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`It`s absurd`: new gas import terminal for one of world`s biggest gas exporters

As Australia ramps up to become one of the world’s biggest gas exporters, skyrocketing local gas prices are driving one company to build a new gas import terminal, highlighting an apparently absurd situation for local gas users.

On Thursday AGL announced it had come closer to realising its plans to build a $250m LNG import terminal, nominating a port 80km south of Melbourne as its preferred location.

“This project will enable access to the world market for gas, injecting some much-needed competition into the Australian market and help ease the tight gas supply,” said Richard Wrightson, AGL executive general manager.

“If all goes to plan, AGL would invest roughly $250m, commence construction in 2019 and bring the terminal into operation by 2020-21.”

Commentators have pointed out the idea of Australia importing gas while becoming one of the world’s biggest gas exporters appeared absurd.

“This is on the same level as Saudi Arabia building an oil import terminal. It is the most absurd proposition,” said Bruce Robertson, an analyst at the Institute for Energy Economics and Financial Analysis (Ieefa).

“But in today’s crazy gas market where we pay so much more than our customers do in Asia, it sort of makes sense.”

“It shows a total policy failure from the federal government,” Robertson said.

The high local price for gas in Australia is being driven up by huge LNG export terminals in Queensland buying up local supply and shipping it overseas.

Those export terminals have locked in long-term export contracts and appear to be operating at a loss, with Origin announcing on Thursday a further $815m post-tax devaluation of its terminal caused by flailing international oil prices. The move comes just months after the company wiped another $1bn off the value of the export terminal.

Those contracts have resulted in Australian gas sometimes being sold for less to overseas customers than to local customers despite the costs of liquefaction and shipping.

The majority of the local gas suppliers are involved in those expert operations, giving them significant power in the domestic market, allowing them to push up local prices to recover costs.

AGL’s investment in an import terminal is a bet by the company that Australian domestic gas prices will stay high enough in the future to cover the cost of liquefying foreign gas and shipping it to Australia, said Robertson.

He said that means Australian companies are likely to continue paying a high price for gas for years to come. “It embeds the cost of liquefying and shipping the gas in the domestic price,” he said.

Robertson said that since the market was failing, the government needed to institute a gas reservation policy, and if that didn’t work, regulate prices.

That move would pose a significant risk to the LNG export companies.

“They’re making losses – they’re writing off billions of dollars at a time – they are failing investments and let the market do what the market does and let them fail,” Robertson said.

Source: The Guardian
Added On: 2017-08-11