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Why Natural Gas Prices Collapsed

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Dave Forest

Dave Forest

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

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Australia’s Natural Gas Crisis Could Boost Prices

I wrote a few months back about major problems shaping up in Pacific natural gas markets. With key liquefied natural gas (LNG) exporter Australia threatening to restrict outgoing shipments due to looming domestic shortages. 

And this week a couple more key developments came down in this unfolding situation.

First, Australia’s LNG exports were confirmed as being one of the biggest stories in global energy. When energy watchdogs EnergyQuest said Tuesday that Australia’s July shipments rose 10 percent compared to June — to hit a record 5.4 million tonnes. 

Those rising exports are the reason Australia’s politicians are worried about local supply. And this week, major Aussie natgas producer Santos announced it will bow to that political pressure — and divert gas to the domestic market. 

Santos CEO Kevin Gallagher unveiled a contract that will see Santos send gas from its Gladstone LNG facility in Queensland to supply markets in South Australia.  

This deal will begin nearly immediately. With diversions from Gladstone expected to begin as of January 2018. 

And the sales volumes will be significant. All told, Santos agreed to sell 15 petajoules of yearly natgas supply to South Australia. 

In the first quarter of this year, Santos sold just 3.3 petajoules of gas on the domestic Australian market. Although the company said it lifted domestic sales volumes to 7.9 petajoules in Q2. 

Whatever the case, the volumes under the new South Australia supply contract will be a big increase for Santos’ overall domestic sales. Showing that local pressure is having an effect in changing gas flows here.

It’s not immediately clear what effect this diversion will have on Santos’ LNG exports — which had risen 30 percent year-on-year during the April to June quarter.

Related: This $65 Billion Oil Opportunity Will Never Be Tapped

That change in flows will likely reduce gas available to the international market. Potentially giving support to LNG prices, which have been languishing lately.

The other potential effect here is more pressure on Australian federal and state governments to open land for natgas development. With the Australian Petroleum Production and Exploration Association putting out a statement this week saying there are “substantial resources in the Northern Territory, Victoria and New South Wales that could be developed.”

Watch for more domestic supply deals from Australia’s LNG exporters, and for moves from Australia’s regulators to open exploration ground — especially in the Northern Territory, where project appraisal is particularly advanced. 

Here’s to finding it where you need it.

By Dave Forest

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Leave a comment
  • Dan on August 17 2017 said:
    All good for U.S. LNG exports. Seems down under should develop underground national storage.
  • Naomi on August 18 2017 said:
    Liquifaction and pipe connections are the limiting factor. Australia has enough gas to supply both markets. LNG is slowly replacing oil.

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