QLD considers gas reservation

grill-tank

From the AFR:

Queensland energy minister Mark McArdle has held out a gas reservation policy as a last resort in case the state’s $65 billion LNG industry means local customers are left short of supplies.

..He said “the very last thing” the government wanted to do was introduce measures that set aside some gas resources for local use. But it would closely monitor the situation and was prepared to take action if the forces of the market did not also ensure enough supplies for domestic customers

The minister said he saw the next 12 months as a “window” in which the market would readjust and in which it would become more clear whether intervention was required.

…“If we need to take action in Queensland then we’ll do so, but I am yet to be convinced that’s the case. I am yet to be convinced this is nothing more than the market adjusting itself after a long time of stability.

…Mr McArdle also pointed to the likelihood that the shale gas boom in the US would lead to softening gas prices internationally, which would reduce the pressures for higher prices on the east coast.

This seems to me pretty sensible. Ideally energy market will be free and open. And if so, prices will fall as North Asian and US Henry Hub prices adjust towards one another as the US moves to exports its shale gas. But it will take time so preparing an intervention that you hope never to use isn’t  bad way to lean on the market a little.

 

Houses and Holes

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the fouding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

Comments

  1. It’ll be interesting to see how the US responds on the export issue. Henry hub is back above $4 and it’ll likely remain above it. Too few producers can operate profitably sub-$4 for there to be much new investment, and shale gas involves continually drilling new wells. So I think prices will be stable here. There’s no doubt it’ll still be profitable to export at these prices, but it think without the argument that a good portion of the industry is struggling to make money, the DOE won’t be in any hurry to permit large-scale exports.

    I do wonder if a reservation policy will do much at this point. Most of the east coast’s supplies are tied up in long-term LNG contracts now, that can’t be reneged upon without consequence. It certainly looks as though we’re going to start to see serious shortages on the east coast over the next couple of years, and I won’t be surprised if the response is more coal fired power stations to meet base load requirements.

      • I expect they will grant some licences, just a question of volume. I’m not sure that’ll it’ll be a game changer for Asian prices, and certainly not enough that Australian supplies get redirected to the domestic market such that we avert the looming east coast shortages, which are likely to be severe.