GSA Prospects IPL - CTP

In John Durie's column in today's Australian (page 35) there is some information which might help us work out what might might be reasonable to expect in terms of a deal between IPL and our company.

Amidst a general commentary regarding the current outlook for IPL it is reported that price rate for the gas which IPL is purchasing from the Northern Territory government, delivered to IPL's phosphate plant at Phosphate Hill just south of Mount Isa in Queensland, is $7/GJ.

If that is the delivered price in Mount Isa, the cost of supply ex-CTP for delivery to IPL's Gibson Island fertiliser plant in Brisbane can be approximated.

As a beginning, let's consider the transit expenses for the Northern Territory government to get its gas from Blacktip in the Bonaparte Gulf to Mount Isa.

The pipeline from Blacktip going south to Tennant Creek to the junction with the new Jemena pipeline (the NGP) belongs to APA. That distance, and the likely APA tariff charges, can safely be approximated as being almost the equivalent to the journey which CTP gas would need to complete travelling northward from Mereenie or Palm Valley to the Tennant Creek terminus. That would also be on an APA pipeline.

Given the bargaining position of our company and the bargaining talent of our Managing Director, I suggest that it is reasonable to predict that CTP's APA charges northward will be the same as the NT government's charges southward. Moreover it is reasonable to assume that Jemena's tariff component in the NT government's already agreed rate will also be extended to CTP. We do not know what that rate is but we do not need to know.

It is unnecessary to know the rate for the government's transit of the NGP leg because both its consignment and CTP's consignment must pass through Mount Isa. So if we use the $7/GJ sale price as a comparative base we have a foundation for assessing the indicative sale price of CTP gas delivered to, say, Gibson Island in Brisbane.

In terms of pipeline mileage, there is still a considerable distance between Phosphate Hill and Gibson Island. My research indicates that there would be at least another 1597 kilometres of pipeline to transit onward to Brisbane and the likely additional cost of transportation charges would be $2-48/GJ.

The additional elements and indicative tariff charges would be:

Mt Isa to Ballera 840 km on the Carpinteria Gas Pipeline at $1-56/GJ; and

Ballera to Brisbane on the South-West Queensland Pipeline (Eastern Haul) 757 km at $0-92/GJ.

Total additional tariff (Mount Isa to Brisbane): $2-48

Taking the NT government's base rate for sales at Mount Isa of $7/GJ, these figures indicate to me it would be necessary for our company to be asking IPL to pay $9-48/GJ delivered to Brisbane. Those of us who have read the various reports that have been circulating over the last 2 years regarding the market price of sales gas would recognise that the figure of $9-48 is almost double what industrial users have been accustomed to paying.

Nonetheless it is only 35% more that what IPL is paying for gas at Phosphate Hill.

That could be a problem for IPL (and consequently for CTP). It is small wonder that our management (see recent quarterly report) is concentrating on ways and means to reduce tariff charges. There appears to be some scope to do so utilising a technique called "backhaul". The suggestion was that perhaps $2/GJ could be shaved off transportation expenses in that way.

I have tried to figure out what the "backhaul" process is all about but truthfully have no idea how it would work out in practice. If any other poster has insight into that process the information would be greatly appreciated.

CAUTION: the "to Mount Isa" baseline price of $7/GJ provided from the example of the NT government's sales should be a good guide. However it would be a disastrously poor guide if there were some "government induced" defect in the pricing such as – no profit component. Or even worse a massive discount. I do not think either of these defects would be present. However I have no way of knowing. I have merely assumed that the producer ENI is invoicing the gas to the Northern Territory government at a contract rate agreed in 2009 and at the very least the NT government has been sufficiently commercial as to ensure that at the very least it's onward sale of the gas is at a price no less than that cost price. Who can know the answer to these questions? One can only operate on judgement. My judgement is that the $7/GJ includes a respectable producer's margin.

Sources:

I have based my assumptions in respect of pipeline tariffs and mileages on the following research:
Transmission Costs in the year 2012 as notfied by Australian Energy Market Operator (AEMO) and published in its Gas Statement of Oportunity (GSOO) which was not amended (in any material respect) by the 2016 Gas Statement of Opportunities.

http://www.aemo.com.au/Gas/Planning/Gas-Statement-of-Opportunities

Guided by the GSOO I received my specific mileages and tariffs from the APA site:

http://www.apa.com.au/our-business/gas-transmission-services/indicative-transmission-tariffs.aspx

Here is my research:

Amadeus Gas Pipeline Alice Springs to Tenant Creek leg [of Alice Springs to Darwin km total ] capacity TJ/day owner APA indicative tarriff $/GJ of MDQ July 2015 [$0-71/GJ full haul] 2/3 rd of full haul (to Tennant Creek) - say $0-50/GJ

Carpentaria Gas Pipeline Mt Isa to Ballera 840 km capacity 119 TJ/day owner APA indicative tarriff $/GJ of MDQ July 2015 $1-56/GJ

South West Queensland Pipeline (Eastern Haul) - Ballera to Brisbane 757 km (4/5 of total haul Moomba to Brisbane at $1-15/GJ) interpolated to $0-92/GJ Ballera to Moomba.