• LNG market strength adds upward pressure to east coast gas prices
LNG market strength adds upward pressure to east coast gas prices
13 Feb, 2018, No Comment

Summary: The unexpectedly tight liquefied natural gas market in Asia is complicating Australian regulatory efforts to prioritise the domestic market for east coast gas, helping drive up local prices for the fuel in January despite soft demand.....


Imports of LNG by Japan, the world's biggest user, hit their highest in at least five years in January amid freezing weather and an outage for maintenance work at a nuclear reactor, according to consultancy EnergyQuest.


Chinese LNG demand has been surging on government-mandated coal-to-gas switching to improve air quality. Temporary production shutdowns at LNG export plants in Russia, Angola and Malaysia have also helped support spot prices early in 2018.


The Australian government's deal in early October with Queensland's LNG producers secured an agreement by the three export ventures to make gas available to east coast domestic customers before selling it on the spot market in Asia. The competition watchdog then started publishing a "reference price" for domestic gas based on the LNG spot price in Asia, putting pressure on the Queensland ventures to reduce local prices towards that level.

Australia's total LNG exports dipped slightly in January but revenues continued to rise.
Australia's total LNG exports dipped slightly in January but revenues continued to rise. Energy Quest 


But that reference "netback" price – the LNG spot price less gas processing and export costs – has risen as Asian prices have increased. In Japan, prices for LNG spot cargoes rose to their highest for almost three years in January, according to the Japanese government. Stronger oil prices have also driven up LNG contract prices in Asia, making it difficult for east coast domestic gas buyers to compete for supplies.


At the same time, greater demand for gas on the east coast for use in power generation over the hot summer months after the shutdown of Hazelwood last year has pushed up domestic gas prices, noted EnergyQuest principal Graeme Bethune. While Queensland's LNG exports dipped slightly last month, east coast domestic prices mostly rose, with the average price in NSW, for example, surging 30 per cent to $9.48 a gigajoule, but still remaining below the equivalent export price.


Some manufacturers in the eastern states say they need gas much closer to $5-$6 a gigajoule to remain profitable.



"The tightening of the LNG market has important implications for Australian domestic gas policy to the extent that the ACCC's arguments about why LNG producers should divert gas to the domestic market assume that there is an LNG glut," EnergyQuest said in its newly released January report.

'It presents little utility to industrial gas buyers'


The oversupply in Asian LNG that many had expected to plague the market in 2017 because of new plant start-ups has not eventuated, with Ben van Beurden, chief executive of the world's biggest LNG player, Shell, telling investors this month the supposed glut is "conspicuously absent".


Canberra's deal with the Queensland exporters has added to administrative costs for exporters, which essentially have to offer gas to exporters for up to two months before they can sell a spot LNG cargo overseas, said Saul Kavonic at consultancy Wood Mackenzie.


"This does prove an administrative burden," Mr Kavonic said. "And it presents little utility to industrial gas buyers who need consistent supply security and can't rely on short-term gas made available on an ad hoc basis like this."


Wood Mackenzie is warning that the risk of an industrial gas buyer on the east coast having to close down remains "high" as they find themselves unable to compete in the absence of their historically cheap gas supply costs.


A recent report commissioned by the federal government found that gas prices for large industrial buyers eased in 2017 but that small industrial users that typically secure supplies through retailers were still seeing prices head north. In Victoria, prices for small industrial users almost tripled between 2015 and 2017 when they averaged $13.35 a gigajoule, the report found.


EnergyQuest found that Australia's export revenues from LNG jumped 8 per cent last year to about $2.7 billion, with Queensland revenues from gas exports reaching $600 million.

www.afr.com/business/energy/gas/lng-market-strength-adds-upward-pressure-to-east-coast-gas-prices-20180210-h0vw47

Leave a reply.
I want to post anonymously.
I want to use my name.
Would you like to be notified of new comments to this News Thread?           
Yes, email me as new comments are added