Extract: Local gas prices are already having to pay up to double to secure gas supply, due to the LNG projects opening up the East Coast market to global price pressures. Note that this is having an effect NOW, not in just 2015.
"QUEENSLAND'S industrial gas users are struggling to secure long-term contracts unless they agree to pay up to double previous prices, or link prices to international oil, as the state's gas is effectively reserved for more lucrative offshore contracts.
Despite Queensland's huge ramp-up of gas production associated with the $50 billion worth of coal-seam gas export projects, local industry is suffering from the high prices washing through, effectively being outbid by international customers.
Global miner Xstrata says surging local gas prices were a factor in its decision to close its Mount Isa copper smelter and Townsville refinery in five years.
Queensland's problems reflect the national picture as manufacturers point to higher domestic gas costs as another pressure on top of a rising Australian dollar and raw material prices.
The Weekend Australian understands at least one major gas supplier wants domestic contracts linked to global oil prices of $US100 a barrel that could double current gas prices.
The price hikes and lack of long-term availability for local users come as gas producers such Origin Energy, Santos and BG Group earmark CSG for the more-profitable export markets once liquefied natural gas plants planned for Gladstone begin producing in 2014 and 2015.
Price rises were expected, but they have come more quickly than most observers expected.
The looming disadvantage for industrial gas users highlights the flip side of the $3.14 trillion of export revenue tipped by ANZ Bank to flow into the Australian economy in the next 20 years.
As reported in The Australian yesterday, a new report from the bank warns a major challenge for the nation is to build capacity to support export growth while minimising the crowding out of manufacturing.
Xstrata Copper chief executive Charlie Sartain said Queensland's rising energy costs were a major reason its energy intensive copper smelter and refinery, which would close in 2016, were unable to compete with Asian operations. "We don't get the benefit of the massive availability of gas resources here . . . because the costs are actually very rapidly scaling up" to international LNG prices, he said.
Queensland's biggest gas users include Rio Tinto, Orica, Xstrata, Incitec Pivot and Amcor.
Sources at some of the buyers said long-term domestic gas prices had previously been $3-$4 a gigajoule -- cheap by international standards -- but were now closer to $6-$7 for contracts beyond three or four years.
According to the Queensland government's 2011 Gas Market Review, released yesterday, the net-back price of Gladstone LNG -- the LNG price minus the cost of converting CSG into LNG -- is $7.45 a gigajoule. That means sellers are asking for close to the same price from domestic buyers that they would get if they put the gas into an export plant.
The CSG situation does have a short-term benefit for buyers.
The "ramp-up gas" needed in the lead up to the LNG plants starting, which will have nowhere to go before 2014-15, means prices have dropped as low as $2 for gas needed before then.
The long-term price gains mirror trends in Western Australia, where domestic gas prices have been two to three times those of eastern Australia, and more recently linked to oil prices as LNG plants compete for the gas.
Santos and Origin, the two biggest domestic gas suppliers, did not dispute the pricing claims.
"There are abundant resources in Queensland, but the cost of production is increasing," a Santos spokesman said, adding it was committed to supplying both domestic and export markets."
Yaq
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