I’ve been a lone voice on this as usual but no more. Via The Australian:
A spat over gas prices has erupted between the Andrew Forrest-backed consortium planning to build Australia’s first import facility and Santos as concerns grow that the domestic producer may be forced to shelve its controversial Narrabri project in gas-starved NSW.
Santos’s long-delayed Narrabri development could be axed if Mr Forrest’s proposed liquefied natural gas import terminal proceeds, under an analysis plotted by Macquarie.
The state government could treat the billionaire’s LNG scheme as a new source of gas supply, leading it to reject Narrabri and dealing a potentially fatal blow to a project already hobbled by community opposition, delayed approvals and reserve downgrades.
More at the AFR:
…Indeed, the biggest winners from importing LNG would be producers of gas in the south that would be selling into a higher-priced market, Macquarie said, singling out Shell, Beach Energy and the Esso-BHP Bass Strait venture among others.
The proposed terminals have also been received warmly by the Victorian and NSW state governments on the assumption they would help secure reliable gas supply and drive down prices, despite public bewilderment as to how it makes sense for one of the world’s biggest LNG exporters to be considering imports.
…”The beauty of our import project is that we can access, through [Japanese LNG buyer and project partner] JERA, the world’s cheapest import gas, which is lower than the foreseeable export prices,” said James Baulderstone, head of AIE.
He said if gas weren’t imported, domestic east coast gas would be priced at parity to LNG export prices from Australia, rather than at parity to import prices, meaning potentially prices of $12-$14 a gigajoule, rather than $9-$11/GJ.
But in what looks likely to be seized by opponents to the terminals, Macquarie said importing LNG “will not lower prices in the southern states”. It reasoned that no matter what index imported LNG is priced against, for example oil or Henry Hub gas, the port infrastructure and processing costs would outstrip the pipeline shipping costs from Queensland.
Macquarie is right and Twiggy’s man is making no sense. If we reverse engineer his pricing of delivered gas at $3Gj lower than local, he would have to be able to buy at rates that don’t pass the laugh test:
- $10Gj minus loss of 10% of gas, amortised cost of import plant and opex $3Gj;
- then subtract the cost of liquifaction and shipping $3-5Gj depending upon the source.
He’ll need to be buying the gas at $2-4Gj. That will have to be US-sourced and why would JERA sell that gas any cheaper to Australia versus other Asian markets? The answer is that they won’t which by definition means we will be embedding Asian prices in Australia.
Even worse, for Twiggy’s proposal to make money it will have to destroy the domestic reservation mechanism already in place which has gas pricing hovering below its outlook pricing.
Anyone with half a brain – which is staggeringly rare in the gas market – knows that what is needed for cheaper prices is more gas reservation just like WA has, delivering $4-5Gj prices. We could simply set the price of gas that we need at $5Gj and apply a quota to the export cartel.
The Coalition’s piss weak reservation mechanism, the ADGSM, proves the point. It has already halved gas prices and electricity price are tumbling in their wake:
The ADGSM only aims at export-netback prices. We could insist on much lower.
Sure, the export cartel will take some pain but it misallocated the capital in too many LNG trains so too bad. It might still develop Narrabri gas but for export and Asia wold pay the higher prices instead of us.
The east coast gas market has failed. Gas import proposals are designed to embed that failure. Government intervention is needed. Domestic gas reservation is the answer.
