Finance Finance News Gas giants promise no-strings-attached supply to Australia

Gas giants promise no-strings-attached supply to Australia

Gas giants have promised to supply the market.
Gas giants have promised to supply the market.
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Australia’s gas producers have promised they will ask the government for nothing in return for redirecting gas from the international to the domestic market, The New Daily can reveal.

The promise, made by the gas industry’s peak body APPEA, came after The New Daily reported Australia’s three biggest gas producers – Santos, Shell and APLNG – had requested guarantees from the government to protect their bottom lines against a drop in demand.

Following publication, APPEA contradicted the source of the story, stating no such request had been made.

A spokesperson for APPEA went on to state categorically that the gas industry would seek no help, assurances or guarantees from the government in exchange for supplying the gas shortfall.

This promise will be welcomed by Prime Minister Malcolm Turnbull. Any such guarantees, while they would have secured gas supply and fended off a political disaster for the PM, would have potentially cost the government tens of millions of dollars.

The industry’s no-strings-attached capitulation suggests Mr Turnbull’s threat to pull the trigger on the export restrictions was persuasive enough to avert an energy crisis.

Details still not clear on Turnbull’s deal

Despite the assurances of the industry, many questions remain, the most glaring being: who will buy the gas?

Gas producers sell the vast majority of their gas via contracts, in which  buyers agree to buy a certain amount of gas at a certain price. Producers like these contracts because they provide certainty – they know the gas they are extracting will find a buyer.

The alternative is to extract the gas and then sell it on what are called ‘spot markets’, which simply means going to a marketplace with the gas and seeing who turns up to buy it.

These marketplaces might be in Australia, or they might be international.

This is a risky business because there is absolutely no guarantee that producers will get a reasonable price for the gas, or even that buyers will turn up.

On top of this, if the market is slow, it is difficult to store gas to wait for it to pick up again – unlike coal, which can easily be stockpiled.

The gas industry says it is currently struggling to sign contracts with Australian businesses. Some speculate this is because potential buyers are hoping prices will drop if and when Mr Turnbull pulls the trigger on export controls.

As a result, a huge quantity of gas is being cooled until it liquefies to produce liquefied natural gas (LNG), and then exported to Japan, China and South Korea.

Given Asian spot markets have many more buyers than the domestic market, it appears gas producers are currently judging the expense of exporting the gas is worth the assurance that it will find a buyer.

Mr Turnbull will meet with gas producers again next week, following which more details may emerge of exactly how the deal will work.

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