Via the AFR:
Only LNG imports can save the Australian government from a nightmare scenario of having to choose between breaking gas export contracts with Asian buyers or subjecting the east coast to real supply shortages, according to the respected energy analyst that sounded the alarm on the “slow train crash” looming in the market more than three years ago.
Mark Samter, the top-rated former analyst at Credit Suisse who has now joined new independent house MST Marquee, said industrial buyers would be “extremely naive” not to support the LNG import terminals being proposed in the south-east to boost local supplies.
He said that the bid to prevent local gas prices moving to international levels was already lost when the Queensland LNG export terminals were sanctioned, and that now, importing LNG into the southern states is the only way to avoid a much worse fate.
Samter is excellent but this is wrong. It’s not a nightmare choice at all. It’s very straight forward. Break the gas contracts. The sovereign risk is heavily outweighed by the risk to the sovereign of not doing so. Remember that Santos outright lied that it had enough gas. At The Australian previously:
As Santos worked toward approving its company-transforming Gladstone LNG project at the start of this decade, managing director David Knox made the sensible statement that he would approve one LNG train, capable of exporting the equivalent of half the east coast’s gas demand, rather than two because the venture did not yet have enough gas for the second.
“You’ve got to be absolutely confident when you sanction trains that you’ve got the full gas supply to meet your contractual obligations that you’ve signed out with the buyers,” Mr Knox told investors in August 2010 when asked why the plan was to sanction just one train first up.
“In order to do it (approve the second train) we need to have absolute confidence ourselves that we’ve got all the molecules in order to fill that second train.”
But in the months ahead, things changed. In January, 2011, the Peter Coates-chaired Santos board approved a $US16 billion plan to go ahead with two LNG trains from the beginning….as a result of the decision and a series of other factors, GLNG last quarter had to buy more than half the gas it exported from other parties.
…In hindsight, assumptions that gave Santos confidence it could find the gas to support two LNG trains, and which were gradually revealed to investors as the project progressed, look more like leaps of faith.
…When GLNG was approved as a two-train project, Mr Knox assuredly answered questions about gas reserves.
“We have plenty of gas,” he told investors. “We have the reserves we require, which is why we’ve not been participating in acquisitions in Queensland of late — we have the reserves, we’re very confident of that.”
But even then, and unbeknown to investors, Santos was planning more domestic gas purchases, from a domestic market where it had wrongly expected prices to stay low. This was revealed in August 2012, after the GLNG budget rose by $US2.5bn to $US18.5bn because, Santos said, of extra drilling and compression requirements.
There were virtually no approvals but those were given were done so under false pretenses.
The alternative of importing LNG only prevents the cartel from applying discriminatory pricing to the locals. It still embeds much higher Asian gas prices here permanently, especially as the AUD keeps falling, and it destroys domestic reservation.
Break the contracts. We only need to keep 10% of the east coast exported volumes to solve the problem. We’ve already begun it with the ADGSM.
Break the contracts. Doing so is a big, fat nothing burger. Not doing it is the disaster.
