2014 December Gas Statement of Opportunities

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1 2014 December Gas Statement of Opportunities Joachim Tan Senior Analyst, System Capacity Stakeholder Presentation 3 February 2015

2 Forecast context Findings Forecasts Other information 2

3 Forecast context Challenging time to prepare long-term forecasts of gas demand and supply: Volatility in oil prices Significant fall in the prices of WA commodities North West Shelf and related commercial decisions Falling Asia Pacific gas prices, making supply to the domestic gas market relatively more attractive 3

4 Falling oil prices, January 2014 January 2015 (Brent) $120 $110 $100 OPEC 27 November 2014 Decision US$/barrel $90 $80 $70 Peak - Brent price US on 19 June 2014 $60 $50 December 2014 GSOO Released $40 Source: EIA, Brent Spot Prices FOB 4

5 Changing oil (Brent and average) forecasts for 2015 $90 $80 $70 $60 US$/Barrel $50 $40 $30 $20 $10 $- Q Forecast Q Forecast IMO - December 2014 GSOO EIA Goldman Sachs JP Morgan BoA Merril Lynch Standard and Poor Morgan Stanley Citibank OECD Source: Compiled by the IMO 5

6 Commodity prices, January 2014 December Index Value Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Index of commodity prices; All items US$ Index of commodity prices; Bulk commodities (spot); US$ Source: Reserve Bank of Australia, Base Year =

7 North West Shelf update NWS and WA Government signed an amendment to the State Agreement on 20 November 2014 (awaiting ratification by WA Parliament) that requires the NWS to: adhere to the WA Government s domestic gas policy reserve approximately 715 PJ upgrade and maintain the NWS domestic gas facilities with sufficient capacity diligently market the committed gas quantities to the domestic market report to the WA Government annually While the Agreement Amendment provides more domestic supply certainty, several on going decisions have to be made. 7

8 North West Shelf update It now appears likely that some supply will be available from the NWS beyond 2020 but.. the amendment does not specify : the timing or a minimum amount of domestic gas that must be made available beyond 2020 the minimum level of domestic gas production capacity that must be maintained The availability of domestic gas from the NWS remains contingent on whether the NWS can profitably and commercially maintain gas supply to the domestic market and multiple investment decisions (beyond Persephone) are yet to be made by the JVs. However, in the period, Hess may contract NWS to supply domestic gas (subject to commercial negotiation). Hess announced on 23 December 2014 its intention to develop and toll its WA gas reserves through the NWS processing facilities. 8

9 Forecast context Findings Forecasts Other information 9

10 Key findings The supply of gas to the domestic market is expected to be adequate to meet demand over the forecast period However, with several commercial and investment decisions yet to be made, the extent of any future supply from the NWS is not yet known with certainty, and the supply-demand balance may tighten after

11 Supply Demand balance 2,100 1,900 Quantity (TJ per day) 1,700 1,500 1,300 1, Expected gas demand Upper potential gas supply forecasts Lower potential gas supply forecasts Total production capacity Source: NIEIR and IMO Estimates,

12 Other findings Gas Demand Demand in the non-swis areas will grow faster than SWIS Rapid growth of total gas demand (domestic & LNG); start-up of Gorgon, Wheatstone and Prelude domestic gas & LNG projects Resources and Reserves Conventional gas reserves is estimated to last between 12 to 37 years, depending on technology (Table 9.4), unconventional reserves (105 years) Gas production in WA remain reliant on conventional reserves in the Carnarvon Basin (Table 9.5) Exploration of unconventional resources need to be fostered 12

13 Forecast context Findings Forecasts Other information 13

14 Gas demand Growth in the early years of the gas demand forecasts is driven by new large gas-consuming projects. These projects include: Sub161 s CNG facility at Port Hedland the Fortescue River Gas Pipeline the Eastern Goldfields Gas Pipeline And increased gas consumption relating to: Alinta Energy s Newman Power Station which will supply electricity to the Roy Hill mine operation of TransAlta s South Hedland Power Station the Pilbara Temporary Power Station CITIC Pacific s Sino Iron s magnetite mine 14

15 Domestic gas demand and forecasts Quantity (TJ per day) Historical gas consumption Base demand forecast High demand forecast Source: DMP and IMO Estimates,

16 IMO and CMEWA WA demand forecasts Quantity (PJ per annum) CMEWA's forecast NIEIR's forecast Source: CMEWA, Deloitte Australia and IMO Estimates,

17 Total gas demand forecasts ,000 5,000 Quantity (PJ per annum) 4,000 3,000 2,000 1, Base scenario High scenario Source: NIEIR and IMO Estimates,

18 Forecast prices used in modelling $12.0 $10.0 Price (A$ per GJ) $8.0 $6.0 $4.0 $2.0 $ December 2014 Base scenario January 2014 GSOO Base scenario Source: NIEIR and IMO Estimates

19 Gas supply forecasts ,100 1,900 Quantity (TJ/day) 1,700 1,500 1,300 1, Lower Potential Gas Supply Forecasts Upper Potential Gas Supply Forecasts Total Production Capacity Source: IMO Estimates

20 Forecast context Findings Forecasts Other information 20

21 What s new in the December 2014 GSOO Modelling Prospective gas projects included in High gas demand scenario Improvements to gas consumption estimates of iron magnetite projects Improvements to potential gas supply model (considers non-lng linked facilities) LNG feedstock and processing requirements (now considers utilisation rates) Information Greater use of GBB data (more details to come) More detailed analysis of demand and its drivers 21

22 Other information in December 2014 GSOO Additional Information on: Drivers of domestic gas consumption Gas production outages Gas injection and withdrawals (Mondarra) Gas production statistics Gas shipping by pipeline 22

23 Gas demand, August 2013 November % 90% 80% 10% 8% 9% 9% 10% 11% 13% 12% 12% 10% 10% 10% 5% 7% 7% 7% 7% 5% 5% 5% 7% 7% 6% 6% 11% 11% 11% 12% 11% 11% 11% 10% 2% 8% 11% 11% Proportion 70% 60% 50% 40% 12% 12% 12% 12% 12% 12% 14% 12% 32% 32% 32% 29% 28% 29% 31% 33% 15% 15% 34% 30% 13% 14% 30% 31% 30% 20% 10% 31% 29% 30% 30% 32% 31% 27% 26% 30% 30% 28% 29% 0% Dec-2013 Feb-2014 Apr-2014 Jun-2014 Aug-2014 Oct-2014 Minerals processing Electricity Mining Industrial Other Distribution network Source: IMO GBB 23

24 Production facility outages, August 2013 November % 16% 14% 12% Proportion 10% 8% 6% 4% 2% 0% Source: IMO GBB 24

25 Gas injections and withdrawals (Mondarra), August 2013 November Quantity (TJ per day) Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Source: IMO GBB Gas withdrawn Gas injected 25

26 Gas production statistics, Q to Q Facility Beharra Springs Nameplate capacity (TJ per day) Peak production October 2013 to September 2014 Day of peak production Q (TJ per day) Average production Q (TJ per day) Q (TJ per day) Q (TJ per day) /10/ Dongara /9/ Devil Creek /11/ KGP /8/ Macedon /9/ Red Gully /4/ Varanus Island /1/ Total , Source: IMO GBB 26

27 Gas production statistics, Q to Q Facility Beharra Springs Nameplate capacity (TJ per day) Peak production October 2013 to September 2014 Day of peak production Q (TJ per day) Average production Q (TJ per day) Q (TJ per day) Q (TJ per day) /10/ Dongara /9/ Devil Creek /11/ KGP /8/ Macedon /9/ Red Gully /4/ Varanus Island /1/ Total , Source: IMO GBB 27

28 Quantity of gas shipped by pipeline, Q to Q Quantity (PJ) Source: IMO Q Q Q Q DBNGP GGP PEP All other pipelines 28

29 Events since publishing December 2014 GSOO Oil prices (Brent and WTI) falls below US$50/bbl -> Contracted LNG prices falls below spot (Japan) First shipment of LNG leaves Queensland s QCLNG project Shell drops Arrow LNG project Quantity of gas reserves relating to Red Gully JV are upgraded ACCC commences an inquiry into Woodside s purchase of Apache Energy s interests Ivernia s Paroo lead mine placed into care and maintenance (from February 2015) TEPCO and Chubu Electric establishing 50/50 JV (to manage all energy assets) Proposed Panama Canal charges for LNG carriers released 29

Global growth prospects

Global growth prospects Percent 6 Advanced Economies Emerging Markets and Developing Economies 5 4.9 5.0 4.7 4.7 4.5 4 4.3 4.3 3.7 3.7 3 2 2.3 2.3 2.2 2.0 2.0 1.7 1.7 1 1.1 1.3 0 2012 2013 2014 2015 2016