Gas imports terminal is economic even with more domestic supply

LNG gas imports terminal is economic even with extra domestic gas supply
Additional Queensland gas will not be able to compete with LNG imports through terminal: EPIK
ASX’s Comet Resources and Santos developing NSW gas projects for domestic consumption

The business case for a new $589m terminal for liquefied natural gas (LNG) imports at Newcastle still stands despite government action to increase domestic gas flows into the Australian east coast market.

The company behind the Newcastle LNG imports terminal, Energy Projects & Infrastructure Korea (EPIK), said Friday it would continue to develop its Newcastle GasDock project.

“EPIK has conducted significant analysis of the market, including reviewing the viability and competitiveness of additional Queensland gas, and we conclude that it will not be able to compete with LNG imports through the Newcastle GasDock terminal,” company spokesman James Markham-Hill said.

“Nor would it [Queensland gas] satisfy the short- and long-term requirements of the east coast market in terms of flexibility and security of supply,” he said in reply to Stockhead’s questions.

Imports terminal at Newcastle can supply NSW market twice over

The Newcastle terminal will have 175,000 cubic metres of LNG floating storage and regasification unit (FSRU) capacity.

The facility will be capable of supplying more than twice NSW’s current annual gas consumption of 140 petajoules per year.

Newcastle was chosen as the terminal’s location because it is a deep-channel port, situated in an industrial hub containing NSW’s largest gas user, Orica, and largest power user, the Tomago aluminium smelter.

An existing pipeline connects Newcastle to Sydney and the wider NSW market.

An LNG imports terminal at Newcastle provides a flexible supply option for east coast customers and access to the global LNG market without requiring massive infrastructure investment.

“We continue to progress the project unabated and are on track for a final investment decision in 2021, with operations beginning in early 2023 in advance of winter peak demand that year, which is when we see the NSW/east coast market requiring new supply,” EPIK spokesman Markham-Hill said.

The 2023 start-up timeline for EPIK’s Newcastle LNG terminal is based on a range of factors.

These include, “the pace of tightening domestic supply, the timing of existing contract roll-off, and volumes necessary to satisfy new demand,” the company said.

In addition, EPIK said existing pipeline capacity constraints and transport costs could neuter proposals to deliver more Queensland gas to eastern Australian markets.

Narrabri project and gas policy changes — no impact on business case

Announced changes to government gas policy to increase supply in the tight east coast market, such as piping more gas to NSW from Queensland, will have no material impact on the project, EPIK said.

The Narrabri domestic gas project led by Santos (ASX:STO), which was given the go-ahead by the NSW Independent Planning Commission last week, will be inadequate to satisfy east coast demand, EPIK said.

“We do not see the IPC approval of Narrabri as having any material impact on the economics or viability of our project, and we continue to pursue the development of the Newcastle GasDock project without delay or modification,” EPIK’s spokesman said.

This is primarily because the price of imported gas is likely to be more competitive than domestic supply, even following action to boost domestic gas supply in eastern Australia.

Current prices for LNG cargoes for November shipment traded on the seaborne market in Asia is about $US4.80/MMBtu, according to reports.

Also, Australia with its southern hemisphere location can take advantage of reverse seasonal LNG pricing, meaning Australian high-demand periods coincide with low global demand.

This translates into potentially lower prices for LNG cargoes for Australian customers.

Another NSW gas imports terminal planned for Port Kembla

The Port Kembla gas terminal project is proposed by Australian Industrial Energy, a group comprising Japanese companies Marubeni Corporation and JERA, and Squadron Energy — an Andrew Forrest company.

JERA is the world’s largest buyer of LNG, operating eight import terminals in Japan, and has interests in four Australian LNG export projects and has a fleet of LNG carriers.

“LNG will be sourced from worldwide suppliers and transported by LNG carriers to the port, where it will be loaded in liquid form onto a floating storage and regasification unit (FSRU),” AIE said.

The $250m terminal will also use FSRU technology and infrastructure and will be able to supply 75 per cent of NSW’s annual gas needs, according to the company.

AIE was contacted for comment but Stockhead hadn’t received a response at the time of publication.