal government has until 1 November to decide whether the Australian Domestic Gas Mechanism will be put in place. If it is actioned the mechanism will begin on 1 January 2018.
Edge will continue to monitor the actions of gas producers and the federal government in the coming weeks.
