When the first of Gladstone’s three LNG projects starts later this year (BG/QCLNG is the first cab off the rank), annual east coast demand will begin soaring from 750 petajoules (PJ) in 2013 to 2100PJ in 2017 and beyond.

Ord Minnett senior oil and gas analyst John Young crunched the numbers and concluded that gas shortages just might be avoided.

However, this would only be possible thanks to a combination of increased underground gas storage and an easy-does-it approach to turning on the LNG taps.

He also believes the LNG operators can forget about debottlenecking for two or three years – there will most likely not be enough gas to squeeze more efficiencies out of their projects.

“I am not trying to be alarmist and declaring that industry is going to be shut down,” Young said.

“My message is that this is a going to be a close call.

“If everything goes to plan, they should scrape through. But there’s not much fat in the system and very little room for error.”

Young said the analysis also made a strong case for new gas supply.

“We have been saying for some time now there is a good business case for the likes of Drillsearch and Strike,” he said.

“The numbers for the east coast market in its entirety back that up.”

New supplies would be sought-after and could expect to fetch prices in the range of $6 to $9 a gigajoule well into the future.

“Prices of up to $11 a gigajoule are possible for some gas when there is unserved LNG capacity,” Young said.

He said the LNG project operators faced three key risks about the deliverability of gas from coal seam gas wells.

“If the rate of drilling of coal seam gas wells is not able to be sustained, or if average production rates from those wells is not achieved, then supply is likely to be short,” Young said.

“A third risk is whether natural decline rates in the wells are greater than expected.

“Any one of those three factors could lead to a shortage and that could be significant in terms in the impact on the ability to meet all demand in eastern Australia.”

Here is what Young said needed to happen (in addition to no surprises in coal seam gas well performance) for the east coast gas market to avoid shortages:

• underground gas storage has to be utilised to its maximum. Capacity was increased to between an estimated 230PJ and 260PJ with the recent development by Santos of a facility at Roma that holds more than 50PJ. Total storage capacity represents about 12% of annual demand in the post-LNG production phase, or about 4 million tonnes of LNG
• more gas needs to be substituted by coal in power generation, with annual gas demand for power needing to fall sharply from 200PJ in 2013 to only 65PJ by 2017
• LNG operators must also ramp up more slowly, as has been announced.