There is no end to it. Via The Australian:
Oil giant ExxonMobil is considering a Victorian LNG import plant to replace rapidly declining Bass Strait gasfields, in a move that could draw in BHP to help build a floating terminal at less than half the cost of rival east coast gas import plans by AGL Energy and Andrew Forrest.
…In the wake of reports of rumours of the plan by consultant EnergyQuest, Macquarie analysts estimated a Longford LNG import plant would cost $100 million, compared to announced costs of $250m from AGL and $200m to $300m from Mr Forrest’s Australian Industrial Energy.
…In the past year, the prospect of east coast LNG imports has switched from generally being regarded as ludicrous (given Queensland exports gas) to one where there are now three serious projects being considered by the biggest names in the Australian and international energy sectors.
LNG imports are making economic sense because east coast gas prices are exposed to international pricing after $70 billion of LNG export plants at Gladstone were built to export more gas than their proponents could develop themselves.
Compounding an error with another is not making “economic sense”. The notion that the import plants will compete is quaint. After all, they can’t buy gas in the Asian market any more cheaply than each other. The notion that Exxon and BHP will compete is hilarious. As the ACCC has already noted, they have been two of the most aggressive gougers in the cartel since supply was artificially constrained.
The economics of this are no less ludicrous today than they were a year ago. If the import terminals were up today, the best possible prices they could deliver gas at is as follows:
- Asian spot price $11.60Gj x AUD74.4 equals $15.50Gj;
- Asian contract price $9Gj x AUD74.4 equals $12.o9Gj
- regasification, cost of plant, plus loss of volumes and margin $3Gj.
That’s a local delivered price range of $15-18Gj. Under today’s relatively weak domestic reservation regime we’re getting $8-10Gj. Though it may rise from here given export net-back is its benchmark, it would still always be $3Gj cheaper given it does not need to include the price of regasification, cost of the plant, loss of volumes and an importers margin.
The reason Exxon would like to see LNG imports is exactly the same as that of the other two proposed projects. It wants to destroy the weak domestic reservation mechanism that is holding down prices. For Exxon that will result in higher prices for existing Bass Straight reserves as well, many of them shipped offshore!
This is made all the more perverse by the WA example of exactly what the east cost should be doing, also at The Australian:
Chevron has begun production at the second of two processing units at its Wheatstone project on Australia’s northwestern coast, cementing its position as one of the biggest suppliers of supercooled natural gas to Asia.
The milestone announced today draws a line on billions of dollars invested by the US energy giant in recent years on two large liquefied natural gas projects that struggled with cost overruns and delays. It also will mark a shift in focus to output from construction, as demand for the cleaner-burning fuel continues to rise.
At full capacity, Chevron estimates that Wheatstone will account for about 6 per cent of LNG output in the Asia-Pacific region, with a single cargo capable of powering Japan for about nine hours.
The $US34 billion Wheatstone development on Western Australia’s Pilbara coast has an annual production capacity of 8.9 million tonnes of LNG, plus a domestic gas plant.
WA exports of gas are booming but note the “plus a domestic gas plant” attached to Wheatstone. WA has domestic reservation that has locked contract prices at $4-5Gj.
That’s all the east coast needs. A stronger domestic gas mechanism not a weaker one. We could absolutely be enjoying $5Gj as well, which would also slash electricity bills by one third overnight.
As the first story notes, the Gladstone gas exporters mis-allocated capital, “built to export more gas than their proponents could develop themselves”. Fixing that blunder requires forcing them to export only their own reserves and no third party gas (such as that of Exxon and BHP).
Make the Gladstone cartel take the losses, not everyone else.
That would at least resemble a “market”.
