More gas in the east coast than heading out
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More gas flowed through domestic east coast pipelines than to its LNG terminals in the last week of April, as experts say some Australian LNG exporters are likely to be best able to survive a prolonged price downturn — for all the wrong reasons.
Net export gas volumes dropped by 32 terajoules (TJ) in the week April 26-May 2, thanks to a large drop in volumes to the QCLNG liquefaction terminal.
Domestic gas flows lifted by 300TJ.
An analysis by energy information service Rystad says Asia Pacific LNG terminals, and specifically those on Australia’s east coast, have high gas costs, low cash revenue, and smaller LNG compression trains.
Counterintuitively, that makes them best positioned to suffer the least financial damage from a downturn in LNG prices because they have the most incentive to reduce volumes.
LNG contracts signed by east coast LNG projects GLNG, QCLNG and APLNG are linked to oil prices, which have been tumbling since the start of the year on low demand and a market share war between Russia and Saudi Arabia.
Prices are unlikely to turn upwards soon, despite a slow return of demand as economies reopen after COVID-19 pandemic closures, as futures traders steer clear of June and July contracts.
“The word of caution on taking this course of action is that pulling this lever requires a clear exit strategy with a defined threshold in gas prices, at which point renewed production would make economic sense once again – ramping up only to have to halt production again months later could spell disaster,” Dane Inglis, analyst at Rystad Energy, says.
More gas into the domestic system combined with lower international oil prices is helping to bring wholesaler domestic gas prices down to between $4/gigajoule and $5/gigajoule.
This may challenge gas small caps on the east coast which have been locking in long-term supply deals with local users and positioning as an alternative to the big exporters.
Operators for the three Curtis Island LNG terminals have locked up the majority of Queensland’s gas exploration and production blocks, and the market shift from domestic supply to majority exports caused east coast gas prices to surge.
The energy market regulator said on Wednesday that electricity and gas demand is beginning to rise as states remove restrictions on social and business activity.