Natural gas, pipeline are likely losers, says report
By ERWIN CHLANDA
The planned construction of the Tennant Creek to Mt Isa gas pipeline is based on a set of fundamental misunderstandings, the most glaring of which is the lack of customers.
That’s the view expressed in a report released yesterday by the Institute for Energy Economics and Financial Analysis based in Cleveland, Ohio, USA.
On last night’s ABC TV News, in response to the report NT Mines Minister Peter Styles said the demand will go up and down, without giving details, and a spokesman for Jemena, which received the NT Government’s contract to build the pipeline, said the company would not invest its own money in a bad deal.
And Chief Minister Adam Giles said yesterday his government will fund a study of turning gas into low-emission diesel for outback electricity generation and use in transport.
The report says Jemena, which is Singaporean and Chinese government-owned, and has paid no income tax in Australia in the four years to December 31 last year.
And even if there is money in the venture, the major benefit will not be in Australia: “The Northern Territory government has gifted two overseas governments the right to run a natural monopoly that is unregulated and the pipeline can charge whatever tariffs it sees fit.”
Says the author, Bruce Robertson: “The shining hope of increased royalties through the establishment of a shale gas industry appears to have blinded the Northern Territory Government to economic reality.
“Developing a pipeline which aims to deliver high-cost gas into an already saturated market is the whitest of white elephants.”
Backers of the pipeline proposal have already cut capacity by 25%, with the pipe resized from 14-inch to 12-inch pipe last month, says Mr Robertson.
“Our research suggests this scale-back is likely to be only the beginning.”
Last month “the International Group of Liquefied Natural Gas Importers estimated the global LNG market in 2015 was over-supplied by 26%.
“Meantime, global LNG supply is rising rapidly, with global LNG liquefaction capacity expected to reach an increase of 30% from 2015.
“The Australian government forecaster, the Office of the Chief Economist, has predicted a global surplus of LNG capacity out to 2030. Moreover, at prices seen in the first half of 2016 to date, the entire east coast onshore gas export industry of Australia is running at a loss.”
Mr Robertson says the Northern Territory shale gas industry is in its infancy and the reality is that production of this onshore gas would come at significantly higher cost than even the east coast onshore gas export industry, which is already too expensive in a global context.
“The gas produced would be expensive at the wellhead, expensive to transport across an unregulated transmission network and expensive to liquefy in high capital cost plants.”
Mr Robertson is an Australia-based investment analyst.
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