For a brief period last year, local industry enjoyed cheap gas prices as Brent oil cratered and the contacts its pays for at a 14% slope collapsed in price. But the great Australian gas gouge is back now as Brent recovers and nothing has been done to prevent it at the policy level.
Canberra is completely captured by the oil and gas lobby. Gas consumers can try to break the stranglehold. But they cannot rely upon doing so. Thus they need to break the gas export cartel as best they can without policy support using more competition via cheaper imports. The AFR had more on the progress of Squadron Energy who reckons:
- Local prices will never return to $4Gj.
- Imports can be delivered for $8Gj.
- Imports will be available by the end of 2022.
I agree. $4Gj is entirely possible but not without policy-driven comprehensive reservation which the cartel has headed off at the pass via the corrupt Morrison Government. The plan put forward by Andrew Liveras for $4Gj in the Morrison Gas Unplan was spectacularly delusional.
New domestic supply has no chance of dropping prices without comprehensive reservation. All of the reserves are owned by the export cartel and even individual reserved gas projects won’t drop the price if they displace existing domestic volumes to export, which is what will happen.
For bulk gas users paying 14% Brent, the price has already recovered to $11.30Gj. The Japan-Korea Marker has dropped back to $8.50Gj after its recent idiosyncratic price spike and futures see it lower again ahead.
The Asian glut has no end:
Right now, there’s an average $3-4Gj spread between local contracts priced at 14% Brent and JKM to arbitrage. With 50 cents freight and Squadron tolling, which is undisclosed but I’d guess is around $1Gj or less, there’s still much cheaper gas available via imports:
JKM tracks spot volumes in Asia but there are also Qatari contract deals near 10% of Brent in recent times.
The beauty of imports is that once the gas is available the local cartel will be forced to drop all of their prices so the big consumers can enjoy price relief across their portfolios over time. This will include new local supply such as that coming from Narrabri and via the recent heads of agreement.
That is, imports are a structural change to the gas market that breaks the export cartel’s cornering of supply. It’s not achieved as cheaply as the domestic reservation route but it is still a material improvement.
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