• Robust LNG market toughens task on east coast gas prices
Robust LNG market toughens task on east coast gas prices
02 Oct, 2018, 1 Comment

Summary: East coast manufacturers can expect little relief from high gas prices with the extension of a deal between the federal government and Queensland's LNG exporters on local gas supply, as the tight global market for LNG puts renewed pressure on domestic prices.....


The agreement between the Queensland LNG exporters and the Prime Minister, which was renewed on Sunday, requires the three ventures in Gladstone to offer all available gas not committed under contract to customers in Asia to domestic users first, before any spot market shipments overseas.


But it comes as evidence firms of a China-driven strengthening in the LNG export market to which the east coast market is firmly tied since the start-up of LNG exports from Queensland in 2015. Despite large chunks of new LNG production capacity coming online, analysts including Wood Mackenzie and JPMorgan are no longer expecting oversupply to plague the market late this decade ahead of a shortage expected to kick in early next decade.


Wood Mackenzie's director of gas and LNG research in Asia, Nicholas Browne, said a "triple whammy" of high oil prices, tight LNG market conditions and a strong US dollar will put upward pressure on Australian gas prices.


"While we do expect spot LNG prices to soften, oil prices will remain close to today's level so there's a limit to how low the price can go down," Mr Browne said.


The federal government's original deal with the Queensland exporters, struck last October, headed off the government's threat of controls on LNG exports under the Australian Domestic Gas Security Mechanism put in place last year. While federal resources minister Matt Canavan has yet to formally take off the table LNG export curbs for 2019, Sunday's deal makes controls less likely.


"The Minister will continue to take into account a variety of information whether a shortfall year is in effect," a spokeswoman for the minister said on Monday.


"The voluntary heads of agreement is an important step in ensuring the guarantee of domestic supply."


East coast producers, including Santos, Origin Energy and Shell, already last month agreed to extend a commitment to make gas available when needed to meet peak electricity demand.


The local market has been squeezed as a result of overbuilding of LNG export capacity in Gladstone, disappointing performance by some coal seam gas fields, onshore gas bans in some states and a general increase in costs. Price on the east coast are now also firmly linked with the Asian gas market.



Analysts and regulators are warning that without increased supply of gas in the southern states, manufacturers and industrial gas buyers can expect little relief on prices, particularly amid robust demand for LNG in Asia.


Mr Browne said competition between domestic gas buyers and the Asian markets for available gas is likely to continue. WoodMac is forecasting that extra gas will need to be diverted from LNG into southern domestic markets from as early as 2025, contradicting a forecast from the Australian Energy Market Operator in June that the local market won't face shortages through to 2030.


"No new easy and economical sources of supply are currently available to the market," Mr Browne said.


Still, Senator Canavan said the governments' actions have helped halve contract prices offered for gas since early 2017, when offers peaked as high as $22 a gigajoule.


"The key thing is that the domestic market is now well supplied and prices have settled below LNG netback pricing, so no one is expecting a shortfall," said Santos chief executive Kevin Gallagher."This agreement shows that the Gladstone LNG projects remain committed to working cooperatively with the government."But the $8-$11 a gigajoule range cited most recently by the Australian Competition and Consumer Commission is still leaving some gas-based manufacturers struggling. The prices compared with historical prices of $3.50-$4/GJ and with some expiring contract prices in the $5-$6 range.


Chemistry Australia chief executive Samantha Read says that prices of $10 a gigajoule are "not sustainable if we want to keep industrial manufacturing on the east coast."


WoodMac noted that Asian LNG prices appear to be trending towards $US12.5 per million British thermal units this December, which would equate to a "netback" price in Australia of about $15 a gigajoule, well above the ACCC's quoted range.


The oil and gas industry association APPEA pointed to ACCC figures estimating that Queensland's export projects will sell 305 petajoules of gas to domestic customers this year, accounting for about half of east coast demand.


APPEA head Malcolm Roberts joined Senator Canavan in calling for unscientific bans on onshore gas to be scrapped to encourage more supply into the market.


 

Angela Macdonald-Smith www.afr.com/business/energy/gas/robust-lng-market-toughens-task-on-east-coast-gas-prices-20180930-h162ge

Comments.
  • MyPassion

    bebo2222
    03 Oct, 2018

    Wow the Aussie LNG business is BOOMING, Wish I was 30 again - would be a lot fun to work these projects.... Bob
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