LNG demand to force spike in gas prices MATT CHAMBERS | The...

LNG demand to force spike in gas prices

MATT CHAMBERS |
The Australian |
March 07, 2014 12:00AM



EAST coast natural gas prices could soar to a hefty $18 per gigajoule, or five times traditional prices, if $70 billion of coal-seam gas export projects being built at Gladstone in Queensland are unable to meet LNG contracts with their own gas and are forced to chase other supplies.

The potential scenario has arisen after spot LNG prices in Asia reached a record last month and doubts persist over the amount of gas the three LNG projects, which are due to start exporting from Gladstone's Curtis Island this year, will have access to in their early years.

Analysts say if the record spot LNG prices of $US18.70 ($20.77) per gigajoule prevail at a time when one or more of the LNG projects does not have enough gas to fulfil export contracts, it would be economic to buy any east coast Australian gas at prices close to $18 per gigajoule at Gladstone.


This is expected to more than double contract prices.

But gas buyers have raised concerns of a much higher spike in the early years if the thousands of CSG wells needed to feed the plants do not perform as expected.



"If an LNG plant has the opportunity to supply spot cargoes at $US20 (per million British thermal units), or if it is short of supply and would otherwise need to buy spot cargoes, it would be willing to pay up to $17.67 per gigajoule at Gladstone," EnergyQuest chief executive Graeme Bethune said.


Dr Bethune said such a scenario would be short-lived. But the prospect of short-term price spikes has worried gas buyers, particularly manufacturing groups who claim it may be enough to permanently shut down some of their members.

The view that the LNG projects may be prepared to pay close to Asian spot LNG prices for gas that domestic buyers are chasing is not restricted to analysts.


The three plants are being led by Santos, BG Group and an Origin Energy/ConocoPhillips joint venture.

UBS energy analyst Nik Burns said EnergyQuest's scenario was possible if Asian spot prices again hit these levels at a time when one of the three LNG projects was struggling to fill contracts.


According to Bloomberg, spot LNG prices in northeast Asia hit a record $US19.70 per million British thermal units ($US18.70 per gigajoule) last month. This beat a previous record of $US19.40 per mmBtu set a year earlier.

Typical long-term Australian LNG contracts are oil-linked and return about $US14 when oil prices are $US100 per barrel.

In its latest quarterly energy report, released yesterday, EnergyQuest forecasts average Queensland gas prices of $12 per gigajoule from 2015 to 2017 that should fall to $US9 in 2020.

Victorian and NSW prices are expected to be $8-$9 by 2017.