AGL gas import terminal plan draws global interest

AGL Energy’s LNG import terminal plans have sparked widespread interest from international gas sellers.

AGL Energy chief executive Andy Vesey.

Rising global gas production and falling spot prices are believed to have vastly improved the economics of an LNG import terminal being studied by AGL Energy, whose plans have sparked widespread interest from international gas sellers.

The Sydney-based energy giant has committed to naming a site in NSW, Victoria or South Australia in coming weeks as it studies the feasibility of opening an import terminal at a cost of up to $300 million in a bid to ease a potential supply shortage in tight east coast gas markets.

The expected site decision, ahead of an investment decision targeted for late next year, comes as chief scientist Alan Finkel prepares to hand in his long-awaited report into east coast energy ­security to a Council of Australian Governments meeting between Malcolm Turnbull and the premiers on Friday.

The move comes as The Weekend Australian reported that the Finkel review of the National Electricity Market will set a benchmark carbon emissions target for the industry ­— ­expected to be about 0.7 tonnes of CO2 a megawatt hour. The report has ­aban­doned an energy intensity scheme in favour of a low-emissions target that would be ­“energy neutral” but ­indirectly penalise coal without carbon capture and storage.

The report is also expected to recommend tradeable clean-­energy certificates for low-emissions generation, such as wind, solar and gas, and coal-fired power with carbon capture and storage.

The import proposal, first floated by AGL chief executive Andy Vesey in November, drew scepticism because of the absurdity of the prospect that Australia, soon to be the world’s biggest LNG ­exporter from projects in Queensland, the Northern Territory and Western Australia, would need to import gas.

But with east coast gas prices tightening as three LNG plants in Gladstone increase capacity and triple east coast demand, and the cost of piping gas from Queensland to Victoria adding up to 30 per cent to the price, more analysts are starting to take the ­project seriously. This includes companies with gas to sell.

US LNG exporter Cheniere Energy said last month that AGL’s import terminal plan was attracting interest, as was the Prime Minister’s threat to restrict Queensland LNG exports if there was an east coast shortage.

“It (the potential east coast export restriction) is causing quite a ripple in discussions, and there’s a lot of interest in participating in AGL’s process for the east coast FSRU (floating storage and ­regasification unit),” Cheniere chief commercial officer Anatol Feygin told investors on the company’s first-quarter earnings call.

AGL wants to underpin what would be a sizeable investment with long-term contracts.

Mr Vesey is studying a regasification terminal that would cost $200m-$300m to install at a site that can be easily hooked up to the east coast gas network.

He is hoping for construction to start in 2019, with the terminal in operation in 2020-21.

An AGL spokeswoman confirmed that the company was on track to name a potential site “by the middle of the year”.

“We are evaluating a range of options in the feasibility study to support the optimal business case,” the spokeswoman said. “We have committed significant investment in the study and are currently assessing the best type of facility and its location.”

In recent years, the development of FSRUs, which are about the same size as the LNG tankers that pull up beside them and offload their cargo, has created new LNG demand in nations with existing gas infrastructure.

They have replaced import terminals that can cost billions of dollars and that require large import volumes to underpin their construction.

AGL is understood to be keen for proximity to customers and the Iona gas storage plant in western Victoria, which could increase the appeal of Victoria’s Western Port Bay as a destination.

The storage plant, which is the subject of a court battle between current owner QIC and Energy Australia, which sold the plant last year, would allow AGL to take advantage of attractive spot LNG opportunities.

AGL has an agreement to gain access to storage rights at Iona from around 2020.

Some analysts remain sceptical of the project’s economics.

“The crucial issue is the ability to buy gas either on the contract or spot market at cheap enough rates,” Macquarie said in a recent note.

“Even at low spot prices of $US5.60 per million British thermal units, we estimate that the all-in delivered cost would be $9 a gigajoule.”

Spot LNG prices in Asia were trading at $US5.15 per mmBTU, down from $US9 at the end of last year.

Contract LNG prices from ­Australia, which are linked to oil prices, are about $US7 per mmBTU when oil prices are $US50 a barrel.