I've had some time to digest the domgas policy update and the cynic in me is thinking about how this is going to benefit the WA billionaires.
First off I'm thinking which board in their right mind is going to sanction a $500m-$1bn+ gas plant to potentially only be able to supply the domgas market with only the possibility of exporting at some stage in the future? Or even that some other company gets to export their gas before others, thereby enjoying "super profits". Not exactly a level playing field. It is a fair question that many a BoD, stakeholders, shareholders, banks etc. will be asking. Risk vs reward, possibility vs probability...
My view is that this policy update only makes things more tricky for the state govt. I don't see it gifting any concrete conviction for the E&P O&G companies out there to help alleviate the dire situation of the gov't making. The AEMO has made it abundantly clear (quote) the expected domgas supply shortfalls are underpinned by declining production from existing WA gas fields and the increasing use of gas for industrial processing as well as electricity generation in the state’s major power system as the energy transition progresses.
So where in this policy update is the incentive to making sure the millions more dollars and risk is taken to explore, appraise and develop gas fields for domgas? We have declining offshore fields, we have antiquated approval processes and roadblock after roadblock for any proposed new developments, just look at Browse and Scarborough for example. Coal fire elec. generation to, supposedly, close by 2029... gas fired is supposed to fill the void until renewables can pick up the slack which tbh is way behind the curve ATM. I just don't know what the govt is going to propose in adequately addressing gas supply for the growing WA mining, mineral processing and soon to be markedly step up in gas electricity generation. Kicking the can down the road until after the next election?
My view is this policy revision will play into the hands of the WA billionaires. They will now want to further consolidate and take effective oligopolistic control of the PB. We can all see that the PB is where real potential lies in gas supply for decades to come. Over the past few years, there has been ~820 PJ of 2P reserve write-downs from offshore gas fields such as Macedon, Pluto, Wheatstone and Reindeer. Right now 83% of WA domgas is supplied by 3 companies: Santos, Woodside & Chevron. Only 4% of supply comes from Mistui/BPT onshore PB assets. Yes Waitsia will be online my mid 2025 but exporting only until their export exemption expires in end of 2028, then it's entire 250 TJ/d supply goes back into the domgas mkt. They would have wasted 2 of the 5 years in making mint and no doubt would be very keen to ensure they can continue to access the export mkt post 2028 after dropping $1.3b+ in capex. But how to do that? In my view, by teaming up with Gina and CE to ensure "collectively" the domestic mkt is supplied... and then "collectively" being granted export capacity per policy guidelines. All for one, one for all, everyone's a winner, no one is a loser.
So then we look at CE/MIN proposed 250 TJ/d plant for Lockyer... and I believe CE has every intention of building this $850m GP not just the baby 30 tj/d he was bluffing. Possibly partnering with someone (maybe Gina?) as I don't know if MIN can financially do it alone, things are a bit stressed ATM... But.... CE will want surety over effective control of the domgas market i.e, being able to have the combined scale to influence the domgas price (you'd think would want $8+ GJ) as well as gaining effective control in exporting. Remember that even 125 tj/d gas exported (at an assumed $20 LNG netback price) is ~$825m revenue p.a. With those numbers its a no brainer that CE will want to ensure that if he is sinking $850m he can access exports on a "regular" basis and not some other player in the PB (i.e. STX).
So what about the 3rd and biggest billionaire, Gina? What is her plans for her gas? She's kept her cards close but my view is she also would want to consolidate the PB assets (i.e. likely T/O STX) and potentially build the proposed 87 TJ/d plant (or perhaps bigger, maybe 125tj/d?) on the mid west farm or perhaps pipe it to Waitsia or Lockyer or perhaps even go 50/50 JV with CE/MIN on a GP, perhaps combining their respective energy divisions. I think that theory has been floated before.
So that's my views in a nutshell. All 3 billionaires together could potentially control GP's with a combined capacity output of 600-700 TJ/d (i.e. Waitsia, Lockyer, Beharra, Xyris and Walyering) which is ~50% of the forecast 1,300 TJ/d domgas demand by 2030. And with this level of scale and control, and by working together (in a legal, non-colluding way ofc ), they can share the capex load / payback periods, thereby ensuring the domgas market is always sufficiently supplied (win for the state govt and gas users) and that they ofc reap the opportunity to export and make super profits.
Lets see if Gina shows her hand anytime soon with WE FID... and what CE/MIN decides to do with Lockyer FID... it's getting to the pointy end with some big decisions to be made by years end with no going back... watch this space.
(20min delay)