Santos, Australia’s third largest gas producer, has spent billions to realise an LNG export project – but now it is struggling to pump enough gas and has to purchase expensive local supplies to feed its Gladstone LNG facility. Power producers down under, meanwhile are facing fuel shortages and call for restrictions on gas exports.
Domestic gas shortages have put parts of southern Australia at the brink of a power crisis, while prices for LNG exports have fallen by more than half over the past two years as global oversupply builds up. Reacting to a plunge in oil and gas prices worldwide, Santos has cut capital spending on gas production from GLNG’s coal-seam gas acreage.
Within Australia, however, gas prices have more than doubled from 2015 levels – making it rather expensive for Santos to buy additional feed-gas for its Gladstone LNG operation. Spot natural gas in Brisbane, the nearest pricing location to Gladstone, rose to an average of A$10.33 a gigajoule in July, up from A$5.16 the year before, figures from the Australian Energy Market Operator show. Prices now eased off to average A$6.70 in August.
“It’s quite ironic because for years Santos was talking about the need for domestic gas prices to be higher and suddenly they are a gas buyer rather than a gas producer,” Graeme Bethune, CEO of the consultancy EnergyQuest commented.
Surge in power prices trigger plans for new CCGTs
South Australia’s industrial power customers have been hit by a surge in electricity prices which ultimately prompted local Leigh Creek Energy and Shanghai Electric to consider a new CCGT with a capacity of between 300 MW and 600 MW. The proposed plant would come at a cost of $450-$900 million, depending on the final capacity. Start-up is targeted for early 2019, with all electricity to be sold under long-term contracts.
Heavily wind-reliant South Australia, meanwhile, has seen the grid operator call for more decentralised gas-fired backup capacity to avoid price spikes caused by severe power shortages. At normal times, power prices for the South Australia region hover around $100/MWh, but in July peakload prices surged above $1,000/MWh in the National Electricity Market (NEM).
Overreliance on renewables and a decline in coal generation is causing this price volatility, according to Spark Infrastructure’s new chairman, Doug McTaggart who called for the “stable back-up.” His views are mirrored by the Grattan Institute public policy think tank that urges the Australia’s national government to consider paying subsidies to keep back-up power sources such as gas-fired electricity available.