Why Aussie manufacturers should import gas

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.

David Llewellyn-Smith

Comments

  1. All the waste and inefficiencies that this nation will bear to establish gas import/regasification infrastructure, in this nation, one of the most prolific hydrocarbons basins in the world. Its says a lot for our dysfunctional and corrupt, incompetent? Federal government in Canberra – what a bunch of self-serving baboons!

  2. On the flip side, just imagine the tens of billions of dollars of productivity and opportunity that has gone begging as productive businesses that rely on affordable & reliable energy either pack up and take the operation offshore or simply don’t get a new venture off the ground because of the sovereign risk of doing business in a nation that cannot establish energy for its domestic market, before it exports tens of millions of tons of it, is simply too high. Like third-world HIGH @Scomo #Scomo

    • @TheLambKing. Well said.
      @David, a manufacturers and domestic consumers consortium to buy in gas is a brilliant and wicked solution,

      When the government acts against the welfare of the people and the country, it’s time to stop colluding with our downfall.

    • TheLambKingMEMBER

      What happens when the government places a $4-8/Gj import tariff on LNG?

      Ah, but surely that would contravene the free trade agreement we would have with ourselves? (as we would be extracting the gas here, liquefying it, shipping it down the coast and de-liquefying it to put it in the pipes.)

  3. Raging giantMEMBER

    Smarter still would be switching to electricity for stationary power and heating. The spot price of electricity is often close to zero during the day and even dips negative. The better long tirm move would be ditching gas.

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