Demand going from strength to strength
Published: 1 May 2025 | Issue 649
Quality domestic gas producers are in the box seat to benefit from continuing demand and a shortfall in supply. This is pronounced on the East Coast and relates to the stocks we covered last week – Amplitude Energy (AEL) and Comet Ridge (COI).
Perth based Strike Energy (STX) is also a beneficiary of the shortfall in domestic gas supply, as increasing volumes get exported as LNG by the likes of Woodside Energy (WDS).
Conventional wisdom might have assumed gas would have been phased out with the energy transition. But this is not the case. Demand remains stronger than ever, with residential being replaced by electricity generated by renewables and gas, on top of increasing industrial use. AEMO, the Australian Energy Market Operator, expects East Coast gas demand to remain high at 450 petajoules a year. 1PJ is the yearly energy consumption of about 19,000 homes.
For the manufacture of some fertilisers and chemicals, the molecules from the gas, which is chemically methane, are an integral part of production and cannot be readily substituted. For some manufacturing, gas is an integral part of the process, such as in smelting
But the main increase in gas usage is forecast to come from power generation, where demand is expected to almost triple by 2040. The flexibility of gas fired generation is valuable, with instantaneous firming to back up intermittent renewables, replacing primary baseload generation, mainly from coal.
Gas production shortfalls in South Australia and Victoria
The southern gas fields are becoming depleted. There are seasonal and annual gas shortfalls. There are some expanding or new gas projects in Victoria, but they are not enough to bridge the supply gap.
To overcome the shortfalls, gas is being transported by pipeline from Queensland into NSW and Victoria. Gas supplied to the southern states of the East Coast market
from Queensland and the Northern Territory is more expensive because of the added pipeline transmission cost, reflected in pipeline tariffs. Gas supplies from the north will have to increase.
Gas replacement costs are high
Intuitively it seems stupid to import liquified natural gas (LNG), but this has been considered to add to Queensland supplies to address gas shortfalls. The big inhibiting factor is the cost. International LNG prices are volatile, which means the risk is higher. On top of this there are shipping costs.
What about creating more domestic supply? Substantial future capital investment is required for additional pipeline infrastructure to supply the southern states. Additionally, continued gas supply will require the development of higher cost resources in Queensland and the Northern Territory.
A quick comment on WA gas
This market is running out of gas too, but has a reservation policy. Exports have been restricted. The market is good for Strike Energy (STX) because of growing domestic demand from mining.
SUMMARY: DOMESTIC PRODUCERS
Existing gas producers, such as Amplitude Energy (AEL) and Strike Energy (STX), don’t fill the forecast supply gap completely. If fact they don’t even touch the sides. This is an incentive for new suppliers, for which higher prices will be needed. Either way, these companies are beneficiaries of increasing domestic gas prices.
Comet Ridge (COI) is higher risk, being in development, but if gas prices stay high this is one that will become investable.