Macro Overview

The desired energy transition is very hardLNG demand forecast to rise

East Coast Australia gas supply crisis

  • • A wide variety of challenges - physical, economic and political - to the desired energy transition

  • • Increasingly being recognised by various (but not all) parties

  • • Gas is not optional - demand will in fact grow

  • • Multiple industry and Government parties forecast growing LNG demand

  • • Asian demand particularly strong

  • • Australian security of supply increasingly valued

  • • The long recognised supply crunch is nearly upon us

  • • To date Govt actions and inactions have arguably increased risks

  • • Current prices of >A$10 expected to be a long term floor

The Reality of the Energy Transition

The reality of the energy transition is that it is very hard and long dated - gas demand will grow not fall

The Uber-realists

Vaclav Smil:

"Since Kyoto in 2027, there has been no absolute worldwide

ATP 2044 decarbonization. In fact the very opposite is the case….

In 2022 the world consumed nearly 55% more energy locked in fossil carbon than it did in 1997….

In that quarter century, the world has substantially increased its dependence on fossil carbon….

Responsible analyses must acknowledge existing energy, material, engineering, managerial, economic and political realities".

Jeremy Grantham:

"Indeed, the long-term correlation between energy use and GDP growth is over 0.95 (see Exhibit 1).

That is the equivalent of saying that since the industrial revolution - which was really based on the introduction of fossil fuels into our economy - almost all our gains have been dependent on increased resource use.

Without new sources of effective energy, cheap and in vast quantities, there would have been very little science, and very little productivity".

Growing Demand for LNG

Multi decade growth - with an increasing focus on security of supply

Shell LNG Outlook 2024:

  • • The global LNG market will continue growing into the 2040s

  • • Rising demand for LNG expected to keep pace with new supply

    ATP 2044

  • • Renewables, supported by gas, erode coal's role in Asia

Security of Supply in Cold War 2.0

  • • Choke-point anxiety growing

  • • Qatar concentration concerns growing given Iran adjacency

  • • Impact of US politics on US (and Mexican) LNG

  • • Australia is the only Western LNG supply source with liquefaction ullage

Current East Asian LNG Market Dynamics

Australia still the best located supplier to East Asian LNG Markets:

  • • Lower transportation costs than USA or Qatar

  • • No choke points like Panama Canal, Red Sea, Malacca Straits

  • • Geo-political ally of traditional buyers Japan and South Korea

  • • Still largest supplier of LNG to the PRC

  • • Strong history of reliability over many decades

Upcoming East Coast Gas Supply Crunch

Is it even worse than feared?

  • • The now imminent East Coast gas supply crunch has been forecast for some time

  • • It is almost upon us - a cold winter and falling Gippsland supplies could hit this year

    ATP 2044

  • • Demand destruction has happened but cannot keep pace with falling supply

  • • Only one FSRU project FID'ed (but with an unpredictable owner) - the others face material political and financing challenges

  • • Any new gas material gas supplies from NSW and Victoria seem highly unlikely

  • • Although multiple constraints on more supply from Queensland - physical capacity,State politics, geo-politics, sovereign risk, etc - there are very few alternatives

Source: ACCC

The Taroom Trough - An Advantaged Location

The prolific Bowen Basin is now set to deliver another energy source

  • • The Grandis Gas Project is very well located in the Taroom Trough in the Southern Bowen Basin

  • • Australia's premier physical and commercial gas hub - Wallumbilla - is immediately adjacent

  • • Market factors are now driving new rounds of drilling in the Taroom Trough - including by Majors

  • • Pipeline costs minimal - material savings per GJ - as well as avoidance of financing concerns over new transmission pipelines

  • • Long term community acceptance of oil and gas in the region

  • • Australia's onshore oilfield service sector is centred in the region

Gladstone LNG Plants Have Growing Ullage

The 3 LNG Plants at Gladstone need more gas

  • • The three LNG plants (6 trains in total) at Gladstone have never operated at full capacity (and well constructed LNG plants should generally operate above nameplate capacity)

  • • Current supplies - primarily gas feedstock from Queensland CSG have arguably irreversibly peaked

  • • Brownfield economics therefore should favour decisions to develop gas for these existing plants versus pursuing global greenfields options

  • • Tight gas (possibly enhanced with recently discovered deep conventional gas) from the Taroom Trough is very well placed to fill this gap

Source: EnergyQuest report for Elixir Energy

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Elixir Energy Limited published this content on 25 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 25 March 2024 21:38:12 UTC.