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By Imogen Hartmann, Assistant Editor, Energy magazine

The Australian Energy Market Operator has published the 2020 Western Australia Gas Statement of Opportunities, a ten-year forecast of Western Australia’s domestic gas market from 2021-2030. The report also examines current and prospective gas infrastructure, and identifies emerging issues within the industry.

The report outlines the critical role gas will play in Western Australia’s economic recovery from the COVID-19 pandemic, with the state in a prime position to leverage its natural resources.

While the demand forecast is set to exceed the supply potential towards the end of the ten-year period, the report notes that options are available to neutralise the gap.

The COVID-19 pandemic has had some positive effects on the industry, with other Western Australian commodities, such as gold and iron ore, experiencing an increase in demand, and will likely be able to offset domestic gas demand in the short term to 2022.

Demand rises, supply to fall

The report indicates that the gas market will be well-supplied until 2026, and narrowly balanced until 2028. There is a potential supply gap in the years following, although the Australian Energy Market Operator (AEMO) notes that undeveloped gas fields not included in the forecast could alleviate the gap and cater to the domestic gas market.

Potential gas supply is expected to fall at an average annual rate of 2.8 per cent over the ten-year period. The decline is attributed to delays in large liquefied natural gas (LNG) projects, as well as the Browse and Scarborough projects, caused by changing market dynamics and COVID-driven economic conditions.

On the other hand, since the publication of the 2019 Western Australia Gas Statement of Opportunities (WA GSOO), domestic-only projects, including backfill for existing production facilities, have seen progress.

In contrast to declining supply figures, the demand for gas is forecast to see an average annual growth rate of 0.7 per cent, predominantly from growth in the mining and minerals processing sectors.

From 2023, an extra 40TJ/day is expected to be added from five committed resources projects. The mining sector is expected to grow at an average annual rate of 1.6 per cent over the ten-year outlook period.

Western Australia’s LNG industry continues to provide huge benefits to the state in terms of exports and for domestic supply.

A balancing act

The 2020 WA GSOO forecasts were developed using three scenarios: low, base and high. These scenarios take into account broad outlooks regarding the economy, commodity production, gas prices and population growth.

In all three scenarios, five confirmed mining and mineral processing projects are assumed that contribute substantially to the gas demand over the outlook period. These five projects are:

» Albemarle Corporation’s Kemerton lithium processing plant, commencing operation in 2021

» Rio Tinto’s Gudai-Darri iron ore project, planned for early 2022 (although a 34MW PV solar farm set to be installed in 2021 is expected to offset part of this project’s gas demand)

» FMG Magnetite and Formosa Steel IB’s Iron Bridge magnetite processing project (stage 2), due to commence in mid-2022

» Capricorn Metal’s Karlawinda Mine, set to become operational in 2021

» Kalium Lakes Beyondie Sulphate of Potash (SOP) project, on target to begin production in 2021

It is also forecasted that Goldfield’s Agnew Gold Mine renewable power project, and Hazer Group’s biogas and hydrogen graphite project, will partially offset the demand from the above projects.

Developing gas reserves is critical for maintaining supply to the WA domestic market. According to the report, the number of exploration and development wells drilled remains relatively low.

Only ten wells were drilled over the January 2020 to October 2020 period – a number only marginally higher than the lowest recorded number of drills (nine) in 2017.

Although the 2019 WA GSOO predicted sufficient gas supply to meet gas demand for the 2020 to 2029 outlook period, the latest report forecasts gas demand exceeding potential supply by around four per cent (47TJ/day) in 2029, increasing to around nine per cent
(97TJ/day) in 2030.

In the report, AEMO states that options are on hand to minimise the potential supply gap in the later years of the outlook period.

These options may include:

» There is potential to utilise excess reserves at existing production facilities (collected from 2021 to 2026) to meet demand
» To eradicate short-term supply gaps, gas could be taken out from storage at a rate of up to 210TJ/day
» Currently undeveloped gas fields, particularly those that might be connected to existing gas production facilities, could be developed
» There may be additional supply projects entering the market that were not accounted for in the potential gas supply forecasts of this report

Hydrogen has not yet been included in the 2020 WA WSOO demand forecasts (with the exception of Hazer Group Limited’s biogas to hydrogen project).

The impact of hydrogen and renewable energy

Hydrogen gas developments and renewable energy projects are expected to have an impact on gas demand, with several major projects lined up for the outlook period.

As part of its Renewable Hydrogen Strategy, the WA Government is funding seven renewable hydrogen feasibility studies including assessing solar hydrogen for waste collection and light vehicle fleets, a hydrogen refuelling hub, and the potential for an electrolysis hydrogen production plant.

Other hydrogen projects with the potential to impact domestic gas demand include; BP’s Geraldton Export-Scale Renewable Investment Feasibility Study; Horizon Power’s Denham hydrogen demonstration project; Infinite Blue Energy’s Arrowsmith Hydrogen Project; Woodside and APA Group’s Badgingarra Renewable Hydrogen Project; and The Yara Pilbara Renewable Ammonia Feasibility Study.

The WA Environmental Protection Authority (EPA) has also greenlit the first stage of NW Interconnected Power’s Asian Renewable Energy Hub – featuring 15,000MW of new wind and solar power in the Pilbara region, the bulk of which will be used for large-scale hydrogen production for domestic and export markets.

Several renewable energy projects are also in the pipeline, at varying stages of development, including the commissioning of Horizon Power’s Onslow microgrid project, and Gold Fields Group’s 56MW Agnew Hybrid Renewable Project.

With a large volume of undeveloped gas, AEMO is confident that there are plenty of options to meet the state’s domestic and export gas requirements.

WA’s prime position in the gas game

There are a few factors that position WA as a prime producer of natural gas, like the state’s unique geographic isolation and large gas resources. WA’s Carnavon Basin and North West Shelf (NWS) provide about 90 per cent of Australia’s overall recoverable reserves of
conventional gas.

WA’s liquefied natural gas (LNG) export industry and domestic gas market are heavily supported by these gas fields. The development of the NWS gas fields was first promoted by the WA Government policy back in the 1980s. The NWS partners signed a significant gas supply contract with the State Energy Commission of WA and built the Dampier to Bunbury Natural Gas Pipeline (DBNGP).

WA has the largest natural gas consumption of all Australian states, in spite of its relatively small population. In 2018-19 WA consumed 669PJ of gas, which accounts for approximately 42 per cent of the country’s total gas consumption. WA’s domestic gas market is supported by the State Government’s promotion of long-term supplies of natural gas for WA consumers through its Domestic Gas Reservation Policy.

Under the policy, 15 per cent of gas made available through new offshore gas developments are sought for domestic use. Export gas producers are required to negotiate with the WA Government through the policy, with flexibility built in to allow for each project to be negotiated on a case-by-case basis.

LNG export set backs

As more and more countries commit to reducing greenhouse gases and thereby seeking coal and diesel alternatives, natural gas is becoming more relevant in the world’s energy mix.

WA has become a world leader in LNG export, launching an LNG taskforce in 2018, and multiple cross-sector collaborations developing exportable capabilities in new technologies, including remote operations and LNG processing.

The 2020 WA GSOO outlines delays in the large LNG projects which is attributed to weak oil and LNG prices, as well as an LNG oversupply.

The report notes that the LNG oversupply has been aggravated by COVID-19 restrictions, which have reduced demand. Other projects have increased in volume or changed development paths.

Modelling of prospective supply sources from the latest report, compared with the 2019 WA GSOO indicates a three year delay of
Woodside Energy’s Scarborough LNG project, and the exclusion of Browse LNG project (previously included in supply forecasting) due
to timing uncertainty.

AEMO said it would continue to work closely with industry, market bodies and government to enable developments that would secure affordable and reliable energy for consumers state and Australia-wide.

With a large volume of undeveloped gas (currently too speculative to include in the 2020 WA GSOO) combined with the strong demand for WA commodities, AEMO assures that there are plenty of options to balance the potential outlook supply gap.

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