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EUAA Tasmania Energy Forum22 March 2016

Gas Price Trends Review

Private and ConfidentialCopyright Oakley Greenwood

Thoughts for TEF

• For Tasmania two types of trend emerge. Interstate and intrastate.

• Price driver dynamics on the east coast are influencing prices in different states at different times and for different reasons.

• Tasmania has a number of nuances being at one end of the network.

• Tasmania has a unique mix of size, fuels, connected infrastructure and location. Which makes gas supply and existing infrastructure very interesting.

• Victoria wholesale gas influences what happens in Tasmania. Interstate.

• Within Tasmania the influence of TVPS operations and low residential penetration rates create some challenges. Intrastate.

• The report was completed before the Basslink incident and before TVPS was recommissioned.

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TGP gas flows Q1 2016

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Source: AEMO, http://www.gasbb.com.au/Reports/Actual%20Flow.aspx

Capacity 129TJ/d (GBB)

TVPS recommissioned January


TGP gas flows 2008 - 2016

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Source: AEMO, http://www.gasbb.com.au/Reports/Actual%20Flow.aspx

TGP capacity 129TJ/d. Long term average 37TJ/d.

TVPS mothballed June 2014

Private and Confidential

THE REVIEW

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Review Team

• Jim Snow – Executive Director, Oakley Greenwood

• Angus Rich - Principal Consultant, Oakley Greenwood

• Jeff Thong – Principal Consultant, Oakley Greenwood

• Tim Ryan - Principal Consultant, Oakley Greenwood

• Craig Langford, Director, MDQ Consulting

• Energy Management Systems – Jim Kelty

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The report

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• This report was commissioned by the Commonwealth of Australia through the Department of Industry, Innovation and Science

• Started in March 2015 and completed in February 2016

– Detailed review of last 10 years of gas prices by component and jurisdiction

• Covers off the following market segments:

– Large Industrial

– Small Industrial

– Residential

• Covers all States and Territories

Web: http://www.industry.gov.au/GasPriceTrends


Flow of gas and market structure

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Australia domesticgas market

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• Annual in 2013-2014 was approximately 1,400 PJ.

• The majority of gas in Australia has been used in the generation of electricity and manufacturing (approx. 71%) – this is reducing.

• Residential usage accounts for 11% of gas usage in Australia.

• Tasmania consumption about 1% of total.


INDUSTRIAL GAS PRICE REVIEW. INTERSTATE.

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East coast weighted average large Industrial gas price

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The average large Industrial gas price for the east coast of Australia has been developed by volume weighting the prices for the averages of the state jurisdictions (Qld, NSW, Vic, SA and Tasmania). In 2015 the weightings were 20% NSW, 34% Vic, 29% Qld, 15% SA and 2% Tasmania.


East coast weighted average large Industrial gas price -components

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Tasmania wholesale gas price in 2015 is where the east coast average was in 2011.


Gas price trends for large industrial customers

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Some key points for the southern (Vic and Tas) gas market• Many years of flat real prices to 2011/2012 – associated with legacy Gascor

GSA’s and new supplies coming into Victoria from Otway and Bass basins

• Then prices started to rise due mainly to LNG demand/netback as Sydney market demand increased from Longford – as Moomba reserves were dedicated to Gladstone

• Rise in Victoria and Tasmania has been slower and prices more muted due to distance and constraints to get gas to Gladstone and a range of long term Retailer GSA ‘s with producers – although these are in the process of being renewed

• The 2012 to 2018 period is considered a transition period for Victorian wholesale gas prices. After expiry of AGL and EA’s existing long term Gippsland Basin supply agreement in 2017, the 2018 price will be the first time since 2002 that these parties will have to agree a new wholesale price for large quantities of gas that is not constrained by existing long term price review mechanisms.

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Tasmania large Industrial prices - components

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There are very few large industrial gas users in Tasmania


Some key points – Tasmania large industrial gas

• Tasmanian gas wholesale prices are assumed the same as for Victoria – gas comes from Longford.

• It is a small market with long haulage of the gas.

• Of late volume in the TGP reduced markedly as the gas power station was mothballed in June 2014 and now recommissioned – unclear what this will mean for transport cost sharing over time in the long term.

• [Note that since the report was done the power station has been reopened with the Basslink incident]

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Average delivered components (2015) – large industrial

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Average delivered gas

price

Wholesale gas component

Transmission Component

($/GJ)($/GJ and % of delivered

gas price)($/GJ and % of delivered

gas price)QLD - North West Qld 11.97 10.30 (86%) 1.67 (14%)QLD overall 10.44 9.43 (90%) 1.01 (10%)QLD - Gladstone 10.38 9.26 (89%) 1.11 (11%)WA - Perth 9.81 7.94 (81%) 1.87 (19%)QLD - Brisbane 9.79 9.79 (94%) 0.63 (6%)NSW - Sydney 8.4 7.3 (87%) 1.10 (13%)SA - Adelaide 8.38 7.55 (90%) 0.83 (19%)Eastern Gas Market average 8.03 7.22 (90%) 0.80 (10%Tasmania 7.42 5.30 (71%) 2.12 (29%)Victoria - Melbourne 5.68 5.30 (93%) 0.38 (7%)National average 8.69 7.49 (86%) 1.20 (14%)


RESIDENTIAL GAS PRICES. INTRASTATE.

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National Residential Gas Market Overview

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107PJ

0.1 PJ

26 PJ

3 PJ

12 PJ

10 PJ


Residential Gas Consumption by State

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0

20

40

60

80

100

120

140

160

180

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

PJs

Residential Gas Consumption by State

VIC TAS NSW ACT SA QLD WA

• Percentage portion of gas consumption by each state is relatively constant.


Tasmania

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• Tas Gas Pipeline (TGP) completed in 2002

• Gas distribution network completed in 2007

• Total state residential gas consumption 0.1PJ/a

• Less than 1 percent of Australian residential gas market

• Low penetration rates for residential only 4%

• Two retailers TasGas and Aurora with fairly even market share

• Country Energy and TRU were in the market but have since surrendered their licence

• One distribution company TasGas Networks

• Market not regulated

• Pipeline light regulation

• Select data sourced from OTTER and St Vincent de Paul Society’s Tariff Tracking Project


Tasmania Residential Pricing Analysis

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• Doubling of network fixed price charges from 2014 20c/day to 2015 42c/day translates to a 10% increase in c/MJ for distribution charges

• Distribution makes up 50% of the overall bill.

• Typical residential gas bill based on 30GJ/a is circa $1,000 to $1,200 per year. Second highest behind ACT.

• Average charges $33/GJ fourth lowest behind Vic, NSW rural and ACT.

• Transmission and wholesale gas prices currently trending steady.


Some key points• The number of residential gas connections in Tasmania is in the order of

10,000 (under 5%)

• Wood used for house heating accounts for about half the energy use in households

• Off peak electricity tariffs are very competitive compared to gas

• No regulatory reporting requirement for gas use means the data is not recorded publicly. The trend in other states is toward reduced gas consumption per household.

• Average household consumption assumed 30GJ/a

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Heater Capacity Max/hour

Heat pump 6kW 29.8c

Wood 6kW 39.5c

Offpeak heating 6kW 39.5c

Gas 6kW 80.9c

Private and Confidential23

Typical household

Average gas price, typical Wholesale gas Transmission Distribution Retail

(GJ/year) (¢/MJ) (¢/MJ and % of gas price)

(¢/MJ and % of gas price)



QLD 11.4 6 0.92 (15%) 0.20 (3%) 3.68 (61%) 1.20 (20%)SA 18 4.47 0.76 (17%) 0.24 (5%) 3.09 (69%) 0.39 (9%)NSW metro 20.4 4.23 0.73 (17%) 0.30 (7%) 2.01 (47%) 1.19 (28%)NSW avg. 21.3 4.02 0.73 (18%) 0.30 (8%) 1.93 (48%) 1.06 (26%)WA 15 3.86 0.82 (21%) 0.46 (12%) 1.61 (42%) 0.98 (25%)Tasmania 30 3.36 0.53 (16%) 0.51 (15%) 1.61 (48%) 0.70 (21%)ACT 45 3.22 0.73 (23%) 0.30 (9%) 1.08 (34%) 1.11 (34%)NSW rural 41 2.56 0.73 (29%) 0.30 (12%) 0.94 (37%) 0.58 (23%)Victoria 51.4 1.84 0.53 (29%) 0.15 (8%) 0.57 (31%) 0.59 (32%)

National (weighted average) 40.8 2.64 0.61 (23%) 0.21 (8%) 1.11 (42%) 0.70 (26%)

Average delivered components (2015) – residential


GAS TRENDS AND TASMANIA

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Gas price trends review

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• Interstate

• Tasmania is an umbilical of the Victoria market. The Victoria market is the largest residential consumer market on the east coast therefore the Tasmania market will be influenced by what happens in Victoria.

• Some advantage to proximity to production and markets. Beneficial carry to Tasmania market has enabled subdued escalation of gas prices.

• There is a domino effect emerging from Queensland down to Victoria in pricing trends.

• Flows on the Moomba-Sydney Pipeline used to run south to Sydney. In January, started flowing north.

• Demand still exceeds supply.

• Interesting developments:

– LNG netback now LNG fallback.

– Kipper gas field developments.



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• Intrastate

• There is no data available on year on year household usage in Tasmania but there is a trend in other parts of Australia of declining residential gas use due in some part to fuel switching from gas heating to reverse cycle airconditioning.

• Tasmania has the additional challenge of wood as a competing heating fuel more prevalent than other states.

• Very low residential penetration. 0.1PJ/a out of about 14PJ/a total (long term average notwithstanding current operation of TVPS based on AEMO TGP data) or 0.7%.

• Asset utilisation low? Move to higher fixed charges.

• Levelised gas prices at the industrial and residential consumer level are in the bottom half of the cost curve relative to other states.


HOW DOES THIS FIT THE CURRENT CONTEXT IN TASMANIA?

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• As an extension of the Victoria market is subordinate to what happens in Victoria.

• Contract renewals in the next couple of years will be key.

• The operation of TVPS and other large load centres has a material effect on the TGP and distribution system utilisation.

• What it does mean is Tasmania has two fuels with very large storage capacity. Water and gas.

• Where there is price movement at the wholesale level, is there a commercial opportunity to arbitrage?

• Energy storage can also facilitate contingency response.

• TGP capacity in electricity terms is equivalent to about 500MW of electricity generation. Still have gas connected and a big storage bottle. Handy for energy on demand.

• Distributed generation on standby at regional load centres? Integrate renewables? Marginal cost of gas vs diesel (c$10/GJ vs c$26/GJ). Venezuela hydro case study.


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Concluding

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• Northern demand impacting southern supply and price.

• Tasmania’s levelised gas prices are in the bottom half of the cost bracket for residential and industrial.

• The 2017/2018 period will be interesting. New contracts for major players.

• There is demand destruction and fuel switching but demand still exceeds supply in the system.

• Tasmania’s gas and infrastructure plays a very important role coupled with its hydro and wind resource.

• Large storage capacity provides for commercial opportunity and insurance to contingency events.

• Innovative mobilisation of the existing gas infrastructure and its possible application in regional areas, integrated with renewables could be beneficial from a fuel security perspective.


Jeff ThongPrincipal Consultant

Oakley Greenwood Pty Ltd

Mob: 0428735000

[email protected]

Jim SnowExecutive Director

Oakley Greenwood Pty Ltd

Mob: 04 1777 5893

[email protected]

Documents

Gas Price Trends Review - Amazon S3s3-ap-southeast-2.amazonaws.com/wh1.thewebconsole...volume weighting the prices for the averages of the state jurisdictions (Qld, NSW, Vic, SA and