arrow bid sparks fears on gas prices

I also see in today's The Australian that the planned LNG exports on the east coast are fanning fears that gas prices could be set to go much higher.

*****

THE $60 billion deal involving exports of Queensland natural gas to China could have the potential to slightly push up domestic gas prices on Australia's east coast.
Australia's biggest gas export deal was announced on Wednesday between Britain's BG Group and China National Offshore Oil Corp, involving the sale of 3.6 million tonnes of liquid natural gas each year for the next 20 years. While this is the largest such deal involving LNG, there are four major projects currently proposed for Queensland, and all are expected to involve major exports of LNG.

But one possible implication for domestic consumers is that LNG exporters can get a higher price for their product overseas than in Australia.

Queensland Resources Council chief Michael Roche said that "there will clearly be implications for the domestic market", but said that the volumes of natural gas being tapped in western Queensland should keep prices down. "The main point is that there is enough gas to support both a domestic industry and a large export industry, so there's no reason for domestic prices to rise," he said.

Currently about 20 per cent of the eastern seaboard market is supplied by gas, but this will rise over the next few years.

Western Australia is a separate natural gas market to the eastern states, and the potential for high prices in the export market flowing through to the domestic market was foreshadowed by the West Australian government, which put in place a policy requiring 15 per cent of all LNG produced in West Australia to be used domestically.

The Queensland government investigated a similar policy, but has settled on an arrangement under which it has the ability to declare the gas obtained from certain tenements purely for domestic use.

The state is also putting in place a Gas Commissioner to make sure that there are adequate reserves for domestic use, and Queensland Natural Resources Minister Stephen Robertson said the four projects currently under way were creating a new market rather than competing with the existing one.

"Local gas prices are not expected to reflect LNG prices, as LNG customers also bear the additional costs of international marketing, currency hedging, liquefaction and shipping," he said.

"Even once these costs are deducted from LNG prices, the difference in value between export and domestic markets would be spread across the supply chain and hence would not all accrue to the local gas suppliers."