Get 40% Off
These stocks are up over 10% post earnings. Did you spot the buying opportunity? Our AI did.Read how

WA demand for gas to exceed domestic supply over next decade, says AEMO

Published 14/12/2023, 03:39 pm
© Reuters.  WA demand for gas to exceed domestic supply over next decade, says AEMO

A new report published by the Australian Energy Market Operator (AEMO) has forecast a domestic gas supply dearth for Western Australia, as demand increases and the rate of exploration for new gas projects falls.

The report expects a 2.2% annual increase in domestic natural gas demand for the state between 2024-2033, while gas supply is projected to fall 0.9% on average over the same period.

At present, there is no gas or energy infrastructure connecting Western Australia to its eastern cousins, meaning WA will have to solve the oncoming energy dearth on its own.

Pipeline can’t address short-term needs

The AEMO is calling for greater investment in WA gas projects to meet its demand projects, especially as the state continues the energy transition. Other suggestions included using stored gas supply or diverting uncontracted LNG spot cargoes from the export market into the domestic market.

“The 2023 WA GSOO identifies an increasing need for investment in additional gas supply into the state's domestic market,” AEMO executive general manager WA & strategy Kate Ryan said.

“While there are many offshore and onshore undeveloped projects that could supply the WA domestic market, these projects are currently too speculative to include in the potential supply forecasts.”

The Federal Department of Climate Change, Energy, the Environment and Water produced a pre-feasibility study in 2018 assessing the case for a West–East gas pipeline.

“The study concludes that a pipeline connecting Western Australian gas to the east coast is a technically feasible option to increase gas supply to the eastern states but is not currently the best or most economical option for dealing with the supply issues facing the gas market in eastern Australia,” the conclusion reads.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads .

While it’s possible the situation has changed in the intervening years, Australia remains a difficult country to build wide-reaching infrastructure in, due to the sheer size and inhospitable nature of the country.

Will more gas projects solve pricing fears?

While building more gas projects was the AEMO’s core suggestion to address the oncoming energy shortage in WA , and the resulting price spike, it may not be so simple.

In September this year, Wesfarmers (ASX:WES) took aim at gas heavyweight Woodside, accusing the energy company of not supplying enough gas to the local market compared to export markets.

Woodside responded that it was meeting its legal obligations, but WA miner South32 said producers were exploiting the lack of competition by forcing “unreasonable” terms on buyers.

"Many of the contract terms we have highlighted have the absurd result of placing the burden on the gas user who has very little ability to manage the risk," South32 energy and carbon manager Michael Brooks told the ABC.

"For example, gas quality. Gas users have no ability to control the gas quality at any time, no ability to stop gas flows and little ability to influence the gas specification."

WA domestic gas prices soared from just $2 a gigajoule in 2020 to more than $12 in 2023.

While the WA Government adjusted its domestic gas policy in August to mandate gas producers offer gas equivalent to 15% of exports available for WA consumers, it remains to be seen whether it will have a big enough effect to meet growing energy needs.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads .

In the long-term, a greater emphasis on localised renewable energy and small, self-contained energy grids might offer a more long-term fix.

Western Australia is currently heavily reliant on gas, with a huge 54.5% of its energy needs met by the fossil fuel in 2021-2022 – dwarfed only by the Northern Territory’s 74.4% reliance.

In comparison, WA relied on only 2.3% renewable energy in that period.

With the global energy transition in full swing, it will take a concerted effort by government and industry to both address growing energy requirements and decarbonise the energy market.

Read more on Proactive Investors AU

Disclaimer

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.