1. Eastern Australia’s gas market: Managing supply & demand Striking a balance between domestic supply and export opportunity Presenter: Stephen Reid, Partner, Deloitte National Oil & Gas Leader August 2012 This document is provided as general information only and does not consider your specific objectives, situation or needs. You should not rely on the information in this document or disclose it or refer to it in any document. We accept no duty of care or liability to you or anyone else regarding this document and we are not responsible to you or anyone else for any loss suffered in connection with the use of this document or any of its content Liability limited by a scheme approved under Professional Standards Legislation.

2. 1 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?

3. 2 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

4. 3 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 billion Investment sanctioned Six LNG trains around the port of Gladstone 25mtpa of LNG Collective production from facilities

5. 4 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

6. 5 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

7. 6 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

8. 7 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?

9. 8 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

10. 9 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

11. 10 Deloitte contacts & Thought Leadership Stephen Reid Partner | Corporate Finance Valuations National Resources Valuations Leader Direct: +613 9671 7506 Email: stereid@deloitte.com.au

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