Shell is out today celebrating its ongoing gas gouge:
Shell today said it will supply around 8 petajoules of gas to Engie’s Pelican Point power plant in South Australia for five months over the peak winter period to help secure electricity contracts to major industrial users.
It also said it had struck an 18-month agreement to supply Orica’s Yarwun facility near Gladstone, which produces explosives and cyanide for the mining industry.
“Make no mistake the business I lead is pursuing further domestic supply agreements — and has taken proactive steps to supply the east coast gas market,” Ms Yujnovich said.
“Shell’s business on the east coast has reacted to the gas market and reduced export volumes to supply additional gas to the domestic market during 2017.”
Pull the other one. Domestic spot is still $10.50 versus $7.30 in Japan:
The terms of these contracts should be forced into the open. They are of such short duration that they are obviously very high prices and perfectly useless from the standpoint of security of supply.
As Credit Suisse has argued, the cheapest and quickest solution is:
■ 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.
Banning third party exports of gas will instantly free it up for domestic use. That, in turn, will fire up idled gas power plants and drop electricity prices. It is gas that sets the marginal cost in the NEM owing to where it sits in the wholesale electricity market bid stack. See Australian Energy Market Operator description below:
We need cheaper gas and stable carbon pricing policy. Then all of the problems will go away at once and we’ll have time to decarbonise the network with longer term battery and other storage options to stabilise renewables. This was always the national plan, such as it was, that gas would be the transitional fuel as we move steadily from coal power to renewables.
Shell is also hoarding the enormous Arrow reserve in QLD which is 17% of total east coast reserves. It should be forced to divest or develop it by applying “use it or lose it” rules.
Only new big and dumb rules will end the gag gouge. It’s that or demand destruction.
