Victorian exploration could help address east coast gas supply concerns

Despite conditions for domestic gas buyers easing as liquefied natural gas exports fall, the outlook for gas on Australia’s east coast remains uncertain.

Australian energy advisory firm EnergyQuest reported that short-term domestic gas prices in February fell to an average of $5.46 per gigajoule (GJ) in Brisbane, $5.87/GJ in Sydney and $5.95/GJ in Victoria, down from $5.96/GJ, $6.44/GJ and $6.35/GJ respectively in January.

It is also far lower than the short-term prices that were near the $10/GJ mark just one year ago.

However, this might be a short-term respite brought about by the lower demand for LNG exports.

READ: LNG is feeling the heat from coronavirus

New supply projects have also experienced numerous delays with the recent US-China trade deal possibly impacting on a development decision by Arrow Energy, which is 50 per cent Chinese-owned, on the largest uncontracted reserves on the east coast.

Timing of both the Victorian and New South Wales LNG import projects has also been pushed back.

A Victorian era

Given the ongoing uncertainty around east coast gas supplies, the Victorian state government’s decision to lift the moratorium on onshore conventional gas exploration could go some way towards addressing these concerns.

READ: Competition watchdog says Australia needs more gas because prices are still too high

In this week’s decision, the government said it would introduce a new piece of legislation that would allow for an orderly restart of onshore conventional gas exploration and development from July 1, 2021.

This follows a three-year investigation by the Victorian Gas Program, which found an onshore conventional gas industry would not compromise the state’s environmental and agricultural credentials.

Premier Daniel Andrews said Victoria was “backing the science to create jobs, boost energy supply and support regional communities across the state”.

The decision was welcomed by the Australian Petroleum Production & Exploration Association (APPEA), with chief executive Andrew McConville saying the decision to lift the moratorium is a step towards ensuring that Victoria continues to have ongoing supplies of gas.

“The Australian Energy Market Operator (AEMO) has forecast shortfalls in Victorian gas supply as soon as 2024 if more supply is not developed. Shortages could happen earlier if winter demand is high,” he noted.

“Victoria is a state that heavily relies on gas. Around 80 per cent of Victorian homes are connected to natural gas, and an average household in Victoria uses nearly twice the amount of natural gas as a household in any other state in Australia.

“Thousands of manufacturing jobs in the state also rely on a stable supply of gas.”

Meanwhile, Vintage Energy (ASX:VEN) managing director Neil Gibbins told Stockhead that he expected small cap explorers to jump at the opportunity to carry out gas exploration in Victoria.

“Small cap explorers can be very nimble and hence quickly prepare for and commence activities, particularly if regulations, consultation and approvals processes are clear and the government supplies appropriate support to the regulator,” he said.

“The three-year Victorian Gas Program investigation also provides a wealth of information to assist all stakeholders in consideration of potential projects.”

Gibbins added that Vintage would work together with its joint venture partner Cooper Energy (ASX:COE) and other stakeholders to get ground operations underway on its PEP 171 exploration tenement once the moratorium was lifted.

“PEP 171 is highly prospective for the discovery and production of conventional gas as the tenement includes the eastern section of the Penola Trough,” he explained.

Over 70 petajoules of gas have been produced from the Penola Trough in South Australia and the Victorian section of the trough offers similar potential and is very lightly explored.

Gibbins also noted that Vintage was always assessing the potential of available exploration tenements across Australia and now had the confidence to pursue prospective tenements in Victoria.

Predictably, the decision to lift the ban on onshore conventional gas exploration was opposed by Environment Victoria, which claimed the decision would exacerbate climate change.

“Increasing gas use in Victoria will expose Victorians to a greater risk of climate change including worse droughts and worse bushfires,” chief executive Jono La Nauze told the ABC.

Carved in stone

However, environmentalists can walk away with one victory under their belt.

While Victoria will drop the moratorium on onshore conventional gas exploration, it also moved to make its ban on fracture stimulation permanent.

“We promised to enshrine our historic ban on fracking in the constitution and we’re delivering – to protect farming communities, and our huge food and fibre sector,” Andrews said about the decision.