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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Can We Expect A Natural Gas Price Spike In Australia?

Woodside LNG

U.S. natural gas prices have subsided the last few months. Dropping back to near $3 per mcf, after rising to above $3.50 in December — the highest price seen since late 2014.

But news elsewhere in the world suggests natgas prices could be about to get very interesting. In a market few investors think about for oil and gas production.

Australia.

The Australian government said yesterday it is considering drastic measures in natgas markets. To avert what officials say could be a “crisis” for supply in the country.

Australia’s federal resources minister Matt Canavan told national radio the government is looking at policies to reduce exports of natgas. By diverting liquefied natural gas (LNG) volumes set to be shipped abroad, in order to keep gas at home.

Minister Canavan said this could be accomplished with natural gas swaps — a move that was officially proposed late last week by Australian industry groups. Who suggested swaps as way to ensure local businesses get enough supply to avoid a spike in prices.

Here’s how the proposed swaps scheme would work.

Australia currently exports LNG via several operating terminals — with a number of new developments ramping up. Those sellers have export contracts, committing them to deliver volumes of natgas to buyers worldwide.

But the government’s proposed swaps plan would tweak things. By procuring deliveries from other global suppliers to meet Australian producers’ commitments abroad — allowing Aussie gas to stay at home for domestic use.

A lot of details would need to be worked out for such a plan. But the fact the Australian government is publicly talking about it suggests a high level of concern about dwindling domestic supplies. Related: Why Oil Markets Are Not Recovering Much Faster

The numbers show why they’re worried. The chart below from the Australian Energy Regulator shows how local natgas prices have spiked notably at the start-up of several major LNG export projects (indicated by the green arrows).

(Click to enlarge)

Natgas prices in several major Australian markets have spiked when new LNG export projects have started up

With even more export terminals now coming online, the situation could get worse. Bad news for gas users and politicians — but potentially a lift for Australia’s natgas producers, if tight supply elevates local prices to the $8 to $12 range seen during recent spikes.

Watch for more from the government on mitigation plans for natgas supply — and keep an eye on Aussie gas prices as big LNG export projects like Ichthys come online in Q3 this year.

Here’s to home advantage.

By Dave Forest

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