From Innes Willox, Australian Industry Group chief:
The Liquefied Natural Gas import terminal that Australian Industrial Energy and its partners propose to locate at Port Kembla is good news at a difficult time for industrial energy users, Australian Industry Group Chief Executive Innes Willox said today.
“As the Port Kembla terminal and other sources of gas supply take shape, they most obviously bring some comfort to heavy industries reliant on gas: more supply, more competition and a shakeup to an often-opaque market are welcome. But there are also important benefits for the larger number of businesses who depend on electricity.
“Prices for electricity and gas are easing from the highs of 2017, but they remain far above historical levels and are a big concern for industry. The high price of gas has played a big role in driving the high price of electricity, with gas-fired generators currently filling significant parts of the gap left by the retirement of coal-fired generators. Large amounts of renewable energy will enter the market over the next few years, but gas-fired generators will still frequently balance the market and set the price.
“One of the factors driving gas prices so high has been scarcity, with supply set to fall short of surging export demand. We are unlikely to return to the very low gas prices that Eastern Australia used to enjoy. But more supply, along with demand side efficiencies, can help prevent the extraordinary gas prices of 2017 from returning. Bringing LNG in through Port Kembla is one very important element of that. And there are benefits for jobs in the construction phase which will be good for the region immediately.
“We look forward to more announcements about the further projects needed to sustain Eastern Australia’s gas security,” Mr Willox said.
There is no security without surety of price. As I have already explained, the Forrest Project will only embed higher gas prices because the price of liquifaction and shipping will now be included in the import price when the existing regime of half-baked domestic reservation is at least aiming for export net-bank pricing for local gas.
This idiotic turn of events follows Willox recent capitulation on developing stronger domestic reservation which itself came months after the AIG stupidly started blaming coal and instead of gas for higher energy prices.
By flip-flopping all over, Willox has failed to gain traction for AIG members on the energy issue, has failed to develop a cogent and incisive narrative to push back the LNG cartel in policy circles, and now appears intent on boosting its interests ahead of his own members.
With friends like this bloke manufacturing doesn’t need enemies. He should be sacked.
There’s more madness today from EnergyQuest at the AFR:
A study presented in March by the Australian Energy Market Operator foreshadowed Victoria’s rapidly evolving energy risk. It reported that, without new gas supply, Victoria will be short of gas from 2022 and in deficit from the winter peak of 2021.
…”There are also rumours that ExxonMobil is working on an LNG import project,” the EnegyQuest quarterly observed. “This might only be an assessment of other proposals but if ExxonMobil was intending to develop a project it would confirm the fact that as Richard Owen, Australian chair of ExxonMobil, has said, ‘The Gippsland Basin is not a magic pudding’.”
Whatever Exxon has planned, Victoria’s rapid drift into deficit stands as reinforcement of plans by the Andrew Forrest-backed Australian Industrial Energy to import LNG into Port Kembla.
EnergyQuest noted that last year Victorian gas sustained just about all of the NSW gas market. The firm estimated that Victoria exported 125PJ into the 150PJ market through 2017 and demand is likely to increase further with any future closure of coal fired power stations.
“An LNG import terminal of 50-100mtpa can quickly fill most of the emerging gap,” EnergyQuest said. “While possible prices of around $10/GJ may sound expensive, the question is ‘compared with what’ given the limited options available for replacing Victorian gas imports.
…Interestingly, EnergyQuest has done some eye-opening work on whether cheap US gas might eventually become part if the east coast energy diet.
Japanese customers have shown a ready appetite for the US LNG production as a means of importing Henry Hub pricing into the north Asian market. EnergyQuest assessed the landed cost of Sabine Pass gas in Japan at $US8.08/MMBtu while the gas is being priced at $US10.62/MMBtu.
The firm assessed that the cost of landing US gas into east coast market would be similar to delivering into Japan, which it estimated to be about $9.95/GJ.
“This would be lower with US gas prices,” the firm suggested. “Many countries would potentially be interested in cheap US gas and US companies are likely to charge what the market will bear, as is currently the case. However, Australian companies could buy US gas directly and toll it through open access LNG export terminals.”
With due respect this is bollocks. Regional gas markets are converging into a single global gas price. If Australia can source this gas from the US and WA then so can everyone else. Why would any supplier discount when they need not? Without any form of domestic reservation (that might enforce cheap WA gas for instance), Australian import terminals will be paying the same price as everyone else will worldwide:
- if US exports are large enough to keep global prices low then under the current defacto reservation regime Aussie east coast domestic prices will be lower still by the cost of liquifaction, shipping and regasification at export net-back (-$2-4Gj);
- if US exports are large enough to keep global prices low then under the LNG import regime Aussie east coast domestic prices will be the same price as everywhere else;
- if US exports are not large enough to keep global prices low then under the current defacto reservation regime Aussie east coast prices will be high but lower by the cost of liquifaction and shipping at export net-back (-$2-4Gj);
- if US exports are not large enough to keep global prices low then Aussie east coast prices will be set by the cost of imported LNG and will be exactly the same as elsewhere, or higher still if domestic reservation is relaxed allowing the cartel to apply discriminatory pricing.
This is why every other energy producer on earth, including the US, has domestic reservation. Any other regime is suicidal.
