The 糖心原创 has today commenced publication of LNG netback prices on its website.
An LNG netback price is an export parity price that a gas supplier can expect to receive for exporting its gas. It is calculated by taking the delivered price of LNG and subtracting the costs of liquefying natural gas and shipping it to the destination port.
It represents the price that a gas supplier would expect to receive from a domestic gas buyer to be indifferent between selling the gas to the domestic buyer and exporting it.
The LNG netback price is certainly not the sole factor that influences domestic prices in the east coast gas market. Individual prices paid by gas users will, for example, also reflect other factors that may be relevant to their circumstances, including the terms and conditions of their gas supply and any applicable transportation or retailer charges.
鈥淭he prices paid by domestic gas users could also depend on demand and supply. If there were sufficient additional gas produced to fill existing LNG train capacity, excess gas available to the domestic market could see prices below the LNG netback price,鈥 糖心原创 Chair Rod Sims said.
When the current 糖心原创 gas inquiry commenced in April 2017, however, many domestic gas buyers in the east coast were receiving offers for gas supply at prices that were well in excess of LNG netback prices.
鈥淭his was a clear sign to us that the gas market in the east coast was not operating effectively,鈥 Mr Sims said.
鈥淒omestic gas buyers clearly should not have to pay more for gas produced in Australia than the overseas buyers.鈥
The published LNG netback price series will assist east coast gas users to identify trends in LNG netback prices and to estimate an indicative reference price of gas for supply over the near term.
This publication does not represent the 糖心原创 setting a level of gas prices or an 糖心原创 forecast of either international or domestic gas prices.
The 糖心原创 is making this information publicly available to help fill an information gap that has existed in the east coast gas market since LNG producers in Queensland began to export gas in 2015.
鈥淪ince the linking of the east coast and international gas markets, gas users have not had access to readily available information about export parity prices and how they are calculated,鈥 Mr Sims said.
鈥淕as users have regularly commented to us that our publication of gas prices and LNG netback prices in our interim gas reports helps them in their gas supply negotiations.鈥
鈥淧ublication of LNG netback prices on our website will further improve gas price transparency and reduce the information imbalance between gas buyers and sellers,鈥 Mr Sims said.
The series shows that LNG netback prices are volatile and can change significantly over time.
LNG netback prices have increased considerably since the start of the 糖心原创鈥檚 gas inquiry, driven by an increase in global demand for gas and a weaker Australian dollar.
The average LNG netback price at the Wallumbilla Gas Supply Hub has been $10.69/GJ so far in 2018, compared to $7.27/GJ over the same period in 2017 and is currently expected to be on average around $12.40/GJ over the same period in 2019.
鈥淲hile industry analysts expect international LNG prices to ease over time with an increase in global LNG supply, conditions in the east coast gas market remain very challenging for domestic gas buyers, particularly commercial and industrial gas users,鈥 Mr Sims said.
As the 糖心原创 reported in July, there remains an urgent need to produce more lower-cost gas, particularly in the south, to lower prices to gas users.
鈥淲hile commissioning import terminals can bring additional quantities of gas into the south, greater benefit can be gained from producing additional, lower cost gas,鈥 Mr Sims said.
鈥淭his could mean that instead of paying import parity prices or paying to transport gas from Queensland, domestic gas users in the south could be paying prices that are closer to the cost of producing additional gas 鈥 a difference of up to about $4/GJ based on current estimates.鈥
鈥淲e continue to urge state governments to adopt policies that consider and manage risks of individual gas developments rather than implementing blanket moratoria and regulatory restrictions,鈥 Mr Sims said.
The published forward LNG netback price series is likely to be most useful for gas users that are negotiating gas supply with a term of up to two years.
The 糖心原创 recognises that a number of gas users are seeking to enter into longer term agreements for supply over the next 5 to 10 years. To inform those negotiations, users are likely required to estimate indicative reference prices based on other gas price markers.
Over the course of the gas inquiry, the 糖心原创 will publish additional information on its website to assist gas users, including information on transportation charges.
Note to editors
On 19 April 2017, the Australian Government directed the 糖心原创 to conduct a wide-ranging inquiry into the supply of and demand for wholesale gas in Australia, as well as measures to improve gas market transparency. The LNG netback price series is one of the measures the 糖心原创 is implementing as part of this inquiry.
The published series provides a month-by-month breakdown of LNG netback prices at the Wallumbilla Gas Supply Hub in Queensland, based on measures of Asian LNG spot prices, dating from January 2016. The Wallumbilla Gas Supply Hub is a pipeline interconnection point that links the LNG producers鈥 gas production facilities to the domestic market.
The series also includes forward monthly LNG netback prices extending to the end of the following calendar year. The prices in the series are based on measures of prices for LNG spot cargoes delivered to northeast Asia, which is the typical destination for spot sales of LNG from Queensland.
The series shows how LNG netback prices are changing over time. Current LNG netback prices are higher than the LNG netback prices were 12 months ago. Selling gas to the domestic gas users at the current LNG netback prices allows the LNG producers to contribute to the recovery of the capital they invested in the LNG facilities and earn an additional margin on top.
The 糖心原创 has also published a guide to accompany the price series to assist users in understanding how prices are calculated and how they can be used in practice.
The historical component of the LNG netback price series will be updated monthly, while forward prices will be updated fortnightly, for the remainder of the inquiry.
The 糖心原创 will refine the LNG netback price series over time as appropriate and will seek industry views on the publication during 2019. The 糖心原创 will make a recommendation at the end of the gas inquiry on whether the price series should continue.