who is going to crack and sell some, page-6

Article in the Australian today below. Bodes well for the likes of AQO


ORIGIN Energy has inked the east coast's most expensive domestic gas agreement to date, signing a deal with Chinese-controlled miner MMG to supply gas for north Queensland mines at prices more than double the current rate and 50 per cent higher than other recent long-term deals.
In a deal gas sellers hope will set a benchmark for domestic sales, it is understood MMG will pay close to $9 a gigajoule after $70 billion worth of coal-seam gas export plants being built at Gladstone start operating in earnest from 2015.
The price compares with current prices of between $3 and $4 a gigajoule now being paid and a price of about $6 a gigajoule for a long-term north Queensland gas supply deal signed between AGL Energy and miner Xstrata late last year.
The deal indicates there is still available gas for domestic users, despite the tripling of east coast gas demand that three liquefied natural gas plants under construction at Gladstone will spur when they start getting ready to export Queensland's CSG to Asia.
But it also highlights the high prices local industrial gas users will be forced to pay to compete with buyers of LNG, the spot price of which in Asia is now about $US16 a gigajoule.
The deal comes as the Australian Energy Regulator echoes fears that Australia faces a domestic gas shortage from 2016 and that prices will continue to rise as Queensland LNG exports begin.
In its yearly review of the energy market, the regulator said prices had risen to $5 a gigajoule for new supply contracts as domestic industrial users were forced to compete with overseas LNG customers.
Gas prices in Queensland could reach $7-$12 a gigajoule by the end of the decade, the report said.
Though LNG exports are not due to start until 2014-15, some gas developers may be stockpiling their reserves to underpin supply contracts with offshore users and for the development of future LNG trains, adding to the pressure on prices and the availability of gas.
"The growth of LNG export capacity in Western Australia from the late 1980s led to that state's domestic market being increasingly exposed to international energy prices," the report says. "A similar scenario may be unfolding in eastern Australia, with LNG exports expected to commence from Queensland in 2014-15."
The price in the Origin/MMG deal is at the upper end of the $7-$9 range that gas producer Santos has said domestic prices will probably need to rise to meet the equivalent price of LNG before processing and shipping.
Gas users, including Incitec Pivot, Rio Tinto and Xstrata, have called on the Queensland and federal governments to put in place measures to somehow buffer the exposure that domestic users will have to export pricing once the LNG plants at Gladstone start.
Retail gas users will be hit by the increases, but not to the same extent, with the industry claiming that a doubling in wholesale prices will alter retail prices by 10 per cent.
Neither Origin nor Melbourne-based MMG, which is run by former WMC Resources chief executive Andrew Michelmore, would confirm the price of the gas.
It is understood the price is not linked to oil prices, instead rising to a flat price of close to $9 during the seven-year contract, which starts next year and runs until 2020.
Origin's head of energy markets, Frank Calabria, said the deal demonstrated an ability to benefit from the expected tripling of east coast gas demand.
"It (the deal) allows the company to rapidly monetise its resources in line with rising gas prices," Mr Calabria said.
The deal is not a huge one, consisting of a total of 22 petajoules of gas with a value of $200 million if $9 a gigajoule were paid across the whole life of the contract.
The gas will provide power for MMG's Century zinc mine and the $1.5bn Dugald River zinc, lead and silver project that is due to start in 2015.
Origin, which is building the $20bn Australia Pacific LNG plant with ConocoPhillips, is considered the only one of the three Gladstone LNG proponents with projects under construction to have a lot of spare gas.