Importing LNG into the south-east could further boost east coast...

Importing LNG into the south-east could further boost east coast gas prices rather than lower them, Macquarie Equities has suggested in research that has been swiftly rejected by backers of import projects but looks set to be seized by their critics.
Macquarie said import terminals as proposed by AGL Energy in Victoriaand an Andrew Forrest-backed consortium in NSW would do nothing to lower prices on the east coast and could have the effect of locking in "permanently higher" costs for industrial energy buyers.
Indeed, the biggest winners from importing LNG would be producers of gas in the south that would be selling into a higher-priced market, Macquarie said, singling out Shell, Beach Energy and the Esso-BHP Bass Strait venture among others.
The controversial findings come after industrial energy users broadly welcomed the LNG import planson the basis that additional supplies would take the pressure off prices and improve availability of the fuel for manufacturers.

The proposed terminals have also been received warmly by the Victorian and NSW state governmentson the assumption they would help secure reliable gas supply and drive down prices, despite public bewilderment as to how it makes sense for one of the world's biggest LNG exporters to be considering imports.


Both AGL and Australian Industrial Energy, which is proposing an import terminal in Port Kembla in NSW, have argued their projects would lower prices by increasing competition in supply in the south-east. Sources at the ventures take issue with some of Macquarie's assumptions, including tariffs for piping gas from Queensland and likely future LNG prices.
"The beauty of our import project is that we can access, through [Japanese LNG buyer and project partner] JERA, the world's cheapest import gas, which is lower than the foreseeable export prices," said James Baulderstone, head of AIE.
He said if gas weren't imported, domestic east coast gas would be priced at parity to LNG export prices from Australia, rather than at parity to import prices, meaning potentially prices of $12-$14 a gigajoule, rather than $9-$11/GJ.
Southern discomfort
AGL also signalled it disagreed with some of the findings.
"The Macquarie report highlights the two areas AGL has been concerned about, that by 2022 there will not be enough gas flowing north to south to meet the supply gap in the southern market and that pipeline capacity will not be sufficient," an AGL spokesman said on Monday.
"Without increased gas competition from a new source of supply, consumers will need to pay more to keep Queensland gas destined for export here in Australia."
But in what looks likely to be seized by opponents to the terminals, Macquarie said importing LNG "will not lower prices in the southern states". It reasoned that no matter what index imported LNG is priced against, for example oil or Henry Hub gas, the port infrastructure and processing costs would outstrip the pipeline shipping costs from Queensland.
The analysts said they still believe at least one LNG import terminal will be built in the southern states and so lifted their expectations for domestic gas prices as a result. The upgrade caused Macquarie to raise its target prices for Beach and Santos, while noting that the LNG import plans would also probably mean the death knell for Santos' Narrabri coal seam gas project in NSW.
But Santos chief executive Kevin Gallagher said Narrabri gas would be more competitive than imports.
"The Narrabri Gas Project will always be a cheaper source of gas than gas from an LNG import terminal." Mr Gallagher said.
"NSW already imports 95 per cent of its gas from other states and importing more from overseas will not make gas more affordable for the one million households, 33,000 businesses and 300,000 jobs in NSW that depend on reliable and affordable natural gas supplies."
Macquarie is now assuming gas prices in NSW and the ACT of $11-$12/GJ, and of $12.20-$12.80/GJ into Victoria. That compares with legacy gas contracts in the $3-$4/GJ range and with $8-$10/GJ for new contracts in January.
High gas prices remain the biggest energy problem for industry and consumers, Australian Industry Group said last week, noting they compound the problem of high electricity prices for metal, chemical and mineral processors.
AIE, the venture half-owned by Mr Forrest's Squadron Energy, has signalled prices of about $10/GJ. It has inked 15 initial deals for gas sales with customers in NSW that would underpin construction of the terminal, at a cost of up to $300 million.

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