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NSW may face gas shortages from winter 2016

Hydrocarbon Engineering,

New South Wales could face up to 21 days of gas supply shortages from winter 2016, according to a new research paper from AGL’s senior economists. Such a shortage would cause significant disruption to the state’s manufacturing industry.

Winter gas demand

The report, titled Solving for ‘x’ – the NSW Gas Supply Cliff, is written by AGL’s Chief Economist Professor Paul Simshauser and Head of Economic Policy and Sustainability Tim Nelson. The modelling produces estimates of daily demand and supply which is important as winter daily gas demand is double that of summer due to the increased use of gas for heating homes and businesses during the colder months.

The paper highlights that while households and small businesses are unlikely to experience shortages, large industrial users of gas may have to cease gas consumption on days where supply is unable to meet demand.

Shortage solutions

It also considers possible solutions, including:

  1. AGL’s Newcastle Gas Storage Facility at Tomago currently under construction and scheduled to be fully operational by mid 2015.
  2. The need to produce more gas domestically through new gas developments such as AGL’s Glocester project.

Although not highlighted in the paper, an economic benefits assessment suggests that the highest gas users in Greater Newcastle region contribute to approximately AU$ 2 billion to the local economy and a gas supply shortage would cost the region AU$ 5.5 million a day.

Domestic gas production

Nelson said this reinforced the need to explore and produce domestic gas in NSW, commenting: “Our new storage facility in Newcastle will clearly help any potential gas supply shortage by having the capacity to hold 30 000 t of liquefied natural gas which can be re-directed to the Greater Newcastle area in the winter months when demand is higher.

“NSW is the only state which is not self-sufficient in gas, with only five percent of the state’s needs currently being produced at AGL’s Camden Gas Project. We need to increase our local gas supplies to ensure security of gas supply for the state.

Local gas supply

“By producing gas at Gloucester we can bolster NSW locally sourced gas supply to 20% of demand. AGL confirms that all of the natural gas produced from Gloucester will be delivered to NSW customers and not exported.”

Nelson added that if there is not enough gas in the peak winter period from 2016, the NSW government could be forced into making a decision about gas curtailment to approximately 50 of the largest gas consuming sites.

Large gas consuming sites

“The high risk of shortages identified for ‘large gas consuming sites’ could result in some manufacturers being forced to cease production resulting in associated unemployment. Solving for ‘x’ identifies a number of areas in Western Sydney as having a high proportion of the sites that could be curtailed in a gas shortage,” Nelson explained.

The paper explains that NSW is vulnerable to a gas supply shortage, because the state produces so little of its own gas and consequently relies on gas from Queensland, South Australia and Victoria.

LNG development

However the Eastern Gas Pipeline bringing gas from Victoria is not large enough to meet NSW’s total peak winter gas demand on its own, and it is unlikely that Queensland and South Australian gas via the Moomba pipeline will be available for the Sydney market. Instead, it will flow to Queensland to supply the large LNG export loads, according to the paper.

“As LNG development comes online, a significant number of existing domestic gas contracts currently supplying NSW will expire with much of that gas being re-contracted to LNG producers in Queensland, therefore creating a gas supply cliff in NSW,” Nelson said.

The paper can be accessed here.

Adapted from press release by Katie Woodward

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