Role of Natural Gas Storage in Providing System Security Presented by: Anthony Fowler Chief Executive Officer Lochard Energy
Agenda Market Need for Swing Services Sources of Swing Supply Australian Storage Market Market Fundamentals and Trends Impacting Storage 2
SOURCES OF PEAK GAS SUPPLY 3
Market Need for Swing Services 1,400 1,200 Victorian System Injections and Withdrawals in 2016 1,000 Longford to Victorian Market 2016 Max ~ 910 TJ/d 800 600 400 200-01-Jan-16 01-Feb-16 01-Mar-16 01-Apr-16 01-May-16 01-Jun-16 01-Jul-16 01-Aug-16 01-Sep-16 01-Oct-16 01-Nov-16 01-Dec-16 (200) (400) Longford to Melbourne SEA Gas Mortlake NSW-VIC interconnect Iona (SWP) LNG Storage Dandenong Source: AEMO 4
Other Peak Intermediate Sources of Market Supply Type Commentary Gas Producers GSA flex has historically been the primary source of swing services to the domestic markets Reservoir and other storage expected to become a more economic alternative to swing supply in the future Reservoir Storage Current limited diversity of operating reservoir storage facilities Variable reservoir quality - some existing assets have significant storage capability but low withdrawal rates Access and haulage costs to market are an important consideration Lochard s facility at Iona has a unique blend of high storage volume/ high withdrawal rate and direct access to Victoria and South Australia LNG Storage Current facilities at Dandenong (Victoria) and Newcastle (NSW) Role limited to super peak days due to limited storage and slow refill rates (depleted in ~10 days or less) Linepack Insignificant capacity relative to underground storage and production flex Role limited to meeting super peak Interstate Imports Spot price deviations between regions will continue to incent transfers e.g. from Queensland to the Southern states on peak days Pipeline access, cost and firmness of supply are important considerations LNG Imports LNG import terminals under consideration in Southern markets Could play a role in future gas supply - particularly if shortages develop in Southern markets 5
Australian Storage Market Facility State Injection Capacity (TJ/day) Withdrawal Capacity (TJ/day) Storage Capacity (PJ) Days of Withdrawal Capacity Lochard Iona Storage Vic 140 390 26 67 Lochard Iona Storage Post Future Expansions Vic 250 570 26 45 Ballera Underground Storage Qld 20 40 11 275 LNG Storage Dandenong Vic 8.2 237 0.68 3 Newcastle Gas Storage Facility NSW 10 120 1.5 13 Newstead Underground Storage NSW 8 2 250 Moomba Underground Storage SA 115 110 85 772 Roma Underground Storage Qld 75 75 65 867 Silver Springs Gas Storage Qld 30 30 35 1167 6
MARKET FACTORS IMPACTING DEMAND FOR STORAGE 7
Market Fundamentals Driving Storage Opportunities 1. Tripling of Natural Gas Demand 2. Loss of Producer Swing 3. Low Oil Prices Source: AEMO 2016 National Gas Forecasting Report Source: AEMO Gas Market Bulletin Board Source: U.S. Energy Information Administration 4. Community Concerns about Unconventional Gas 5. Renewables Intermittency 6. Decarbonisation Source: theconversion.com Source: Home & Energy, 2012 Source: NASA s Institute for Space Studies 8
Recent Market Outcomes Support These Trends Rising winter gas prices in VIC Rising energy prices in SA Price volatility from renewables Source: AEMO Source: AEMO Source: AEMO Lochard providing system security Upstream capex freeze Hazelwood Closure petroleum exploration expenditure Source: AEMO Source: Australian Bureau of Statistics, Dec 16 Source: Financial Review, 2016 9
Implications for Storage Developments Market Fundamental Increased demand for natural gas from LNG exports Implication Tightening of gas market drives demand for new upstream and midstream investment Reducing supplier diversity Lack of new upstream projects and diversion of gas to Queensland is reducing supply diversity and increasing system risk Loss of Producer swing Producer preference to minimise swing in Gas Supply Agreements Low oil prices Low oil prices stifle investment in the upstream and midstream Increased renewable penetration Intermittency of renewables likely to require capacity support from gas fired generation and other sources Decarbonisation Decarbonisation trend combined with Australia s aging coal generation fleet is expected to drive transition towards increased renewables and gas fired generation, which in turn drives demand for storage 10