Via the AFR:
Santos and Origin have inked a new deal to supply Chinese-controlled plastics maker Qenos with ethane until the end of 2019.
Santos announced in November 2014 that it has signed a new five-year deal to supply ethane gas to Qenos in NSW. At the time, the deal was heralded as avoiding the potential loss of more than 300 manufacturing jobs threatened by the state’s growing gas supply problem.
However, as Santos has come under increasing pressure in recent months from the federal government to free up more gas supplies for the domestic market, it is understood it pushed for the renegotiation of a number of deals with large industrial customers, including Qenos.
And UBS:
GLNG diverting more gas into the domestic market
STO has announced that GLNG will divert a further 30 PJ of gas into the domestic market in 2018/19. Over the past month STO has announced 3 separate transactions, which will see a total of 100 PJ being supplied into the domestic market from GLNG and STO. GLNG partners are taking the opportunity of STO’s gas supply in the Cooper Basin and strong domestic gas demand/prices to both reduce contracted LNG volumes over the next few years and help ease concerns that GLNG is solely focussed on the export market. We expect the impact from this to STO should be marginally positive (thanks to lower pipeline fees), but the bigger play here is GLNG’s willingness to proactively sell more gas into the domestic market ahead of any ADGSM (The Australian Domestic Gas Security Mechanism) trigger.
What’s happening? Gas diverted from Cooper Basin into Southern markets
We expect most of this gas to be sourced from the Cooper Basin as gas that was earmarked for supply into GLNG as part of the STO “Horizon” contract (50 PJ/annum for 15 years). Essentially the combination of the 3 transactions announced to date will result in approximately 40 PJ/annum diverted from Moomba into the southern markets over the next 2 years, reducing the volume of gas transported from the Cooper Basin to Wallumbilla (and then into the GLNG pipeline) from 50 PJ/annum to 10 PJ/annum, reducing pipeline transportation tariffs.
Deal looks win-win: Meeting domestic demand + reducing LNG purchase costs
Further gas swaps or GLNG sales cannot be ruled out, though sales beyond 50 PJ/annum will incur additional pipeline charges to physically move gas down the SWQ pipeline. The chairman of Shell Australia expects the Federal Government to declare a supply shortfall in 2018 – in this scenario GLNG would be required to make further supplies available for the domestic market, despite the JV taking action to meet demand already. Diverting gas from GLNG into the domestic market also provides the LNG buyers (Petronas and Kogas) an opportunity to reduce the level of contracted LNG purchases (which are at a premium to spot LNG prices). Essentially they are cutting the volume of higher priced LNG without affecting GLNG cash flows.
It’s only a beginning. The shortage ahead is 200Pj per annum. And what was the price? At today’s price, it needs to be $8Gj delivered in NSW to meet export net-back, which is the bare minimum target.
