AGL spruiks Victorian LNG terminal as a ‘game changer’

AGL’s boss says gas imports could benefit east coast buyers, as it advances studies on a $250m Victorian LNG import jetty.

AGL chief executive Andy Vesey listening to PM Malcolm Turnbull as he met with energy retailers at Parliament House in Canberra yesterday. (Kym Smith/The Australian)

AGL Energy chief Andy Vesey says Victorian gas imports could be a game changer for east coast energy consumers as Queensland ramps up its exports, with the energy company declaring it will advance studies on a $250 million LNG import jetty at Western Port.

AGL (AGL) has named Crib Point, over Port Adelaide and Port Kembla, as its preferred location for a gas import terminal that would turn liquefied natural gas back to its gaseous state and put it into an east coast market where supply is tight because of Queensland LNG exports.

The plan has drawn scepticism because of the apparent absurdity of Australia, soon to be the world’s biggest LNG exporter, having such an inefficient market that it needs to buy gas from overseas.

But Mr Vesey says the lack of competition in southern gas markets makes it realistic.

“The $250m Crib Point LNG jetty would be a potential game changer for AGL and Australian energy consumers,” Mr Vesey said.

“It would open up the domestic gas market to international competition and result in more competitively priced gas.”

If all goes to plan, AGL says it will make a final investment decision in 2018-19, with first imports in 2020-21.

The economics of the import terminal itself are not immediately obvious, based on AGL’s statements from AGL’s head of wholesale gas markets, Richard Wrightson, who said it would cost $8 to $10 a gigajoule to import gas right now.

Anecdotal evidence this year has pointed to contract prices of $12 to $15, and some as high as $20.

But the Federal Government’s new export restriction policies are designed to bring prices down to about $8 to $10, according to recent comments by Energy Minister Josh Frydenberg.

In isolation, this would leave little profit or return for AGL’s import terminal and leave it exposed to any LNG price rises.

But the extent of AGL’s exposure to gas prices may mean it does not need to be profitable to be a sensible investment.

“What is really critical is it will get to the point where you will see Australia’s prices capped by the international gas price and we won’t have the situation we see currently, where Australian gas prices have gone well beyond prices we have seen in Asia,” Mr Wrightson said.

“We are very keen about this project ... we see this about driving competition on the east coast.”

In 2016-17, AGL bought 236.9 petajoules, or 236.9 million gigajoules, of gas.

That means if the company can reduce the average cost of its purchases by $1 a gigajoule, it saves $236.9m.

It also shows how exposed AGL is to inefficient gas markets and that a $250m investment in a cap on prices could be a good insurance policy if east coast domestic prices continues to be higher than export prices.

Mr Wrightson confirmed reports in The Australian in June that international gas sellers had shown interest in the plant.

“We have been very active in the overseas market, talking to people who are very keen to bring that gas to Australia,” he said.

He said there was also potential interest from Western Australian and Northern Territory LNG projects.