Via the AFR:
Andrew Forrest’s pioneering gas import venture has approached the NSW government seeking approval to potentially double the capacity of the reprocessing terminal it plans to install at Port Kembla.
Australian Industrial Energy, which is half owned by the iron ore billionaire, formally flagged the need to restart its approvals process in meetings last Wednesday and Thursday with the state government and its planning and development bureaucracies.
…AIE said that potential customers now think the market will need more gas than the Port Kembla approvals allow for and that it has also identified an unanticipated quorum of customers who are prepared to acquire reprocessing capacity at the proposed LNG import plant.
Or it can’t get anyone to sign up. Why would they? Right now LNG importers are shopping around contracts at $11Gj. The Asian spot price is $6Gj. The Australian spot price is $8Gj when it should be $4.50Gj under the ADGSM agreement.
The likelihood is that the ADGSM will still have a price trigger added at $7Gj. Or, NSW could develop Narrabri with domestic reservation for about $8Gj.
Theoretically, LNG imports could arrive today for about $8Gj as well, if it were sourced on spot but that is not what the firms are offering.
So, a few points:
- the LNG importers are already establishing price mechanisms based upon shortages not competitive markets;
- this is unsurprising given some of them are also members of the gas export cartel;
- once LNG imports are established, they will undermine any domestic reservation regime and become the marginal price setter for local gas permanently.
Now consider what will happen next. VIC has heaps of gas. SA has heaps of gas. But both are being drained of it because southern gas is being pushed north to QLD for export. Mostly from the Cooper Basin but sometimes from Bass Straight as well.
This gas is cheap and abundant and sits right adjacent to NSW with pipelines in place directly from the Cooper. It was never supposed to be exported via QLD. It is third party gas sucked up by the export cartel when it discovered its own QLD coal seam wells were crappier than expected.
It costs less than $1Gj to extract. Yet, if we get LNG import terminals, the cheapest and most local to NSW will make a spectacularly stupid journey north to QLD, be frozen, sail south to NSW and VIC, be regasified, and piped for use at $11Gj. An 1100% mark-up thanks to a massive $80bn capital misallocation into white elephant export plants by the gas cartel and complete bastardry by regulators and governments.
In short, to even contemplate LNG imports is suicidal policy making. As a business model they are a policy distortion pure play.