east coast gas users set for a jolt

fyi

here are some extracts from what David Upton (EnergyNews) posted today ...

THE domestic gas market on the east coast is about to be jolted from a decades-long slumber by LNG exports from Gladstone.

CSG-to-LNG operators have long talked about the upside of exposing eastern Australia gas to international markets. Their multi-billion dollar LNG projects are built on the ability to achieve prices from overseas buyers equivalent to around $7 per gigajoule (GJ) and higher. This is double the historical price on the eastern seaboard of between $3 and $4/GJ.

.... Wilson HTM senior resource analyst John Young ....said he expected east coast domestic prices of between $7 and $8 per GJ by 2015.

Without the LNG projects, I would have expected prices to go up with inflation to slightly above $4/GJ by 2015.

He said the price rise would be a jolt for east coast gas consumers, which had enjoyed among the lowest prices in the world for some time.

a big increase, but weve seen it happen already in Western Australia, which has been connected to the rest of the world since the North West Shelf in the late 1980s. The east coast will no longer be insulated from the global energy market.

EnergyQuest chief executive officer Graeme Bethune is also forecasting east coast gas prices for any new long-term contracts of around $7/GJ in his new report, Australian Coal Seam Gas 2011: From Well to Wharf.

In fact, domestic gas prices around this level are most likely here already for any customer seeking a long-term contract in Queensland, he said.

If you can find a Queensland supplier willing to commit reserves to the domestic market under a long-term contract, they will be insisting on prices that reflect LNG netback prices.

Buyers will not come up to that level any time soon, which means long-term contracts are simply not being written.

With most major CSG suppliers focused on meeting their LNG contracts, new long-term domestic gas contracts or contract extensions from them are likely to be difficult for gas buyers to obtain, at least until later this decade.

He said a lack of conventional gas developments and rising costs for the few projects that were underway was not helping the outlook for consumers on the east coast.

There are currently only three domestic gas projects under development on the east coast AGL Gloucester project in NSW and the Turrum and Kipper projects in Bass Strait.

The Bass Strait Joint Venture has substantial gas reserves, but BHP Billiton and ExxonMobil have experienced a number of delays and cost increases, the latest being created by need for additional processing to remove mercury.

There are few signs yet of smaller companies and/or new areas being able to fill the gap, Bethune said.

Both analysts see a major shift in the way the market operates,

A two-part market is likely to emerge, with any long-term baseload contracts reflecting LNG netback prices and a short-term market, balancing volatile supply from LNG projects and volatile demands for power generation.

Bethune added that short-term supplies were likely to be available from time to time, either in the form of ramp-up gas when LNG plants went down for maintenance or when the returns from spot domestic sales were higher than from LNG spot sales.

We could even see, for example, gas prices in Sydney and Brisbane being affected by unseasonal weather in Japan or other countries taking delivery of LNG from Gladstone,he said ....

Wilson said major gas suppliers and consumers could be expected to make some strategic moves in response to the new market dynamics ... there will be a bigger focus on vertical integration among the major gas suppliers,he said.

For example, Origin already has all the segments in the value chain, from the reserves through production, distribution and the end customer. More players will be trying to gain control of that chain to keep the value.

Bethune said there could also a trend by large industrial customers to buy into upstream gas production to manage their risks.

Energy Users Association of Australia executive director Roman Domanksi said the outlook for domestic gas prices on the east coast would be an issue at its annual conference in Melbourne in October.

The experience of our members is that its bordering on impossible to contract long term gas supply in Queensland, Domanksi said.

He said the problem was arising to a lesser extent in NSW, while the situation in Victoria was not so dire.

Many of the existing long-term contracts will expire in the next couple of years, which is about the same time LNG projects will be commissioned. It will be very interesting to see what happens at that time. If some LNG projects do not go ahead we might not see sharp price increases.


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and here we are in late 2011 getting ~50% of b-----all.

SG