Gas import spells end of Santos’ controversial Narrabri CSG, analysts say
By Cole Latimer & Peter Hannam
9 July 2018 — 2:30pm
Share on Facebook
Share on Twitter
Send via Email
Normal text sizeLarger text sizeVery large text size
Analysts say four proposed new gas import terminals around Australia have ended Santos’ contentious NSW Narrabri coal seam gas project.
Santos’ Narrabri project is a proposed $3 billion gas operation that has been consistently opposed by environmental groups, and now Macquarie Bank analysts believe the rise of Australian gas import terminals will end all potential government support.
Santos' Narrabri coal seam gas project's future may be in doubt if new gas import terminals are constructed. Photo: ROBERT GARVEY
The CSG project has been under development for five years and was predicted to supply between 25 to 50 per cent of NSW’s gas needs. It was forecast to have gas flowing by 2017, however, due to operational difficulties at the project as well as ongoing protests, Santos only published its environmental impact statements this year.
Macquarie Wealth Management analysts say the new import terminals will provide gas sooner and from a less disputed source. They said although the terminals will push gas prices up – which will benefit Santos – it will weaken state government support for the politically risky Narrabri CSG project
“We see an import terminal as a double-edged sword for Santos. Though higher prices from [the major gas hub] Moomba will coincide with increased volumes from the [South Australian] Cooper Basin, it will likely mean Narrabri will not be developed,” the analysts said.
“We expect the NSW state government could prefer, for political reasons, the installation of the LNG import facility to coal seam gas development. We expect this could result in the final nail in the coffin for Santos’ stalled Narrabri coal seam gas project in northern NSW.”
Environmental lobby group Lock the Gate, which has waged a long campaign against the Narrabri project, welcomed Macquarie’s report. We believe the import terminal could be used as a justification to reject the development of Narrabri, given its political sensitivity. Macquarie Wealth Management “[This is] thrilling news for farming communities in North West NSW," Georgina Woods, a coordinator for Lock the Gate, said. Santos told Fairfax Media the project was far from dead.
The Narrabri Gas Project will always be a cheaper source of gas than gas from an LNG import terminal,” Santos chief executive Kevin Gallagher said. “The Narrabri approvals decision is a matter for the Independent Planning Commission, it is not a political decision. “It’s really important the assessment process is robust and independent so that, if the project is approved, the community can have confidence the Narrabri Gas Project will be developed safely and sustainably. Santos has responded to submissions on the EIS and will provide any further information required as part of the approvals process.”
Santos currently attributes no book value to the Narrabri project.
AGL and ExxonMobil are planning to build import terminals in Victoria, while there is also one proposed for South Australia.
Australian Industrial Energy has proposed developing a terminal at Port Kembla, Wollongong in New South Wales.
James Baulderstone, the former vice president of Santos’ east coast gas and AIE’s chief executive, told Fairfax Media the Port Kembla project was able to create a brand new source of gas almost immediately, compared to Narrabri.
“The Narrabri project is planning to produce 36 petajoules per annum for the cost of about $2 billion to $3 billion, our import terminal can produce three times as much gas, so 100 petajoules, for almost a tenth of the money - $250 million as opposed to $2 billion – and in a timescale of months, not years," Mr Baulderstone said.
“You have to look at it and ask why wouldn’t you do that?”
The NSW government has also thrown its support behind AIE’s project, granting it critical infrastructure status in June, fast-tracking its approvals process by six to eight months.
Add to shortlist
Macquarie’s research said despite the potential influx of this new gas, it would not mean falling gas prices.
“We believe that any import terminal will not lower prices on the east coast of Australia, and potentially set a higher floor price...and yet one will still be built,” Macquarie said.
“As a result of the implementation of an import terminal, we see a range for gas prices into NSW/ACT of $11 to $12.4 a gigajoule and $12.2 to $12.8 a gigajoule into Victoria.”
Current gas prices for Victoria are around $9.50 a gigajoule, and $9.30 for NSW.
IEEFA gas analyst, and CSG opponent, Bruce Robertson said the import terminals could dictate prices as there is a dearth of gas supply on the east coast.
“We will still see prices above international parity. As there is no market and competition, simply providing more gas won’t work,” he told Fairfax Media. Santos' share price opened at $6.35 and ended the day up 0.15 per cent to $6.36.
COI Price at posting:
39.0¢ Sentiment: Buy Disclosure: Held
(20min delay)
