By CHOU HUI HONG and JAMES PATON
Australias natural-gas buyers are poised to pay more
even as supply more than doubles in the next five years
because higher prices in Asia are spurring exports.
Wholesale purchasers in eastern Australia, who paid A$3
($2.67) to A$4 per million British thermal units (MMBtu) on
average over the past decade, are being asked for more than
twice as much when they sign new supply contracts or renew
existing ones, says Wood Mackenzie, an energy research
The government forecasts gas output will jump to about 100
million metric tons by 2018, or about as much as Japan and
Taiwan use in a year. While exports may boost revenue for
suppliers including Santos, Australian consumers such as
Incitec Pivot, the nations biggest fertilizer maker,
are paying more just as economic expansion
Australias east-coast gas market is now linked to
Asian markets through its LNG
s, said Chris Graham,
a Perth-based analyst at Wood Mackenzie. Theres
an immediate window in 2014 to 2018 when the market is quite
Buyers in eastern Australia signed new supply agreements last
year at A$9 to A$10/MMBtu, according to Graham. Santos, based
in Adelaide, said last month that contracts were signed at
costs exceeding A$8.
Prices in Australia and Japan, the biggest LNG buyer, are
converging once liquefaction and shipping costs of A$5 to A$6
are included, according to the Grattan Institute, a
Melbourne- based research group. LNG for delivery to
Northeast Asia over the next four to eight weeks cost
$18.40/MMBtu, New York-based Energy Intelligence Group said
Asian spot prices peaked at $19.40 last year as LNG replaced
nuclear energy as Japans primary source of power
following the meltdown at Tokyo Electric Power Co.s
Fukushima Dai-Ichi plant in March 2011. The country imported
a record 87.3 million tons in 2012 and paid 6 trillion yen
($57 billion), double the amount in 2011, according to
Australia is increasing gas output as fast as suppliers in
the US, where shale extraction is driving a production boom
that has led to prices falling from as much as $13.69/MMBtu
in July 2008 to $4.03 today. Australia will surpass Qatar and
Malaysia as the largest exporter of LNG before the end of the
decade, the government in Canberra forecasts. LNG is gas
cooled to minus 160 degrees Celsius (minus 256 degrees
Fahrenheit) so it occupies about 600 times less space and can
be shipped by tankers.
Producers say more supply would better help curb surging
prices than favoring domestic consumers over export markets.
If you regulate or force suppliers to accept prices
that are lower than what is feasible, theres no
incentive to produce, said Chandran Vigneswaran, an
Adelaide-based spokesman for Santos. The way to bring
prices down is to bring on more supply.
Letting producers tap more reserves, including coal-seam gas
in New South Wales, the most-populous state, would help avoid
shortages, the government said in a report last month.
Forcing producers to supply gas at a specified volume and
price domestically is likely to diminish Australias
economy, Sydney-based Origin Energy Ltd., a partner in the
A$24.7 billion Australia Pacific LNG project, said in an
Theres no shortage of gas reserves in eastern
Australia, said Graham of Wood Mackenzie. The issue is
regulation, such as a New South Wales ban on new coal-bed
within 2 kilometers
(1.2 miles) of residential areas, he said.
Australias gas exports will rise to 81% of its total
production by 2018, from 53% in 2012, Graeme Bethune, CEO of
Adelaide-based EnergyQuest, said in a report for the
government this month.
Chevron Corp., the second-largest US energy producer by
market value, and BG Group, the UKs third-largest oil
and gas explorer, are among those investing about $180
billion in seven new export projects.
BGs Queensland Curtis venture is scheduled to start gas
exports this year, adding to three LNG
projects already operating.
Santos, operator of the $18.5 billion Gladstone LNG project,
and a venture between Origin and Houston-based ConocoPhillips
plan to start exports in 2015.
Australian manufacturers, who use gas to make plastics,
chemicals and electricity, will be hurt by
unrestricted LNG exports, according to
Manufacturing Australia, an industry group with members
including BlueScope Steel, the nations largest
steelmaker. The government should set aside supplies for
domestic use or set up a national interest test
before allowing more exports, the group said on its website.
Incitec faces A$50 million a year of additional gas costs at
its Phosphate Hill plant in Queensland in 2015 and 2016, the
Melbourne-based fertilizer producer said in a statement last
month. The company is building an $850 million ammonia plant
in the state of Louisiana, partly to take advantage of lower
US gas prices.
We survived the global financial crisis, low fertilizer
prices and an extraordinarily high Aussie dollar, said
Stewart Murrihy, an Incitec spokesman. Now the industry is
threatened by a gas price thats climbing, he said.
Wed like to see government intervention to assist
industries such as ours through this immediate period when
supply is tight.
The government will discuss setting aside gas from new
projects to supply the domestic market, Industry Minister Ian
Macfarlane wrote in an e-mailed response to questions. It
wont introduce a blanket, retrospective gas
reservation policy, he wrote Dec. 24.
The countrys LNG boom will boost government revenue by
A$11 billion a year starting in 2015 to 2025, according to a
report from McKinsey & Co. Inc.
LNG will displace iron ore as the main source of
Australias export growth this decade, according to the
Bureau of Resources and Energy Economics, the government
forecaster. LNG export earnings will increase fivefold to
more than A$60 billion through June 2018, the bureau
Prime Minister Tony Abbott faces an unemployment rate
thats climbed to a four-year high and falling consumer
confidence as the mining boom fades. The jobless rate rose to
5.8% in November, matching the highest level since 2009,
government data showed last month.
The economy expanded 2.4% last year, from 3.6% in 2012,
according to the median of 34 economist estimates compiled by
Bloomberg. While growth is project
ed to reach 2.7% this year,
thats still less than the past decades average of
One gas buyer isnt waiting for the government to act on
supply. Orica, the Melbourne-based maker of industrial
explosives, agreed to fund exploration
and development by
Strike Energy as part of a gas-supply agreement reached in
Others may shift manufacturing to locations with lower energy
costs, Geoffrey Cann, the national oil and gas director at
Deloitte, said in an interview.
Some domestic gas users are unprepared for this price
swing, Cann, based in Brisbane, said on his blog last
month. Australians will view the domestic gas market in two
phases, before LNG and after LNG
. The implications for the
economy are rather significant.