Worried manufacturers bid for gas in east coast market
Source: Financial Review
The Esso-BHP Billiton joint venture is understood to have received keen interest in natural gas they have put up for sale from the Bass Strait amid uncertainty among buyers over how soon – if at all –the new Domestic Gas Security Mechanism will be triggered.
Several gas buyers in the stretched east coast market are thought to have bid for gas in a tender by the Bass Strait venture operator Esso offering supplies over 2018 and 2019.
NSW-based Weston Aluminium, which uses gas as well as sourcing the fuel for other manufacturers, bid despite finding the terms "not very customer friendly", said managing director Garbis Simonian.
"I know quite a few people who bid," Mr Simonian said.
"We're really concerned because we're not sure how serious these guys are about triggering the [domestic gas security] mechanism. Why do we have to wait six months?"
The decision on whether to trigger the ADGSM, which was put in place on July 1, lies with federal Resources Minister Matt Canavan, who is due to decide in the next several weeks whether to classify 2018 as a "shortfall year" under the legislation. That would start in motion a process that could lead to restrictions being placed on exports from Santos' GLNG venture in Queensland from January 1.
Australian Industry Group chief executive Innes Willox said this week the group "strongly expects" the mechanism to be invoked for 2018 unless there is a material change in the gas market, given prices offered to industrial buyers that are three times higher than expiring contracts.
But gas exporters including Santos are arguing that the latest assessment from the energy market operator shows it now expects no shortfall in supplies over the next two years, in contrast to a forecast in March. Santos chief executive Kevin Gallagher said the issue in the east coast market was "a pricing problem, not a gas shortage problem".
Even so, competition tsar Rod Sims, who is among those who will advise Senator Canavan on whether the mechanism needs to be triggered, has made clear that price is fundamental to assessing whether a shortfall exists, as is whether buyers have a choice of supply.
Senator Canavan has described the market as "finely balanced" and has pledged to intervene if necessary.
But Mr Simonian argues that the high prices being paid by local manufacturers compared with LNG "netback" prices means there should be no dispute. Still, a lack of confidence in the government's commitment to exercise its new LNG control powers is spurring interest in whatever gas is available.
"There is quite a bit of activity going on with small parcels of gas," he said.
"But long term we need some large projects to come on stream, and that's really up to the state governments that need to lift these restrictions."
An Esso spokesman wouldn't comment directly on the tender, which is understood to have closed last week, with the results expected in late July.
"The Esso/BHP Billiton joint venture has made significant investments to enhance gas supply, including the more than $5.5 billion investment in the Kipper Tuna Turrum project, which will access 1.6 trillion cubic feet of gas and help offset declines in our mature fields," he said.
He said further development opportunities in the Gippsland Basin continued to be assessed.
Meanwhile, Queensland power generator Stanwell Corporation has "well advanced" talks on gas supply it needs to restart its Swanbank E power plant by next summer, as ordered by Queensland Premier Annastacia Palaszczuk.
Stanwell shuttered the plant in early 2014 when soaring gas prices and lower electricity tariffs made it more profitable to sell the gas. But the closure of generators such as Hazelwood in March has tightened the market and driven wholesale tariffs higher, with business and households now being hit by huge hikes in bills.
Stanwell chief executive Richard Van Breda said the restart process was still in its early stages but that "discussions are well advanced with a number of potential counterparties" for gas.
"We are confident we can source the gas required to return Swanbank E Power Station to service," Mr Van Breda said.