East Coast gas price to stay high

Shell’s Australia country chair Zoe Yujnovich told a Perth business lunch yesterday that east coast gas prices may drop, but only incrementally and if Australia wants energy security it should look to innovation.
On a panel that included Seven West chairman Kerry Stokes and Western Australian Treasurer Ben Wyatt, Yujnovich was clear that the east coast price is never returning to its historic low.
Yujnovich told the Leadership Matters lunch that "gone are the days where we will see gas as an associated product, where prices were set in the $3-6 range".
Though the east coast prices will likely drop slightly in the next three months Australia should expect to pay the LNG netback price which is contingent on foreign exchange rates, demand curves and transportation costs.
"I didn't expect when I came home that gas prices would be on the front page of the newspapers and didn't fully understand the complexity that I was coming into," she said, calling the affordability of gas and oil the "greatest challenge on the east coast".
However Yujnovich explained the rise in price as one driven partly by the difficulty of modern exploration.
"Gas was [once] essentially a by-product of the oil development that was being done on the Bass Strait … it was not quite free but quite low in price," she said.
With those products largely gone, she said "we're now working through more challenging ore bodies and dry gas and the cost of gas being produced is substantially higher than the by-product".
The loss of the competitive advantage that drove the manufacturing industry's reliance on gas is gone, and the environment is more challenging as renewables have increased market penetration and coal stations have been retired.

It's something of a double-whammy.

"We've seen some challenges around the security of supply as well," she said.

Yujnovich didn't explicitly call for a lift on a ban fraccing or conventional onshore exploration on the east coast, but she did say that it would be far cheaper to "unlock resources" in the southern states than to send gas south and east.

She said there should be a way to sustainably unlock value.

Yujnovich has previously taken aim at notions that gas export has driven up its price; rather, she sees the export as driving innovations like the Prelude, Shell's enormous new LNG tanker.

"We need to innovate our way to the next competitive advantage," she told the room.