Via The Australian:
The Turnbull government has renewed warnings it could foist tougher regulations on the gas sector ahead of a high-powered meeting on getting more gas to east coast domestic users and as manufacturers warn they face a “price disadvantage” compared with Japan, Europe and the US.
Ahead of talks tomorrow between gas industry bosses and Malcolm Turnbull and his senior lieutenants, Environment and Energy Minister Josh Frydenberg said the tight gas market was unacceptable and that “all options are on the table”.
Mr Frydenberg also said the government was “acutely aware” of the impact that spiralling gas prices were having on manufacturers.
Gas producers are expected to update the Prime Minister tomorrow on what they have done after pledging to increase domestic supply during crisis talks in Canberra last month.
“The government is acutely aware of the impact higher gas prices is having on industry and has made it abundantly clear to the gas companies that the status quo is not acceptable,” Mr Frydenberg told The Australian.
At last month’s crisis talks, Mr Turnbull received a concession from energy bosses that more gas would be made available to the domestic market “as soon as possible”.
But he left stricter rules — including a reservation policy — on the table to ensure downward pressure on prices.
This is a fail market and it needs some big and dumb new rules to fix it. There has to be a loser and it is either GLNG or it is everyone else, as Credit Suisse argues:
■ Our preferred option is to reclaim the third-party gas currently being exported: Aside from the Horizon contract between GLNG and Santos, there was no evidence in the EIS or FID presentations that more non-indigenous gas was required. As such, one could argue reclaiming what has only been signed due to a scope failure, is equitable. Including the Horizon contract GLNG will be exporting >160PJa of third-party gas in the later part of this decade. Whilst we get less disclosure these days, BG previously said that after an initial 10–20% in the early days (now gone) QCLNG would use ~5%
■ Our preferred option is to reclaim the third-party gas currently being exported: Aside from the Horizon contract between GLNG and Santos, there was no evidence in the EIS or FID presentations that more non-indigenous gas was required. As such, one could argue reclaiming what has only been signed due to a scope failure, is equitable. Including the Horizon contract GLNG will be exporting >160PJa of third-party gas in the later part of this decade. Whilst we get less disclosure these days, BG previously said that after an initial 10–20% in the early days (now gone) QCLNG would use ~5% thirdparty gas – 20–25PJa. APLNG is self-sufficient, but as can be seen the other thirdparty gas would get extremely close to balancing the market. Clearly these things are far better done by mutual agreement from all parties, rather than a political mandate.
■ GLNG loses but can all be compensated? We estimate that, at a US$65/bbl oil price, GLNG as an entity would lose US$447m p.a. of FCF if they could no longer toll thirdparty volumes. Interestingly, if Kogas and Petronas could recontract their offtake on a slope of 12x (doable in the current LNG market) then their losses as an equity partner are all offset (not equally between the two albeit). Santos would see ~50% of its US$134mn net GLNG loss offset if the Horizon contract could move up to a slope of 8x from 6x. The clear loser would be Total. We wonder whether cheap government debt, a la NAIF, could be provided at the (new, lower volume) project level or even to take/fund an equity stake in it? In reality all parties (domestic buyers included) have some culpability in the situation, so a sharing of pain does not seem unreasonable 02 March 2017 Australia and NZ Market daily 31.
Ban third party exports plus install “use it or lose it laws” and domestic reservation. Just do it.
