LNG investors may want compensation to divert gas to local market

The theory that investors in the Queensland LNG projects may want compensation if they are forced to divert gas into the local market has strengthened after Santos chief executive Kevin Gallagher said the GLNG partners had a right for their investment to be protected.

Mr Gallagher pointed to a “value impact” for the partners in Santos’ $US18.5 billion ($24.3 billion) GLNG venture and said “the issue of compensation then needs to be addressed” if gas was taken from the LNG export venture to supply the east coast market.

Approvals for the GLNG venture contain no limit to the amount of gas the partners can take from the domestic market beyond their own acreage, even though the venture said in its environmental impact statement that it “has no direct implications for domestic gas prices” and would not be diverting gas from local to export markets.

Cash source

Credit Suisse has suggested compensation could come from the federal government’s Northern Australian Infrastructure Fund. 
Mr Gallagher also noted it was important to distinguish between Santos and the GLNG venture as a whole in the discussion on gas supplies, noting Santos was just “one vote in four” when it came to decisions by GLNG.
Santos has made proposals to its GLNG partners on potential ways to increase gas supplies to the domestic market but analysts have pointed to the difficulty of reaching any consensus.

The venture also includes French oil major Total SA and LNG buyers Petronas and Korea Gas Corporation.

Different positions
The parties each have a different positions and priorities in GLNG depending on whether they are a supplier, buyer or purely, like Total, an investor.

Santos is also a large domestic gas producer in its own right and is a major seller of gas to GLNG through its low-priced “Horizon” contract, where 50 petajoules a year are sold from the Cooper Basin for 15 years. But the interests of others are concentrated on the LNG export business.

Credit Suisse has calculated that Total would see the greatest loss if the GLNG venture was unable to export gas that it has sourced from the domestic market and was limited to shipping LNG sourced from gas from its own acreage.

Santos would doubtless want to elect to divert gas sold under the Horizon contract to the domestic market, where it would get higher prices. But GLNG would then lose its cheapest source of gas, Credit Suisse’s Mark Samter said.

Gas diversion
Wood Mackenzie’s head of Australian upstream oil and gas, Saul Kavonic, also highlighted the difficulty of reaching decisions on gas diversion in any of Queensland’s LNG ventures.

“The challenge of achieving alignment with pipeline operators and capacity holders remains an obstacle to any of the Queensland LNG projects getting domestic gas delivered to where it is needed in the southern states,” Mr Kavonic said.

Total declined to comment on gas supplies on the east coast, preferring to leave that to Santos, while Petronas and Korea Gas could not be reached.

Mr Kavonic said GLNG had the least flexibility among the three Queensland LNG ventures to divert gas from export to local supply because of its LNG contract position and its reserves shortage. 

Contract hurdle
He also named “misalignment” between the venture partners preventing renegotiation of the gas contract with Santos as another hurdle, given for that contract specifically, Santos has a bigger interest as a supplier than as an offtaker through GLNG, so could potentially benefit if the contract was cancelled and the gas redirected.

“Challenging and sophisticated commercial arrangements would need to be established to optimise GLNG’s supply position to enable domestic diversions in response to supply signals,” Mr Kavonic said.

Mr Gallagher said Santos wanted to reach agreement with its partners on proposals it could take to the follow-up meeting of gas CEOs in Canberra, expected in about three weeks.

Source: http://www.afr.com/business/energy/gas/lng-investors-may-want-compensation-to-divert-gas-to-local-market-20170326-gv70se#ixzz4cbecvCiJ 

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One Comment Add yours

  1. Lyn says:

    Our national assets are there to benefit our people and our nation. It is not on the national interest if our businesses and households do not have power or cannot afford to keep the lights on and run secure businesses. Especially when other countries benefit and the real cost to this nation is profound consequences. We do not want to be serfs and tenants on our own country. The people making these decisions on our behalf are not accountable for the outcomes.

    Like

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