From The Australian
Slow news day
East coast households are facing gas bill hikes of more than 50 per cent over the next few years as Gladstone’s big new export plants continue to suck up gas from the southern states in the face of lower than expected Queensland coal-seam gas supply, according to National Australia Bank forecasts to be released today.
And while the pressure on households and domestic gas users is not expected to ease as $70 billion of recent Queensland LNG investment opens up east coast gas to international buyers, NAB is predicting that export volumes may be less than flagged because of a global LNG glut.
NAB’s 2017 Gas and LNG Market Outlook says that domestic gas prices in the pipeline-connected states of Queensland, NSW, Victoria and South Australia could rise to between $8 and $10 a gigajoule, up from $2-$4 a gigajoule before the LNG export plants started firing up in recent years.
“Should spot and domestic (wholesale) contract prices move consistently into the $8-$10 a gigajoule range, alongside trend increases in other costs, the price of gas for residential customers in Australia’s five largest cities could increase by more than 50 per cent by 2020,” the report said.
One of the report’s authors, NAB economist Phin Ziebell, said the forecast assumed network and retail costs would also rise over this period.
“Domestic gas contract prices are confidential, which is part of the issue, but the $8-$10 level is probably where prices are going to end up, and reports say that is where contracts are already being offered,” Mr Ziebell told The Australian.
Big domestic gas users are facing looming price rises and shortages as the three Gladstone export plants — run by Shell, Santos and Origin Energy/ConocoPhillips — rapidly triple east coast demand. Exacerbating problems on the supply side, the NSW and Victorian governments have restricted onshore exploration and production, Santos has struggled to ramp up its CSG fields and the biggest undeveloped east coast gas resources — owned by the Arrow joint venture between Shell and PetroChina — appears stalled.
As revealed in The Australian this week, gas from Victoria’s Bass Strait and central Australia’s Cooper Basin last year consistently moved north through the Moomba gas hub in SA, the only connection point between Queensland and the southern states.
“The performance of the CSG fields in Queensland has been mixed and the reality is that it’s all interconnected and if you do get shortfalls, that’s pulling gas out of Victoria and Moomba,” Mr Ziebell said. “So it is all going to converge into one price.” Following $200bn of investment in LNG over the past decade, Australia is expected to overtake Qatar as the world’s biggest exporter of the chilled gas from 2018.
However, the report warns the big development costs of the plants meant they would not make a significant contribution to government income for years as the capital costs offset taxable profits.
“While LNG producers will also be subject to other taxes, such as company and payroll taxes, it is unlikely the sector will contribute substantially to government revenues for many years,” the NAB report says.
This concern has been underlined by the federal government’s current review of the Petroleum Resource Rent Tax, revenue from which is expected to fall from about $1.8bn in 2014-15 to about $900 million annually over the next three years, despite a tripling of LNG exports.
At the same time, the prospect of a global supply glut means Australia’s LNG plants operate at less than their combined nameplate capacity of 85 million tonnes per year.
NAB says Australian exports are likely to rise from about 40 million tonnes in 2016 to just over 70 million in 2018, where they will plateau until at least the end of the decade. “Contracted volumes are likely to be lower (than capacity), reflecting that while most production is tied up in long-term contracts, there may be lower than expected demand for spot cargoes in the face of international competition and expanding global supply,” the report says.
Mr Ziebell said there was also the prospect of price pressure being put on long-term contract pricing, which is linked to international oil prices for all Australian LNG sales that have underpinned the recent investment boom. “One big question mark is, with the Americans building new capacity and the Middle East retaining it out of Qatar, at what point do we see JCC (oil price-linked) contracts come under pressure, if oil prices come up?” he said.
Mr Ziebell said development of the Arrow field would alleviate some of the pressure on domestic prices. “But it will be difficult to alleviate some of the concerns down in the southeast.”
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