Howdy all,Been a while since my last post, at least 6 months I...

Howdy all,

Been a while since my last post, at least 6 months I think, but given all the banter of late, specifically around this onshore gas export review, thought I might chime in with my thoughts, FWIW.

I think it is clear the WA govt has gotten itself into a bit of pickle. It's just not a realistic scenario to simply state that WA needs more domgas so the govt will keep the status quo and expect all gas producers to "pump up the jam", so to speak. The reality is most if not all market players know WA is in desperate need of gas and if hard decisions are not made right now, there will be a significant deficit before we know it, and consumers (both domestic and industrial) are not going to be pleased with shortages and/or associated price hikes. The govt, with only 15 months away from the next election, will want to avoid this at all costs. I mean how popular are blackouts for re-election?

So what is the solution? Fairly simple really. Incentivise the producers. Give them a financial reason to take on the not insignificant risk, to allow them to access the capital markets, at a reasonable price, and build the gas plants that the state clearly needs. STX is a comparative minnow to the likes of WDS, STO, MIN etc. We can all see the benefits for BPT in building a 250TJ/d plant for what will be well in excess of $1bn, which could not have been done without the generous export exemption. STX, which has the most reserves in the PB, would love to do the same and could arguably, with the right financial incentives and security, take on such a $500m+ debt/equity pkg to do the same, but right now, they can't stress the balance sheet and can only do piecemeal 40TJ/d modular plants. It's the strategy of a company on a veritable shoestring. This can be fixed by allowing guaranteed gas export for X period of time or ideally, in perpetuity.

IMO there's a few scenarios the govt may look at. It might by replicating the 85/15 rule such as the offshore producers enjoy (which is what CE wants). It might by 50/50 (which the recent WA gas committee alluded to). It might be one of these options for 5 years, until say 2030/31 when the deficit is supposed to blow out or it might even be in perpetuity, like the offshore producers enjoy. IMO, the the recent govt forecasts of gas demand increasing ~2% for the next 10 years is fanciful. Not possible when you have the coal elec. generation switching off in less than 5 years (that decision alone will require an extra 163 TJ/d for gas elec. generation to backfill). Perdaman urea plant needs 130TJ/d gas from 2027... supposed to come from Scarborough but that it looking very unlikely... Then look at the explosion of critical mineral mines in development in WA. To go downstream like so many are planning, their energy intensive requirements will sky rocket, probably another 100-150TJ/d IMO. Gas in the ONLY option for this downstreaming. I read just this week that over $7b is to be spent in the next few years for developing Lithium mines and processing facilities. They will need gas, plenty of it and for decades to come. Then go factor in rare earth's such as LYC who literally just commissioned the massive Mt Weld processing last month... then add in all the other critical minerals that will come out of WA... mark my words, WA is going to be the engine of the world. And we will all be the better for it.

Looking closely at MIN. They know the govt is in a pickle. I am sure they are lobbying behind the scenes with the help of "special advisor" McGowan but in true CE fashion he bluntly said give us the export opportunity and we build 250TJ/d, otherwise it's a 30 TJ/d plant just for our internal use only. That's the game CE plays and I must say he is very good at it. Call his bluff? Maybe. He did after all go and buy his very own drill rig which is a fully containerised, low-operating cost onshore unit, capable of drilling to 5,000 metre vertical depth. Perfect for drilling out the PB. And IIRC they are the first company to commit significant capex for owning and operating their own rig with aggressive plans to drill out their acreage. But, maybe not for long, as our very own SN said in his recent submission that STX would also look at bringing in it's own rig to WA and allow them to accelerate their exploration and appraisal of their own massive PB acreage. STX and MIN would be drilling holes for a decade if not more. All they need is the ability and surety of exporting gas. Simple really.

So we know MIN is to take FID in the next 3 months (convenient timing right), so 1Q24, for either a 30 or 250 TJ/d gas plant at Lockyer, the latter forecast to cost in excess of $1bn. Now I know MIN has the balance sheet to do this for sure, but what's the incentive? They are a very disciplined mob, with their risk mgt, their financials, required ROIC etc. So why stress the BS, why take on the risk for what benefit? Otherwise, forget it, they'll just look after themselves. IMO, given all the above, something tells me MIN are pretty confident of getting their export exemption. I just hope it is not an exemption for MIN only.... leaving STX in the dark.

But, let's for arguments sake, say export/reservation policy was changed to 50/50 for max 5 years for all players. What could the numbers look like on a 250TJ/d plant?
Assume WA domgas spot of $8 (conservative). Current LNG is about $15USD, ~$23AUD. IIRC it's about $3.5AUD for shipping costs to Asia, NWS toll liquefaction costs, plus pipeline charges, so lets say $20 all up, for ease of calcs, plus factor in 10% prodn downtime.

• export LNG rev = $825m p.a. in 125TJ/d
• dom rev = $330m p.a. on 125TJ/d

Not bad numbers for FID right. You can play around with assumptions, prices etc. say it is 85/15 or 15/85 and have a but of fun in it, but the gist is that throwing in export returns makes the financial case for sinking $1bn in capex a far more palatable proposition for not only us shareholders but importantly the financiers (don't get me started how our very own domestic banks (exc MQG) won't even entertain financing O&G projects). TBH I also think the export policy change will be in perpetuity. Why? It's no secret the NWS KGP is going to be short of feed gas and they need plenty of gas to keep it's five LNG trains pumping. Something like 1,000TJ/d from what I last heard. Where is this backfill going to come from? Offshore? not likely at this stage. Onshore? you bet, and it's going to be the PB... fact is if the NWS KGP is not pumping at 100% everyone loses. you don't mess with $100bn in LNG export revenue and you certainly don't mess with the energy security for likes of Japan, Korea and dare I say it, China.

So, IMO, come Dec 22nd we will see a fantastic announcement. An announcement that will be heralded by the govt as a win for the great state of WA, providing energy security for all... making sure the lights (& aircon) stay on... the worlds leading critical minerals mines and processors can continue to power ahead and that the transition to a greener WA will be accelerated. It will be trumpeted as a win for all.

Cheers and a Merry Christmas to all STX SHers

Brobel