The WA Gas Market 2024 (Fragile – Handle with Care)

2024 will be a fascinating year for gas in Western Australia. What was predictable is suddenly unpredictable, and the tight demand / supply balance, means that unexpected events suddenly have a large ripple effect through the market. Suppliers have reported an increase in contracted supply (Chevron sold out) but a reduction in contract term . On the demand side, unreliable supply in 2023 caused shutdowns or increased use of other fuels (coal in the SWIS). And future demand is either up (AEMO) or down (Alcoa) depending on your perspective.

Supply
In December, the market operator (AEMO) predicted that gas supply would be short to demand by 105 PJ up to 2026 . While this will be slightly mitigated by a reduction in demand from Alcoa, Devil Creek will cease supply in 2024, Varanus Island is limited by offshore supply to 70% of nameplate capacity, and Macedon is in decline. Reserves constraints at the North West Shelf means there is no additional capacity if there is a supply interruption. This explains the increase in contracted volume and less reliance on spot supply.

Demand
Demand is forecast to grow with new projects but existing demand is becoming more volatile. In January Alcoa curtailed the Kwinana refinery for an indefinite period and 3 nickel operations went into care and maintenance. Gas demand jumped significantly in the SWIS in January as gas fired power generation responded to increased electricity demand. Underlying economic conditions are likely to sustain current demand in the South West and strong commodity prices (ex-Nickel) will encourage growth in the mining sector.

Prices
Gas prices continued to climb through 2023, particularly for supply in 2025 and 2026 (anticipated short market). This is likely to continue in 2024, where a very limited number of sellers are operating to sell gas in that period. After 2026 the larger buyers keenly anticipate an increase in supply, and gas sellers, and an opportunity to negotiate a better deal. The price hike in mid-decade explains why bures have moved to short term contracts to take advantage of increased supply after 2026.

BrightSource Support
BrightSource has been actively supporting key clients with gas procurement over the past 5 years. Current gas prices (under contract) enjoyed by these clients are significantly lower than the average realised WA gas prices published by Santos and Woodside in their quarterly reports. A good knowledge of the market, extensive relationships with all suppliers and structured processes managed by BrightSource provides the advantage to achieve a better gas market outcome.