Interesting extract from The Australian today:
Surge in gas prices to put industry under the pump, Sims warns
Gas prices on Australia’s east coast are set to surge up to four times higher than historical levels this summer, forcing manufacturers and heavy industry to potentially shut operations, Surge in gas prices to put industry under the pump, Sims warns
Gas prices on Australia’s east coast are set to surge up to four times higher than historical levels this summer, forcing manufacturers and heavy industry to potentially shut operations, the competition watchdog has warned. Domestic gas prices may jump by over 40 per cent to $15 a gigajoule in January and February compared with this year’s average to date of $10.68 a gigajoule, says the Australian Competition & Consumer Commission, which yesterday published “netback” LNG prices as an east coast pricing benchmark. At those levels, users in the southeastern states could be paying up to four times historical prices of $3- $4 a gigajoule.
“Prices right now for 2019 are very high,” ACCC chairman Rod Sims told The Australian. “We don’t want to lose Australian industry just because of unusually high prices. They are really struggling and there are certainly some gas users that are weighing up whether to continue doing business in Australia or move their plant overseas. There’s no doubt some are thinking about that.” The linkage between the east coast and international LNG prices took shape after Queensland’s three export projects started shipping local gas to customers in Asia in the last few years, effectively tying the two markets together. The ACCC responded by publishing netback prices for LNG which represent export prices minus the cost of freezing the gas to LNG and shipping it to buyers in Asia. Earlier this year they appeared more manageable for domestic users with netback prices dipping to $7.83 a gigajoule in May.
However, a surge in demand from China has seen the LNG spot price jump by about 40 per cent in the last year causing further pain for already struggling heavy industry on the eastern seaboard. Even at its higher estimates, the ACCC’s numbers may prove too conservative, according to Credit Suisse.
The ACCC’s assumptions represent “the low end of what would represent a true netback price range in line with what we see as the ACCC’s political agenda to push for lower prices,” Credit Suisse analyst Saul Kavonic said yesterday. “While these prices may seem high by historic standards, we think actual prices for end users could well be even higher.”
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A supply shortage, driven by depleting east coast reserves from areas including the Bass Strait, would be exacerbated by a new pricing mechanism linking the domestic market with the international LNG sector.
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The looming price shock may also reignite a debate among the federal government over the best way to limit ongoing pain for large gas users. Energy producers on the east coast escaped the threat of government intervention last month after extending a deal to offer uncontracted gas for domestic use before export and agreeing to make gas available at peak demand periods for the power grid.
Federal Labor has pledged the introduction of a domestic gas price trigger that would curb supplies of LNG exports, raising fears among producers about the risk of retrospective moves that could disrupt Australia’s second biggest export earner.
The most realistic way to cut prices is to boost production of locally produced gas in the southern states to help cut the cost of paying for supplies piped down from Queensland or imported from overseas, according to Mr Sims.
......... competition watchdog has warned. Domestic gas prices may jump by over 40 per cent to $15 a gigajoule in January and February compared with this year’s average to date of $10.68 a gigajoule, says the Australian Competition & Consumer Commission, which yesterday published “netback” LNG prices as an east coast pricing benchmark. At those levels, users in the southeastern states could be paying up to four times historical prices of $3- $4 a gigajoule.
“Prices right now for 2019 are very high,” ACCC chairman Rod Sims told The Australian. “We don’t want to lose Australian industry just because of unusually high prices. They are really struggling and there are certainly some gas users that are weighing up whether to continue doing business in Australia or move their plant overseas. There’s no doubt some are thinking about that.” The linkage between the east coast and international LNG prices took shape after Queensland’s three export projects started shipping local gas to customers in Asia in the last few years, effectively tying the two markets together. The ACCC responded by publishing netback prices for LNG which represent export prices minus the cost of freezing the gas to LNG and shipping it to buyers in Asia. Earlier this year they appeared more manageable for domestic users with netback prices dipping to $7.83 a gigajoule in May.
However, a surge in demand from China has seen the LNG spot price jump by about 40 per cent in the last year causing further pain for already struggling heavy industry on the eastern seaboard. Even at its higher estimates, the ACCC’s numbers may prove too conservative, according to Credit Suisse.
The ACCC’s assumptions represent “the low end of what would represent a true netback price range in line with what we see as the ACCC’s political agenda to push for lower prices,” Credit Suisse analyst Saul Kavonic said yesterday. “While these prices may seem high by historic standards, we think actual prices for end users could well be even higher.”
.........
A supply shortage, driven by depleting east coast reserves from areas including the Bass Strait, would be exacerbated by a new pricing mechanism linking the domestic market with the international LNG sector.
..........
The looming price shock may also reignite a debate among the federal government over the best way to limit ongoing pain for large gas users. Energy producers on the east coast escaped the threat of government intervention last month after extending a deal to offer uncontracted gas for domestic use before export and agreeing to make gas available at peak demand periods for the power grid.
Federal Labor has pledged the introduction of a domestic gas price trigger that would curb supplies of LNG exports, raising fears among producers about the risk of retrospective moves that could disrupt Australia’s second biggest export earner.
The most realistic way to cut prices is to boost production of locally produced gas in the southern states to help cut the cost of paying for supplies piped down from Queensland or imported from overseas, according to Mr Sims.
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STO Price at posting:
$7.31 Sentiment: Hold Disclosure: Held
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