Will an LNG Import Terminal Solve the Problem?

As the comparative calculation shows below, imported LNG can supply gas to Sydney at the same price as Santos gas from the NGP would be supplied to Sydney, as Sydney buyers will need to match the market price for gas (which is set by the LNG netback at Wallumbilla plus a premium for long term supply contracts).

Not only can it supply gas at the same price as Santos would supply gas, but it can do so with without the volumetric resource risk of Narrabri (due to high CO2 and other inerts in the CSG), 

 NGP Gas
Cost to produce7.40$/GJ
Value to Santos as LNG9.03$/GJ
Term contract9.08$/GJ
Transport cost to Sydney1.00$/GJ
Delivered Cost Sydney10.08$/GJ
 FSRU (LNG Import Gas)
Delivered NGP Gas Sydney
LNG Contract Price8.27$/GJ
FSRU Charges1.80$/GJ
Delivered Cost Sydney10.07$/GJ

A simple analysis such as that provided above shows that an import terminal would put a cap on the price in NSW and be able to offer much longer term supply.

Should buyers have access to the lower cost Asia-Pacific sport LNG market at times of low cost (global oversupply) such as currently occurring, then imported LNG into NSW would be considerably cheaper than any market or NGP gas.

However, to commit to an LNG import facility, east coast buyers will need to accept that east coast gas prices have been linked to international oil prices (via export LNG prices) as a result of partially filled LNG facilities in Queensland, in order to commit to an LNG import facility. 

There is, even though this has been demonstrated and acknowledged by organisations such as APPEA, a natural continued reluctance by buyers and politicians in accepting this uncomfortable market reality.

Paradoxically, an import terminal in NSW would actually assist Santos while also lowering gas prices and setting a price cap on NSW gas, as it could direct the high cost NGP gas into its own LNG plans without causing even more price pressure for gas consumers in NSW.

Import Terminals will provide a price cap on domestic prices

LNG is cheaper than Narrabri Gas

What is needed in NSW is access to the low cost international LNG market; not high-development-cost gas from Narrabri.

As Bruce Robertson pointed out to the IPCN[1], the world is awash with gas, with current spot prices for LNG trading at around US$3/GJ (A$4/GJ).

At these price levels, adding more gas supply appears to be  poor economic decision.   As gas is available on the international LNG market at a considerable discount to the current A$9.00-$10.00/GJ that NSW customers currently need to pay for a 12 month supply contract, the economically rational solution would be an LNG import terminal as the expected FRSRU (Floating Storage and Regasification Unit) charges are expected to be in the area of $1.50 – $2.00 / GJ (authors economic analyses)

The price of LNG spot prices, and reported prices for contracted gas in NSW are shown in the plot below.

If Santos were to write a contract to supply gas to NSW customers for 10 years at $5/GJ, then, and only then, would the NGP make sense for NSW (excluding the significant GHG emissions from the project, which are yet to be properly costed by the DPIE).

ACCC, Gas Inquiry Report, January 2022

“Gas producer offers have mostly been within the $9-10/GJ range over 2019, while retailer offers have largely remained in the range of $8-12/GJ. 

In contrast, expected 2020 LNG netback prices have trended downwards over 2019 and by the end of August were around $7.50/GJ. This downward trend has not been reflected in prices offered in the east coast market.[2]

[1]Independent Planning Commission – Narrabri Gas Project

[2] https://www.accc.gov.au/media-release/east-coast-gas-prices-appear-too-high-and-future-supply-is-uncertain

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