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      Gas — 5 mins read

      Import terminals: white elephants?

      While multiple east-coast LNG import terminals have been proposed, none of them are up and running yet.

      With the gas supply crisis looming large, what will propel one of these terminals into being completed? Is there a risk they will end up being white elephants?

      Proposed LNG terminals

      There are four proposed terminals in the pipeline, which are designed to address gas shortfalls in the southern states in the transition to renewable energy.

      They largely consist of floating storage and regasification units (FSRUs), carrier vessels, pipelines and wharf facilities.

      • Squadron Energy in Port Kembla NSW – terminal in Port Kembla’s inner harbour that is 70% completed to date.
      • Viva Energy in Geelong Victoria – Viva is currently seeking approval for its LNG project that it claims will provide up to 200 direct local jobs.
      • Venice Energy’s Outer Harbour project in Port Adelaide – Venice says its “shovel ready” project has received all regulatory approvals.
      • Vopak’s Victoria terminal in Port Phillip Bay Victoria – proposed floating terminal in the southwest of the Bay that would operate from 2027.

      What could kickstart a project?

      While there’s a certain irony in importing gas into a large gas-exporting country such as Australia, there is general agreement that domestic gas shortages are on the cards. This could kickstart these projects into operation.

      Naturally there would need to be a good business case for doing so. Josh Stabler, managing director of energy advisory firm Energy Edge, says a positive gross margin would be secured by buying at low prices and selling into high price markets (e.g. Sydney and Melbourne). But he says if a project falls over, there is always the option of moving a floating terminal overseas, which reduces the risks involved.

      Kaushal Ramesh, Vice President of LNG and Power Markets Research at Rystad Energy, says that with Port Kembla already being funded and Outer Harbour in the discussion phase for partners and financing, the next most important step for these companies would be signing on foundation customers.

      Where is the gas likely to come from?

      Ramesh says the “best guess” is that it will come from wherever is the most convenient and cost-effective for the importer. He also points out that Viva Energy has uncontracted supplies from Woodside’s West Coast facilities, but that they “could in theory get it from anywhere”.

      However, Stabler says the gas is most likely to come from the U.S. as they are the largest LNG producer in the world with the capacity to deliver to Australia. He considers getting gas from other parts of Australia would be unlikely due to union and wharf issues.

      What about the extra costs of shipping and degasification?

      There is the question of whether these extra costs could make imported gas too expensive for domestic purchasers.

      Stabler says it depends on the price of international gas. For example, if it’s cheap it would bring down the domestic gas price.

      “But what we have is very volatile markets,” he says, “so it could go either way.”

      Ramesh says the long-term price of imported gas for the southern states is nearly AUD15 per GJ, which is very high by historical standards.

      “It’s certainly not the price at which domestic purchasers can undertake large expansions,” he says.

      Ramesh adds that this price is the upper limit of what the market can tolerate, and that a higher price than this will create the risk of government interventions.

      There could also be the possibility that importing gas will reduce prices by increasing supply, possibly resulting in a surplus. But prices will be difficult to predict with any accuracy at this stage.

      Who will the likely customers be?

      When it comes to securing customers, Ramesh says any company looking for flexibility to address peak winter demand in the southern states is a likely contender.

      “This could be utilities, or it could be aggregators or traders,” he says.

      With Port Kembla already being 70% complete, there is also the question of whether it should it just go ahead without a locked-in customer.

      But according to Ramesh, Squadron sees gas as a stop-gap measure for firming their renewables, they could be their own ‘guaranteed customer’ if they are unable to secure any from outside.

      What is the likelihood of these projects going ahead?

      In Ramesh’s opinion there is probably only space for one import terminal.

      “Based on peak demand in the southern states of ~1800 TJ/D, there is probably space for one import terminal. Two is a stretch, but three would be overbuild,” he says.

      However, he adds that the great advantage of FSRUs is that they can be redeployed elsewhere. This reduces the risk of stranded assets that can come with pipelines.

      Stabler agrees, describing a failed project as a “low cost failure” due to the ability to redeploy floating assets.

      “And with FSRUs,” says Ramesh, “gas consumers can also bypass the challenges that new gas developments may face – such as environmental opposition or onerous regulatory regimes.”

      Whether any of the terminals go ahead in the near-term remains to be seen, but it looks like being a distinct possibility.


       

      Tess Oliver, Article Writers Australia

      Energy Monthly

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      March 25, 2024 | Sheraton Grand Sydney Hyde Park

      Australian Domestic Gas Outlook 2024

      June 11, 2024 | Melbourne Convention and Exhibition Centre

      Australian Energy Week 2024

      New call-to-action