From the AFR today, such a sad and unnecessary state that we find ourselves in.....a real failure of government policy and good long term planning. AJQ is well positioned to form part of the solution.
Mark Samter, the top-rated former analyst at Credit Suisse who has now joined new independent house MST Marquee, said industrial buyers would be "extremely naive" not to support the LNG import terminals being proposed in the south-east to boost local supplies.
He said that the bid to prevent local gas prices moving to international levels was already lost when the Queensland LNG export terminals were sanctioned, and that now, importing LNG into the southern states is the only way to avoid a much worse fate.
"A lot of people still want to make the debate about price, but the battle on price was lost in 2009 when these projects were sanctioned; It was set in stone then that the market was going to be undersupplied," Mr Samter said.
"The liquidity issue is going to cause a far, far bigger headache than the price issue in reality. The price issue is real whatever happens."
But Mr Samter cast doubt on the AEMO outlook and said commercial gas buyers would be well advised to back the import projects, despite prices being quoted of about $10 a gigajoule, more than double historical rates.
Much of the gas needed for the east coast is still to be firmed up into reserves. AEMO
"Industrial buyers would be extremely naive not to support them," he said, adding prices are only likely to go higher as Asian LNG markets tighten..
"Yes, you're getting a price that optically looks painful to you and is a lot higher than you were paying a couple of years ago, but I can't construct any realistic scenario where you are getting the gas cheaper without an import terminal and you are introducing material supply risk and the real risk of materially higher prices as well."
'Massive uncertainty' The federal government has seized on the latest AEMO report and the decline in offered gas prices since early 2017 as evidence that its intervention through the Australian Domestic Gas Security Mechanism, which allows for LNG exports to be capped, is working.
The supply shortfall AEMO forecast last year disappeared in its June outlook. AEMO
But Mr Samter pointed to the "massive uncertainty" about future coal seam gas production in Queensland, combined with the prospect for higher LNG prices in Asia that would make it much more difficult for Queensland's exporters to justify diverting gas from exports to the local market as has happened over the past 12 months.
"We can talk about theoretical wins in the short term, bringing down gas prices, but there's a very high probability that you're just sowing the seeds for an bigger headache in four or five years' time if you don't have an import terminal," he said.
Mr Samter said it was "fanciful" to base energy policy on the hope that the Queensland CSG fields outperform, and that LNG markets in Asia won't tighten.
Representatives from Australian Industrial Energy, which wants to import LNG at Port Kembla. Robert Peet
In the event of a "liquidity issue" in gas, government would be faced with having to limit LNG exports from Queensland secured under long-term contracts - and so bring about a "pretty material sovereign risk issue" - or see domestic gas users go short.
"I hope we see import terminals built so we never get to see how bad it likely gets without them," he said. "Even under this scenario it is going to put some industrial gas consumers out of business, because either way prices are high
AJQ Price at posting:
10.0¢ Sentiment: Buy Disclosure: Held
