Are gas import terminals a necessary solution or pricey gamble?

In 2023, we questioned whether LNG import terminal projects in Victoria, NSW and South Australia could end up as white elephants.

Now, we look at what progress has been made on the terminals, and whether they will be able to play an important role in meeting gas shortfalls in the southern states.

Progress on key projects

So far, it appears that Squadron Energy’s Port Kembla terminal is closest to operation, slated for 2026. However, Squadron is yet to sign any long-term agreements with customers, so there are still uncertainties. Squadron says the terminal has the capacity to supply 500TJ of gas per day, meeting a large majority of the gas needs for Victoria and NSW.

Viva says it is in the final stages of regulatory approvals for its Geelong terminal. If successful, construction should start in 2026 and supply in 2028.

Venice Energy describes its Outer Harbour project in Port Adelaide as one of the world’s first terminals powered entirely by renewable energy. It has the required regulatory approvals. Construction is expected to be completed by 2026, with the terminal supplying gas by mid-2027.

Vopak’s Victoria terminal in Port Phillip Bay is still in the proposal and consideration stage, although the company says if it gets up, it would operate from 2027.

The pressure on supply

It does seem certain that import terminals will have an important role to play in ensuring supply.

According to the ACCC, the east coast gas market is fine for now, but there will likely be shortfalls from 2027 unless new sources of supply are found.

Rohan Harris, Executive Director at Oakley Greenwood, says the southern states “may face shortages by 2026 under specific conditions and universally by 2028” even after assuming some supply will be transported from Queensland.

Michael Symes, Principal at Acil Allen, noted that it will be during winter that “meeting demand could become a real challenge as our supply capacity begins to fail”.

And according to Professor David Close, Director of the Gas & Energy Transition Research Centre, gas supply is most likely to be stressed during winter months when there are “renewable droughts” due to cold, cloudy and windless days, exactly when gas-powered generation needs to be turned on.

How LNG import terminals could fill the gaps

Harris believes gas import terminals could address future shortfalls, particularly Port Kembla, although he notes that none will be ready in time to resolve any 2025 peak day issues.

Symes describes LNG terminals as a “flexible source of supply”, in that they can relatively quickly adjust their contribution to the market based on changing conditions.

“Some of our recent modelling suggests that trying to meet forecast seasonal and peak day demand without LNG imports will be very difficult,” he says.

While the southern states will be able to import some gas from Queensland at about the same rate as an import terminal, Close points out the delivery of gas from the northern state is limited by long pipeline networks.

“LNG imports could help during these days and weeks, and possibly whole seasons,” he says.

The potential effect on price stability

As Harris points out, the extra costs of liquefaction, shipping and regasification tend to make LNG imports more expensive than gas produced locally.

However, opinions on how imports could affect price stability differ to some degree.

Harris said it “would likely put upward pressure on gas prices in the future for domestic users”.

Symes is not so sure.

“LNG imports should not be considered in isolation from the rest of the market,” he says.

“Gas from onshore sources across the east coast have development challenges and long lead times. To maintain some stability of prices in the near and long term, LNG imports are likely to help in that regard.”

Close describes price stability as a real concern.

“LNG is almost certainly higher cost and higher carbon intensity than domestically produced and supplied gas,” he says.

“Ultimately how much it costs will be a complex function of many factors, including global gas prices, geopolitical conflict, domestic electricity prices, demand management and more.”

Will more supply mean lower prices?

According to Close, in general, higher domestic supplies tend to reduce prices, but the opposite will “almost certainly be true” of imported gas.

“We should be clear we are importing because we have to for energy security, not because it is optimal from an economic or environmental perspective,” he says.

Harris’s response was similar. He says LNG imports are unlikely to lead to lower domestic gas prices either now or in the future – especially compared to meeting the shortfall through locally produced sources.

Symes is more optimistic, saying LNG imports could stabilise and potentially even reduce prices.

“If international LNG prices were to decline, there is some possibility that increased imports could actually help reduce prices in the long term.”

However, he points out that this may not be the case if international prices go up.

The general consensus is that LNG imports are no longer just a talking point but are turning into a necessity to provide energy security and prevent disruptions. As regards how long we will need them, it could be up to a decade. Proponents of the projects are keen to emphasise that floating parts of the projects can be re-deployed elsewhere when they are no longer needed in Australia.

How import terminals will affect prices is nuanced, depending on a range of factors. In any case, it seems they unlikely to make gas cheaper than it is now!

Source:
https://www.accc.gov.au/media-release/east-coast-gas-supply-sufficient-for-2025-but-concerns-remain-for-longer-term