Gas brought into Australia through mooted import terminals will be more expensive, research says

Gas brought into Australia through mooted LNG import terminals will be much more expensive than domestic supplies, research from Frontier Economics says.

New gas supplies from regions such as the Beetaloo Basin are a more affordable option than imported LNG, Frontier Economics says.

Importing gas through proposed import terminals on the east coast would cost both industrial and residential customers significantly more than sourcing it domestically, while also strengthening the link between domestic and global market prices, new research from Frontier Economics shows.

Frontier director Andrew Harpham said the research, funded by listed pipeline operator APA Group, which will be presented at the 2024 Macquarie Australia conference on Thursday, made a strong case for focusing on increasing domestic supplies of gas on the east coast, rather than seeking to import liquefied natural gas from overseas.

Squadron Energy, owned by Andrew Forrest, is nearing completion of its LNG import terminal in Port Kembla, while Viva Energy is proposing a terminal at Geelong, and Venice Energy has hopes for a terminal at Port Adelaide.

The terminals are being contemplated in the context of a looming gas shortfall, which the Australian Energy Market Operator warned in March could eventuate as soon as winter next year under extreme weather conditions. AEMO also said that by 2027 the supply gap would be substantial.

AGL’s chief operating officer Markus Brokhof recently told The Australian that domestic production issues meant the country’s east coast would need to import gas, and argued that more than one terminal would be needed.

“We are concerned that there is a shortfall in the market. We are covered until 2027 and we can supply our customers but in the long term we have to fill up our portfolio and we need additional gas,” Mr Brokhof told The Australian.

“We have seen a little bit of an improvement in investment appetite now domestic producers can get an exemption from the code of conduct, but we think we will need one or two regasification terminals, LNG import facilities.”

Former APA Group chief executive Rob Wheals was highly critical of the import terminal proposals while running the pipeline company, calling the terminals “pipe dreams” and trashing them for seeking government support for their plans back in 2022.

Mr Wheals joined Squadron as its chief executive in March this year.

Mr Harpham said this week that Frontier’s research indicated that sourcing gas from either Queensland’s Bowen and Surat Basins or the Northern Territory’s Beetaloo Basin via new and existing pipelines would be substantially cheaper than imported LNG.

It would also reduce the nation’s exposure to international gas pricing, which caused a large spike in gas prices domestically particularly as a result of Russia’s war with Ukraine.

The Frontier modelling indicates that gas prices for industrial customers would be respectively 14 and 25 per cent higher in Melbourne and Sydney if LNG imports set the price for the high demand winter months, but would be 55 and 101 per cent higher should LNG become the benchmark year-round.

“The study concluded that prices would be higher for both residential and industrial customers in Sydney, Melbourne and Adelaide if they relied on imported LNG rather than domestically sourced gas,’’ Frontier said.

“However, the impacts are notably more significant for industrial customers.’’

Frontier calculated the figures based on JKM Futures for LNG prices, with shipping and regasification costs also factored in.

“(The modelling assumes) the least cost pipeline transmission route using AEMO’s pipeline tariffs from the point of production or the LNG import facility, as applicable, to the end market and incorporating the cost of new pipeline infrastructure for Beetaloo,’’ Frontier said.

“Comparing the JKM Futures market and domestic gas production costs, imported LNG costs more than domestic production.

“When transportation costs are considered, the overall costs for imported LNG gas far exceed costs associated with gas piped from Australia’s northern states.

“The study also assumes that LNG is sourced from the spot market. However, if LNG was purchased under long-term contracts, there would be an even greater price increase.’’

Mr Harpham said given the findings, the case for policy settings which encouraged more domestic gas production were compelling.

“I think it’s been clear for at least a decade that we’re going to need new sources of gas supply,’’ Mr Harpham said.

“Policy generally has made new investments in gas production in Australia really challenging, whether it’s restraints on where you can explore for or develop gas which we’ve seen in a number of jurisdictions, or whether it’s broader policies about trying to bring about an end to the use of gas for certain types of customers, it’s been a really challenging investment.

“We’ve seen (Santos’s NSW project) Narrabri which has been stalled in planning for many years now.’’

Mr Harpham said the shift towards looking to build import terminals had been in large part a response to the difficulty in bringing on new domestic gas, but the reality was that gas would be needed for the long term.

“We’re going to continue to really on natural gas for the coming decades, possibly some industries more than we have in the past, particularly I would say if we want a smooth transition for our electricity market’’ he said.

“It’s not too late to pursue policy settings that help the domestic producers of gas make these investments to provide lower cost, secure supplies of gas in the future.’’

APA chief executive Adam Watson told the Australian Domestic Gas Outlook Conference, held in March, that AEMO’s modelling of future gas shortfalls was a “wake-up call’’.

“It showed Australia’s gas supply outlook has deteriorated further, highlighting risks of shortfalls in the years ahead,’’ he said.

“And it again illustrated the importance of gas to help ensure a smooth transition to net zero.’’

Frontier said the modelling did not factor in the carbon liabilities with either domestic or imported gas, but said it would be expected that the impacts would be greater under an LNG-use scenario.

Originally published as Gas brought into Australia through mooted import terminals will be more expensive, research says