The Australian natural gas industry has started 2018 with a smashing triple play: Rising exports, steady domestic supply and lower prices for domestic customers.
The latest research by Energy Quest describes the three elements thus:
- Record exports from the set of three liquefied natural gas plants at Gladstone, Queensland
- Sustained domestic supply (on east and west coasts)
- Reduced wholesale prices for East Coast gas
This is great news for the national economy and for the many thousands of jobs dependent on reliable supply of affordable gas.
Importantly for Australia’s investment reputation, the ‘taking care of business’ approach by the gas industry we described last year has meant that as we enter 2018 there is no need for the Federal Government to implement artificial (and economically regressive) measures to curtail LNG exports in order to redirect export gas to feed domestic demand.
The ‘sovereign risk’ issue is of great significance to buyers of Australian LNG, as well as to the institutional and retail backers who supported the unprecedented $200 billion investment in the Australian LNG export industry in the past eight years.
A better solution would be to increase domestic supply – a challenge which is made very difficult for industry when governments in Victoria and the NT have development blockers in place and when NSW has an apparent willingness to listen more to political activism than to practical solutions.
Use of new Government powers to interfere in existing gas export contracts would be an event with global repercussions for Australia.
However, as Energy Quest noted this week, it appears a less likely scenario now than it did last year, when the legislation was introduced into Federal Parliament.
Energy Quest said the Gladstone-based LNG exporters had increased output to a record 2 million tonnes in December, compared to an average of 1.7m tonnes in earlier months. However, this increase did not appear to have had a negative impact on the domestic market.
Last year, the major East Coast LNG producers, Santos, Origin and Shell agreed to take responsibility for ensuring domestic demand was met.
In the current market conditions, this means supplying gas at a domestic price which is below the current export price, as noted by Energy Quest:
“With higher LNG spot prices, LNG netbacks (net price after transport costs) are higher than east coast domestic short-term gas prices,” it said.
“Based on marginal costs and spot LNG prices of US$11.22/MMBtu the Wallumbilla (trading hub) netback was $10.84/GJ in December. Taking account of transport costs, short-term prices were between $3.82/GJ (in Brisbane) and $6.95/GJ (in Victoria) below LNG netbacks.”
Energy Quest said it expected Australian LNG exports to increase on both east and west coasts during 2018.
That is good news for the Australian economy.