$8-$10 per gigajoule

MINING & ENERGY
Gas prices to remain high, warns UBS
The government has been hoping increased gas supplies will bring down prices. Pic: Bloomberg
The government has been hoping increased gas supplies will bring down prices. Pic: Bloomberg
October 20, 2017
East coast gas prices are not likely to come down any time soon, despite recent government intervention to boost domestic supplies, according to UBS analysts.
Detailed supply-demand modelling for east coast gas shows there are insufficient gas supplies available over the next five years without the need for Queensland LNG supplies to be diverted into the domestic market, UBS says.
“With diverted Queensland LNG supplies being one of the more expensive gas supply options available, our near term outlook is for east coast gas prices to continue to increase as legacy contracts roll off,” the analysts said in a report.
New contract prices could settle in the range of $8-$10 per gigajoule, with prices in most capital cities to migrate towards the $9-$11 range over the next five years, the UBS report says.
The federal government this month signed a deal making the three giant Queensland LNG ventures responsible for making up any shortfall in the east coast gas market in 2018 and 2019.
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No relief likely on gas prices
The government says it was forced to intervene by potential domestic shortages and spiralling gas prices, and that higher gas supply will automatically bring down prices in the medium term.
But industry experts have disputed this view, with NAB analysts previously saying gas prices are likely to trend higher, driven by international oil prices and movements in the Australian dollar.
Declining supplies from Victoria’s Gippsland basin coupled with lack of new low cost supply options will be a key driver for high prices, the UBS report said.
The largest sources of potentially lower cost supplies, in NSW and the Northern Territory, are facing regulatory issues, and alternate gas supplies of any size are still a few years away.
Development cost and distance of new supply from markets mean there is unlikely to be a material downward pressure on east coast gas prices any time soon, the report says.
Higher gas prices, in turn, will also keep electricity prices high over the next few years, UBS says, with ageing coal plants, lack of new generation supply and increasing gas usage in the sector also contributing to the rise.
AAP