Page 5 - AsiaElec Week 49

AsiaElec COMMENTARY AsiaElec
As of June, AIE had lined up EnergyAustralia as its first customer and booked a floating stor- age and regasification unit (FSRU), as well as selecting contractors to build wharf facilities for the AUD250mn ($171.1mn) import terminal. However, since then the consortium has failed to lock in deals with 12 industrial users that had expressed interest in buying gas from the terminal in 2018. Johnson said a few had even dropped out altogether, though he added that they represented “a very small load”.
As talks drag on, the proposed import termi- nal is increasingly likely to miss its initial sched- ule of delivering first gas in late 2020.
Too high a price
Energy analysts, including Wood Mackenzie and EnergyQuest, have predicted that the country will need at least two import terminals to avoid a shortfall in supply in the near term.
The Sydney Morning Herald even quoted the CEO of Energy Users Association of Australia, Andrew Richards, as saying large gas users were “fearful” that there would not be sufficient gas within the next three to five years. Richards added: “We certainly need to see more gas flowing into the southern states, whether that’s through more import terminals or whether it’s through additional gas pipelines bringing gas down from Queensland and the Northern Territory.”
But despite these concerns, industrial buy- ers have shied away from signing up as foun- dation buyers for the import projects. Richards explained that manufacturers were hesitant to sign long-term gas supply agreements, as they may have to close within a handful of years.
“Do they enter into this long-term deal if they only have three or five years left? Some manufac- turers simply don’t know,” he said. “Gas prices of AUD10 [$6.85] and above really is the ‘death zone’ for a lot of manufacturers.”
While that is certainly one explanation, Bethune’s “silver bullet” sounds the more plau- sible of the two.
What next
Australia’s rise as an LNG power has driven industrial consumers to exert pressure on the central government to introduce measures to rein in soaring prices.
Chemistry Australia, for example, released a report in August highlighting the sector’s impor- tance to the wider economy and warned of the fallout should gas prices remain unchecked. Chemistry Australia CEO Samantha Read said the petrochemical sector contributed AUD38bn ($26.02bn) to Australian GDP and added AUD286mn ($195.8mn) of value to every peta- joule of gas it used, noting that this was 33 times higher than the LNG industry and 68 times greater than gas-based electricity generation.
Australian industry has made it quite clear that prices as they stand do not bode well for the sector. Import terminals, while increasing avail- able supply, will not result in a meaningful drop in prices.
Indeed, Richardson’s comments even suggest that the pricing for these longer-term contracts was unsustainable, with businesses expecting to close their doors just a few years after signing on the dotted line.
The government is hedging its bets at the moment, using the review to buy time as it watches the local and international gas markets evolve. While Canavan said this week that the government supported “investment in our gas infrastructure network”, he also said that invest- ment in import terminals was a matter for inves- tors themselves.
The government does not want to endorse LNG imports openly, knowing that by doing so it will have given its critics a chance to slam it for failing to protect the local economy. While the central government may bemoan state-level restrictions on exploration – such as Victoria’s onshore drilling ban – industry has more to gain from exerting pressure on Canberra over a national gas reserve policy than it does from lobbying local authorities for greater freedoms for the upstream sector.™
Import terminals, while increasing available supply, will not result
in a meaningful drop in prices
Week 49 11 •December•2019 w w w . N E W S B A S E . c o m P5