Commercial realities of the proposed LNG import terminals on the east coast of Australia

Abstract

Recent government intervention in the East Australian Gas Market (EAGM) may have temporarily settled short-term supply availability concerns; however, gas prices in the EAGM now inevitably trend with the spot LNG Netback Price. Notwithstanding, supply remains tight, due to lack of upstream investment from overhang of some state government policies restricting exploration and development, and the lack of investment stemming from the recent period of low oil prices. Save further government intervention to retrospectively reserve already contractually committed export supply from the three Queensland LNG export projects, there is no ‘quick fix’ solution to fully address market tightness in the short to medium term from indigenous sources of gas supply. The only real solution to ensure security of supply over a reasonable tenure is to import LNG into the EAGM. However, the clear commercial reality of gas supply sourced from an LNG import terminal is that it can only be supported by high gas prices, albeit also providing other market benefits such as peaking capacity and storage. Without a solution to the EAGM supply–demand issue, there will be demand destruction as industrial users and electricity power generators seek alternatives to gas supply or simply cease operations. Most indigenous gas supply alternatives to LNG imports stem from the northern states and may provide solutions over the longer term (e.g. Beetaloo Basin), but do not solve the immediate need for gas supply in the southern states by 2020/21. New supply from the north is in any event physically pipeline-constrained over this timeframe.