Australia’s East Coast is set for gas in 2019 but the picture gets murky after that, says the competition regulator.

In its fifth interim report into the gas sector, the ACCC said the southern states were relying increasingly heavily on gas from Queensland — but little investment was being put into new pipelines to move it south.

“To function more effectively, the East Coast gas market requires a greater level and diversity of supply, greater transparency and a more efficient transportation network,” the report said.

It’s a situation that is likely to benefit the smaller gas producers and explorers paddling around in the East Coast gas market, as they prove up reserves that may be tempting for the big LNG producers, or to sell to desperate industrial buyers.

Last month, Senex (ASX:SXY) said it was going ahead with its Project Atlas in the Surat basin, on a release of land from the Queensland government for domestic-only gas production in March 2018.

Central Petroleum (ASX:CTP), which operates just across the border in South Australia, locked fertiliser and explosives maker Incitec Pivot (ASX:IPL) into a contract for its gas in June.

State Gas (ASX:GAS) is fighting with its joint venture partners over who gets to keep 20 per cent of a coveted piece of land in the Bowen Basin.

Other gas small caps operating in and around the East Coast include Armour Energy (ASX:AJQ), Blue Energy (ASX:BUL), Galilee Energy (ASX:GLL), Real Energy (ASX:RLE) and Bounty Oil and Gas (ASX:BUY).

Little large scale new investment yet

The ACCC says even though gas prices as sitting just about $10 a gigajoule (GJ), much higher than the cost of production, it hasn’t yet spurred much new gas development.

The report found that 80 per cent of ‘2P’ gas reserves were controlled by the big three Queensland LNG producers, either through ownership or through purchases from other suppliers.

Typically ‘reserves’ refer to oil or gas discoveries that are commercially recoverable using existing technology. A 2P means it’s proven and probable, while a 3P includes ‘possible’.

The LNG producers will develop the reserves they need to fulfil export needs, but there are still 11,242 petajoules of gas reserves in the Surat and Bowen basins that are uncontracted for domestic or export needs.

The ACCC says developing these reserves are critical to maintain East Coast supply.

Problematically, almost all of these uncontracted reserves are coal seam gas (CSG) — a form of gas that the majors have had and are continuing to have serious problems extracting.

“Around 90 per cent of all 2P reserves in the east coast have a lifecycle cost of more than $6/GJ. In large part, this is because the east coast is now heavily reliant on production from CSG, which is generally more expensive to produce than conventional gas due to the need for relatively high ongoing levels of capital expenditure,” the report said.

Local gas for local use

While NSW, Victoria and Tasmania are still opposing gas field development onshore, Queensland is pushing ahead with getting more out of the ground.

Today the Queensland government okay’d a new joint venture between Santos and Shell to explore for more gas in the Surat basin, which will be set aside solely for domestic use.

The government has approved exploration over a 393 square kilometre parcel of land 19km east of Surat in the Surat Basin.

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