$589 Million Gas Project Scrapped Despite Gas Shortages

By Alfred Bui
Alfred Bui
Alfred Bui
Alfred Bui is an Australian reporter based in Melbourne and focuses on local and business news. He is a former small business owner and has two master’s degrees in business and business law. Contact him at alfred.bui@epochtimes.com.au.
February 3, 2023Updated: February 7, 2023

A gas import terminal project in New South Wales (NSW)—projected to meet up to 80 percent of the state’s gas demand—has been scrapped amid forecasts of shortages in Australia’s east coast gas market in 2023.

The project, run by Energy Projects and Infrastructure Korea (EPIK), stopped all development of the $589 million (US$416 million) project in September 2022, saying it was economically unfeasible, according to a report (pdf) by the Australian Competition and Consumer Commission (ACCC).

The Korean company said profit margins were being squeezed by downward pressure from the “volatility of the international liquefied natural gas (LNG) market and high LNG benchmark pricing.”

The ACCC also said the risk from volatile market conditions was not unique to EPIK.

“Rather, all the proposed LNG import terminals are exposed to this risk. It is possible, therefore, that other proposals could be abandoned or delayed until conditions improve,” it said.

A Critical State Significant Infrastructure Project

In December 2018, EPIK announced an agreement with the Port of Newcastle, the largest port on Australia’s east coast, to create a proposal for an LNG import terminal.

Following the announcement, EPIK commissioned other parties to develop a plan to construct a gas dock that included a 170,000 cubic metre class floating storage and regasification unit and associated onshore infrastructure.

In August 2019, the NSW government granted the project the Critical State Significant Infrastructure status, a sign of its importance to the state’s energy security.

At the time, the project was expected to commence operation in the 2022-2023 financial year and add about 110 petajoules of gas to NSW’s domestic market, which relies on other Australian states for 95 percent of its gas supply.

“The terminal could be operational by 2022-23 and provide supply for gas-fired power stations, helping to manage energy security during the period in which the Liddell power station is scheduled to close,” then-acting premier John Barilaro said in 2019.

“This LNG terminal would significantly address this risk and help secure a reliable and affordable future for NSW’s gas supply.”

Epoch Times Photo
A ship carrying liquified natural gas (LNG) arrives at Mukran Port in Sassnitz, Germany, on Nov. 23, 2022. (Sean Gallup/Getty Images)

However, after the NSW government’s declaration was made, EPIK became stuck at the second step of the planning process–filing an environmental impact statement–until it announced the project’s cancellation.

The cancellation is a blow to Australia’s east coast energy market during the current energy crisis, as it was projected that gas shortages could occur in the region in 2023 and the coming years.

Nevertheless, the NSW government has downplayed the impact of EPIK’s decision, saying there are still other gas projects in the state.

“The decision not to proceed with the planning process for the proposed Newcastle LNG terminal is a matter for the proponent,” an NSW Department of Planning and Environment spokesman said, reported The Australian.

“There are a number of gas projects being progressed by the private sector–including the expansion of existing pipeline capacity, the Narrabri gas project and the Port Kembla import terminal–that would supply additional gas to NSW.”

Gas Shortages in the East Coast Market

In the report, the ACCC forecasted that the east coast gas market could fall short of 30 petajoules in 2023 if Queensland LNG producers were to export all their uncontracted gas.

While the new figure is an improvement from the ACCC’s July 2022 forecast, which predicted a shortfall of 56 petajoules, there is still a risk to the region’s gas supply due to uncontracted gas demand and uncertainty about the level of demand and production of gas across Australia.

The report said there were limited options for averting a shortfall in supply in 2023, and LNG producers had to increase their output to prevent the worst-case scenario.

Although LNG producers are expected to have sufficient uncontracted gas to satisfy domestic demand, they have not committed to providing adequate supply to address the risk.

Regarding the long-term outlook, the ACCC said shortages were likely to occur from 2027 onward due to production being unable to meet forecast demand if no new supply was added to the system.

Therefore, developing new gas sources and infrastructure is necessary to avoid long-term supply shortfalls in the region.

However, considering the actions taken by state governments on Australia’s east coast so far, the report painted a grim picture of the energy market.

“Although the need for investment in new sources of supply and associated infrastructure is clear, only a limited number of relatively small domestic supply projects that could come online between 2023 and 2027 have been approved for development,” the report stated.

The Epoch Times has reached out to EPIK but has not received a reply at the time of publication.

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