Eastern Australia’s gas market: Managing supply & demandStriking a balance between domestic supply and export

opportunity

Presenter: Stephen Reid, Partner, Deloitte National Oil & Gas Leader

August 2012

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Eastern Australia’s gas market issues

Pressure on gas supply in Eastern Australia over coming decades

Significant amounts of gas will need to be commercialised over the next 20

years

Will Australia’s proven reserves be able to be commercialised in time?

A thriving and competitive domestic gas industry is critical to ensuring the

competitively priced energy that is a key economic driver of growth

How to balance the potential to transform Eastern Australia into one of the world’s largest LNG exporters with security of domestic gas supply?

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Electricity price pressures

Electricity prices in Sydney increased by 61% between 2005 and 2010.

From 2014, the NSW electricity prices are projected to grow at 2% per year (in real terms).

From 1 July 2012, the NSW electricity prices have increased by 18%; half of the overall increase is because of rising transmission costs for poles and wires, while the other half is due to the introduction of the carbon tax.

New South Wales has seen energy costs rise significantly in recent years

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Industry and government need to address

difficult questions

Sufficient reserves?

Timely production ramp-up?

Given supply constraints, gas may be

directed out of the domestic market

1. Meeting production demand as new LNG projects come online

At what price, and at what pace, can the industry bring on supply to meet both domestic and committed LNG needs?

$50 billionInvestment sanctioned

Six LNG trains

around the port of Gladstone

25mtpa of LNGCollective production from facilities

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Meeting the demand

It’s estimated that by 2030, domestic gas demand across Eastern Australia will be in the range of 1200PJ/year (41% increase) to 1,850PJ (62% increase).

In addition, almost 40% of advanced electricity generation projects are in the gas sector and gas-powered generation is expected to grow on average 5% per year, effectively tripling installed capacity by 2020.

Declining conventional gas reserves coupled with forecast growth in domestic gas demand, will increase reliance on non-conventional gas reserves such as coal seam gas to supply both the growth demand from LNG contracts and domestic gas needs.

It’s critical we secure an affordable domestic gas market

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Industry and government need to address

difficult questions

Government scrutiny and regulation of

the industry

Regulatory process is likely to result in

additional costs and time delays

2. Increased regulation of the coal seam gas industry

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Industry and government need to address

difficult questions Some estimates suggest that over 100,000

PJ of gas on the East Coast can be

extracted at less than $4/GJ – is this likely?

BREE suggests that “consumers in the

Eastern Gas Market will need to adjust to

higher prices” in the medium term

Domestic supply pressures are likely to

intensify

3. Ensuring a reliable domestic supply stream

With LNG project owners now committed to supplying LNG customers first, how can we secure adequate domestic gas supplies at reasonable prices to meet industrial and commercial customer needs?Which trade-exposed industries will be affected most by higher gas prices and how can they respond?

Estimated Eastern Market gas production costs

Source: BREE

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Industry and government need to address

difficult questions

East Coast gas prices are expected to potentially double over the next few years

Gas-powered generation investment is highly sensitive to prevailing gas prices

The carbon price would need to rise to over $50 a tonne for gas-fired generation to

remain competitive

4. Delivering on a carbon future in the face of rising gas prices

Will the high gas price create policy challenges for the Government in meeting its carbon reduction targets if coal fired power remains the more economical option?

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Industry and government need to address

difficult questions

Australia is one of the most prospective

countries for shale gas development

Five to ten years to develop and

commercialise those reserves

5. Timing mismatch of yet-to-be-proved shale gas

Undoubtedly the industry has real potential to deliver supply, but will it be able to do it quickly enough?

World Shale Gas Resources

Source: Energy Information Administration

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What does all this mean for the New England

region?

Energy security is paramount for local

business and retail consumers

Santos, AGL, Dart Energy and others

have interests in the tenements in this

region that could be developed

Local industry and community can benefit

Local indigenous industry can develop –

creation of thousands of jobs

Significant opportunity to develop local industry, create jobs and secure supply

Now is the time to act

East Coast domestic contracts expiry

Source: BREE

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Deloitte contacts & Thought Leadership

Stephen ReidPartner | Corporate Finance Valuations

National Resources Valuations Leader

Direct: +613 9671 7506Email: stereid@deloitte.com.au

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