Gas producer Senex Energy has locked in a “rare” long term fixed gas contract with an industrial customer to underwrite the junior explorer’s expansion plans and hedge against market volatility.
Senex Energy chief executive Ian Davies. Ryan Stuart
Senex managing director and chief executive Ian Davies said the seven year fixed-price contract with industrial manufacturing company, Adbri, through to 2030 will provide certainty for both parties in a “very volatile market.”
Thank Mr Davies said he expects the east coast gas market volatillity - which has seen spot prices hit extreme heights of $58 a gigajoule - is here to stay but insisted that doesn’t suit producers nor manufacturers, who both want a stable gas price to make business decisions.
“It’s pretty rare to get a large long term agreement which is fixed price,” he said.
“I don’t believe that volatility is in anyone’s interest...[it’s important to have] a stable market where producers can make a risk-adjusted return on investment and incentivise new supply.
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Under the seven-year agreement, Senex will supply 11 petajuoles of gas from January 2023 to Adbri at the Moomba Gas Hub at a fixed price, in line with current market levels.
Its understood the contract is not in the double digit price range.
Earlier this month, an extreme surge in spot prices up to levels 10 times the average earlier in the year hit the gas market, driven by multiple factors including a production disruption at the east coast’s biggest domestic gas supplier, increased use of gas for power generation because of coal unit outages, and a cold snap in the southern states.
Although prices have moderated from the extreme heights of $58 a gigajoule seen in Victoria earlier this month, it remained at over $15/GJ for the past few weeks.
Mr Davies has previously said long term contracts with customers have typically been in the $7-9 range.
AdvertisementEarlier this year industrial gas buyers had been optimistic the federal government would get out its big stick to force down contract gas prices to the $4 to $6 a gigajoule (GJ) targeted under the government’s manufacturing taskforce.
But Adbri chief executive of Adbri Nick Miller said he was “pleased to execute this long-term agreement” to underpin its cement manufacturing operations in South Australia.
The head of the oil and gas lobby acknowledged “recent fluctuations in spot prices” but said the supply agreement between Senex Energy and Adbri shows the market is working.
“The truth is domestic users are paying considerably less for Australian gas over the long term than overseas markets and have been doing so for some time,” APPEA Andrew McConville said.
But new research from the Institute for Energy Economics and Financial Analysis (IEEFA) shows of the major exporters, eastern Australia’s wholesale contract gas prices are the 7th most expensive globally.
Author of the report, analyst Bruce Robertson, said contract gas prices in eastern Australia are over 3 times the price of gas in the US and nearly 5 times the price of gas in Russia.
