Via the AFR:
East coast manufacturers can expect little relief from high gas prices with the extension of a deal between the federal government and Queensland’s LNG exporters on local gas supply, as the tight global market for LNG puts renewed pressure on domestic prices.
The agreement between the Queensland LNG exporters and the Prime Minister, which was renewed on Sunday, requires the three ventures in Gladstone to offer all available gas not committed under contract to customers in Asia to domestic users first, before any spot market shipments overseas.
But it comes as evidence firms of a China-driven strengthening in the LNG export market to which the east coast market is firmly tied since the start-up of LNG exports from Queensland in 2015. Despite large chunks of new LNG production capacity coming online, analysts including Wood Mackenzie and JPMorgan are no longer expecting oversupply to plague the market late this decade ahead of a shortage expected to kick in early next decade.
Previously the price target of agreement was the export net-back benchmark. But today, with Brent oil at $85, the regional gas price is around $16Gj and net-back around $13-14Gj. Yet the local price is still hovering around $9Gj.
So, has the Government just agreed to a 50% energy shock? Or will the price be contained at $9Gj?
That we even have to ask such a question is the problem. Given Australian manufacturing is built on the assumption of $3-4Gj, and so is the power network for any reasonable electricity price, we need more certainty than an opaque meeting between Matt Canavan and the cartel.
We need permanent, fixed price reservation at $6Gj. Let the cartel wear the losses for LNG plants that should never have been built, not everyone else.
