NEED FOR THE PROJECT
THE ROLE OF NATURAL GAS
A secure, affordable supply of natural gas is fundamental to Australia’s economy. Over 5 million households throughout the country use natural gas for heating and cooking and around one fifth of Australia’s power generation is fuelled by natural gas.
This proportion is likely to increase significantly as the retirement of ageing coal-facilities leads to an increased push to renewables. Natural gas is the perfect complement to the intermittent nature of renewable energy, providing fast, reliable energy in times of peak demand.
Additionally, gas plays a critical role in Australia’s industrial landscape. Approximately half of all manufacturing relies on natural gas to fuel its production and to support almost one million Australian jobs – 300,000 of those in NSW.
The Federal Government has identified that a readily available, affordable supply of natural gas will be an essential part of Australia’s economic recovery post-COVID-19.
THE EAST COAST GAS MARKET
NSW imports more than 95% of the natural gas it uses each year from neighbouring states.
In recent years, Australia’s east coast gas market has undergone significant changes, particularly since the development of liquefied natural gas (LNG) export facilities in Queensland.
- The cost of extracting natural gas from the fields which currently supply NSW has increased as the amount of gas available declines
- Export contracts have seen large quantities of domestic natural gas shipped overseas at higher prices than traditionally paid by Australian users
- Exploration and development of new onshore natural gas fields in NSW, Victoria and the Northern Territory has slowed dramatically
These shifts have resulted in a tightening of gas supplies to the east coast domestic market and a material increase in the price of natural gas.
Various studies into Australia’s energy market have predicted further gas shortfalls in the east coast market of between 50 to 150 petajoules (PJs) per annum. NSW’s current demand is around 140PJs per annum.
Gas prices for large industrial users have almost doubled in the last seven years, with the sharpest increase following the commencement of LNG exports from Queensland in 2015.
In 2017, some industrial gas users were being offered new gas contracts at a wholesale price of $20/GJ. This is around five times the average of historical contracts struck before 2015.
A number of industry groups and industrial users of natural gas have found not only has the cost of gas being offered to them increased, but that they are unable to source long-term contracts with suppliers. This has created increased uncertainty for major gas users around both their profitability and long term viability.
By bringing LNG directly into NSW by ship, AIE will make a new source of gas available, that would not have previously reached the NSW market.
The gas may be sourced internationally or domestically, from areas like Western Australia which have large scale gas projects, but no pipeline connection to the east coast.
The Port Kembla Gas Terminal will act as a “virtual pipeline” delivering natural gas directly into NSW and eliminating the additional pipeline transmission costs currently involved in bringing gas to NSW from Victoria and Queensland.
The PKGT provides an efficient, flexible and fast solution to the east coast gas shortages predicted by 2023.