While the Australian gas shortage looks to have been avoided, there are concerns prices will continue to rise.
On Wednesday the government and the east coast’s three largest gas suppliers agreed to meet the forecast gas gap, meaning the government has avoided pulling the trigger on controversial limits on gas exports, known as the using the Australian Domestic Gas Security Mechanism (ADGSM).
The agreement means Shell, Origin and Santos through their Queensland LNG plants will sell a minimum of 54 petajoules of gas into the domestic market through contracts, and keep additional volumes on standby.
Shell has even created a gas trading team to ensure more gas is sold into domestic markets.
While no price restrictions have been placed on these domestic supplies, the companies have agreed to greater transparency in their contracts.
However, new research forecasts these prices will be higher than the benchmarks set by the Australian Competition and Consumer Commission, and that the ADGSM would not have reversed this or driven down costs.
“We do not believe [the ADGSM] will be wielded to push prices below cost, nor even bring prices in line with cost,” First NZ Capital said.
Even the new agreement, known as the voluntary Gas Supply Guarantee (GSG), is unlikely to lead to a massive reduction in prices.
“We reiterate our view that the intervention in gas markets will not bring down gas prices to below $6 per gigajoule,” UBS Securities said in a report.
UBS analysts said the increased transparency and scrutiny would, however, ensure less gas was offered to market above the $10 per gigajoule watermark.
This position was supported by First NZ Capital.
“Wholesale prices will remain in the $7 to $10 per gigajoule range, which is consistent with recent domestic spot prices,” FNZC said.
We do not believe the domestic gas security mechanism will be wielded to push prices below cost, nor even bring prices in line with cost.
First NZ Capital
Analysts reiterated their belief that the best way to bring down gas prices was to bring more supply online in the coming months. They said this would create a more stable price and eliminate periods of scarcity pricing that drove the domestic spot price to its recent highs for commercial and industrial customers.
“With Gippsland Basin gas forecast to decline materially in 2018, diversion of gas from LNG in Queensland is not sufficient to maintain balanced markets in the medium to long term, more gas supplies are needed,” UBS said.
Yet, the situation could have been worse, analysts said.
“Australia is somewhat fortunate for this domestic gas crisis to have coincided with a period of low oil prices and global LNG oversupply,” FNZC said.
The nation and industry waits to see if its ‘luck’ continues.