Hi all,Haven't posted for some time but certainly have been...

Hi all,

Haven't posted for some time but certainly have been watching with great interest the developments of STX and more broadly the gas markets in WA / Aus and overseas. IMO there is a great deal of anxiety in the markets and, for a whole range of reasons, the pressure is starting to really build and something is likely to pop in the short term. I'll try and succinctly put down some of my own thoughts of late... apologies if it's not as succinct!

I feel the WA govt has a challenging fine-line to walk in regards to gas and energy more broadly. They have got a growing number of vested interests in the oil & gas, minerals & mining sectors, both here and overseas, pulling & pushing.... some driven by fear / anxiety and some by purely opportunistic motives. I feel STX is in a prime position to benefit from this current "pressure cooker" environment we find ourselves in and I am hoping, and dare I say believe, our BOD can deftly navigate a successful path.

Looking at the bigger picture, we have seen a number of recent analyst reports forecasting the WA domgas market is going to enter a more severe deficit than was previously envisaged. We have already seen spot prices breach $10GJ which is incredible, given it averaged $3.71GJ back in 2018 (when our peer AWE was acquired, on the cheap I might add) and $5.61GJ only last year in 2022. Amazing what can transpire in 12 months. But the demand / supply fundamentals paint a bleak deficit picture and market pundits would surely be thinking how long until WA gas is to reach the $12GJ cap that has been imposed on the the east coast market? However at the end of the day, STX gas will be incredibly cheap to produce so margins are looking mighty impressive, especially so at current spot rates. FCF, even from our baby Walyering project is looking sweet.. just wait til SE starts pumping in early 2025. FWIW I recall Chris Ellison proudly stating he is looking to produce gas from Lockyer fields at ~$1GJ... but alas that looks to be 100% allocated to MIN's downstream interests, mirroring Hancock's own plans for it's PB gas. Which brings me to my next point...

We can all see how hard the WA govt is pushing the "critical minerals" agenda. I note that lithium is now bringing in $900m+ p.a. to WA coffers, second only to Iron Ore. AUS, and in particular WA, is sitting prime to play a strategic role in the 4th industrial revolution. It is somewhat ironic that to "save the planet" and decarbonise for the future we will need a helluvalot more "green" metal & mineral mines. So we know 55% of lithium globally comes from WA. And we know billions of $$$ being invested in WA to begin the shift of processing critical minerals such as lithium on our home shores... just look at LYC, ILU, CHN, LTR, BHP, MIN and a whole heap more. We have reports of Albemarle committing to investing billions in WA to double their lithium hydroxide output (a JV with MIN) and we have SQM doubling down on it's investment in its WA Mt Holland lithium JV with WES. Chile's recent proposed nationalization of lithium is only driving further investment into WA... one of the best, safest mining jurisdictions in the world and as a result we are seeing this next level of massive investments in lithium, rare earths etc which will require huge amounts of energy to mine and process. The WA govt must be rubbing their hands with glee but we can only hope that they foresee the stress this can put on the gas / energy markets, it could blow up on their watch. Maybe that's why MIN and Hancock have made their moves...

If you are wondering how is this relevant to STX... Well the energy use for all mining and processing of minerals / metals is incredibly intensive. For anyone interested, look up the "roasting" process for lithium or rare earths... temperatures of over 1,000C is required... essentially giant ovens running 24/7 to refine and produce final battery grade product. It is fairly evident that the likes of MIN & Hancock have moved to takeover NWE & WGO respectively as their energy (gas) needs are only going to increase significantly and securing a low cost, reliable, gas supply will be critical for their growing operations (as well as LTR's and WES's lithium processing). Who else will be making this strategic move? Watch this space...

FWIW and to help put in context the scale of such an industrial oven, check this pic out below... in particular check out the workers on the ground to help give scale.... a rotary kiln which is one of the largest in the southern hemisphere, at 110 metres long and 6 metres in diameter. Pretty impressive. This, IIRC, is from MIN's Kemerton lithium plant... and they are building 5 of these.



So, IMO, as we already have some 60% of gas consumed in WA that is used in the mining and/or mineral processing sectors, this I can only see increasing as the energy requirements for these huge processing plants in AUS, predominantly WA, will increase significantly. So the positive fundamentals are there IMO, for a sustained demand of gas for decades to come, not only for domestic use but as has been previously posted, the significant demand for export LNG. Which brings me to my next point...

LNG. I don't currently see STX being granted any exemption for LNG export given the dire situation for the domestic market, but surely Stokes/BPT can't be the only beneficiary for the export exemption? Regardless, this doesn't help the likes of the NWS, particularly WDS. They need plenty of gas to keep it's five LNG trains pumping. Something like 1,000TJ/d from what I heard. Where is this backfill going to come from? Offshore? Onshore? It's therefore no surprise we now see the likes of Japan (thru it's Oz ambassador and Mitsui) voicing very public concerns. Which myself, having worked closely with the Japanese on energy deals decades ago, is very unlike the Japanese to be so public. They need energy security and they are getting worried. And they aren't the only ones.

Other factors contributing to the pressure build?... we see Perdaman pushing ahead with it's urea plant, which as we saw will take a huge 130TJ/d of gas from the Scarborough gas plant from 2027. We also know the WA govt aggressive exit plan of coal fired power generation... and they are way behind the renewable capex curve to be a viable like for like replacement. We then also have multiple gas exploration / appraisal failures from the likes of MIN with Lockyer, BPT with Waitsia etc, further reserves downgrades at Waitsia and Reindeer etc. It really is becoming a perfect storm of events for STX. What will the WA govt do to achieve a finely balanced gas market? How can they ensure all parties are happy and secure? I'm not sure they can...

Realistically, I believe STX is a prime target for another large energy consumer, i.e. the likes of MIN & Hancock or WES, you name it, most likely in partnership with an overseas JV partner... coming along and taking us out. But I think it will be a competitive bidding war... as one of the last PB independents gets knocked off... and if that was to happen then 58c will be blown past on the way to 80c and more... but in all honesty I find it very hard to quantify the price certain parties will pay given what is at stake in both the short, medium and long term.

GLTA