As the world grapples with the challenges of energy transition and climate change, the role of natural gas in the global energy mix continues to be a topic of debate, particularly in developed economies. In Australia, this debate is particularly pertinent given the country’s abundant natural gas resources and its position as a leading global exporter of liquefied natural gas (LNG).
What has changed in the Australian natural gas sector over the past 12 to 24 months? And what are the differences between the west and east coasts of Australia?
Over the past two years, the Australian natural gas sector has experienced significant changes in supply and demand dynamics. On the supply side, the Australian Energy Update 2023 reported detailed data showing that Australia’s gas production has been steadily increasing, driven by strong demand from both domestic and international markets.
On the demand side, the Australian Energy Regulator (AER) reported on the eastern gas market, which encompasses Queensland, New South Wales, Victoria, South Australia, Tasmania, and the Australian Capital Territory, all interconnected by transmission pipelines. This report noted that the supply-demand balance for the 3rd quarter of 2024 would be finely balanced, however, the southern states rely on imports from Queensland to meet their needs, implying a geographical imbalance.
As part of the global transition to net zero, the energy mix is shifting, and this includes a changing role for natural gas. Energy analysts describe two possible pathways for the natural gas sector – a fast transition away from natural gas as a source of fuel, or longer-term use of natural gas as a transition fuel in the journey towards net zero.
In Australia, natural gas is seen by Governments, industry and economists as a critical player in keeping the country running as it races towards its goal of net-zero greenhouse gas emissions by 2050. Gas produces lower emissions than coal or diesel and can be dispatched on demand, particularly during periods of low renewable generation.
The past year has seen significant fluctuations in the pricing of natural gas in Australia. In FY23, the natural gas prices on the east coast varied between $12.98/GJ to $$18.46/GJ, whilst in FY24 YTD, the prices have come off 36% to be sitting at $9.94/GJ to $11.22/GJ, according to the AER.
In Western Australia, the average gas contract price is lower than the east coast, partially impacted by the Government’s gas reservation policy, which forces producers to sell a proportion of production into the local market. Prices are currently around $7/GJ, however, this is well above the lows of $2.87/GJ in Q3 2020. The Australian Energy Market Operator forecasts that WA gas supply is likely to be 105PJ short of domestic demand up to 2026 when new projects enter the market.
Looking ahead, the future of natural gas in Australia appears to be promising. The demand for natural gas in Australia is forecasted to grow steadily at a CAGR of 2.8% from 2024 to 2034. This growth trajectory is propelled by sustained domestic consumption, expanding usage of natural gas in power generation, and rising needs in vital industries like chemicals, fertilisers, and transportation, particularly as coal plants are retired.
Australia is home to several major natural gas producers and many other medium to small contributors. The companies with the largest market share in the LNG sector include Chevron, Shell, Woodside, Santos, INPEX, and Origin Energy. Moving forward, other companies are expected to join this group or expand production with the development of the Barossa, Browse, Scarborough, Bedout Basin and Beetaloo Basin projects.
The Australian natural gas sector is undergoing significant changes as it navigates the challenges and opportunities presented by the global energy transition. Even in net-zero modelling, the International Energy Agency still sees a significant role for natural gas. While the future is complex and uncertain, the sector’s importance to the Australian economy and its potential role in the transition to a lower-carbon future cannot be underestimated.
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Photo by Ilse Driessen
