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Western Australia land gas deficit grows from 63 PJ in 2007 to 116 PJ by 2010 and 244 PJ by 2015; NWSV refuses supply, Santos gains market power, contracts top $7.50/G

Posted by gasweek on 17 October, 2007

The tight Western Australia supply position was reflected in recent pricing for new contracts. 500 TJ/d (=170 PJ/year) of new and replacement gas, required by 2013. Report to the Joint Working Group on Natural Gas Supply Natural Gas in Australia.

1701wagas.jpg

“Even if a 5 per cent understatement of contracted volume was allowed for, a significant quantity of new contract volume was required in the near future” said the 9 October-released “Report to the Joint Working Group on Natural Gas Supply Natural Gas in Australia”.

Western Australia prices tell the story:

• In January 2007 a new three-year contract for John Brookes gas was signed between Santos and Newmont Mining, which was reportedly paying $5.50/GJ, compared with average market prices of $2.50/GJ to $2.75/GJ a year;

• In May and July 2007 three further low volume shortterm contracts for John Brookes gas were signed;

• between Santos and Windimurra Vanadium (3 years at an estimated price of $5.80/GJ);

• Barrick Gold (5 years at an estimated price of $7.50/GJ; and

• Jabiru Metals (3 years at an estimated price of $4.70/GJ).
Santos’ has short-term market power:There was an immediate requirement for 63 PJ in 2007 that grows to 116 PJ by 2010 and 244 PJ by 2015. The cumulative requirement to 2015 was approximately 1,300 PJ, growing to 2,700 PJ by 2020. This picture was consistent with that presented by Alcoa and other industry estimates, for example;

• The 2007 requirement was due to the large number of contracts that was understood to have ended in 2006 and had occurred despite the availability of take-or-pay gas from the BHP Billiton DRI plant contract, which lasted until 2013. Most of the contracts were with producers that do not have further reserves that can be contracted so it appeared unlikely that they have been extended.

John Brookes, Reindeer and Macedon: ..”the short-term contract requirement, to about 2010, can only be met by the John Brookes and NWSV joint ventures. However gas purchasers report that the NWSV had withdrawn from the market, creating a very tight gas supply position. The Economic Regulation Authority had stated that NWSV’s withdrawal was due to technical difficulties encountered during an upgrading program being undertaken on its two domestic gas processing trains12. The upgrading program had been intended to increase domgas capacity by 100 TJ/day to meet growing demand. However Woodside had stated that it was still actively marketing to customers, even though it was believed to have withdrawn term sheets for the extra 100TJ/day.

Reference: Report to the Joint Working Group on Natural Gas Supply Natural Gas in Australia 16 July 2007; Joint Working Group On Natural Gas Supply, published 09 October 2007. Author Mclennan Magasanik Associates. Project Team; Richard Lewis, Project Director. Michael Goldman, Russell Farmer. This report was done forthe Joint Working Group, MCE-SCO and MCMPR-SCO for the purpose of assisting the Group to assess: barriers to gas supply; risks and benefits of major inter-jurisdictional gas projects; and policy options that balance domestic and export needs. See also the Final Report of the Joint Working Group on Natural Gas Supply. http://www.mce.gov.au. Comment by close of business on Monday 5 November 2007 to: Andrew Taylor Department of Industry and Resources, Western Australia Andrew.TAYLOR@doir.wa.gov.au Telephone 08 9222 0442. Stakeholder feedback will further inform the work of two Ministerial Councils in addressing the issues raised in the reports. MCE Standing Committee of Officials 09 October 2007.

17/10/2007

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