A generational west coast gas shakeup looms

Abstract

From record high prices, a decade ago, to record low prices more recently, Australia’s west coast gas market is heading towards a structural shakeup that will challenge the status quo for producers, buyers and policymakers. The Western Australian (WA) gas market has been soft recently but is poorly understood, and prices may materially tighten this decade in wake of uncertain new supply timing, liquefied natural gas (LNG) producer recalcitrance towards domestic market, lack of new discoveries (outside Perth Basin), upward pressure on US gas pricing and government policy flexibility towards the emergence of LNG ullage. We believe a bifurcated WA gas market could emerge, whereby policy targets cheap gas to underpin new manufacturing, while existing gas buyers are left to compete against much higher LNG netback parity pricing.