The Plight of Qld’s Domestic Gas Market – Prosperity or Doom? By Glen Gill M.D. of Innovative...

The Plight of Qldrsquos Domestic Gas Market ndash Prosperity or Doom

By Glen GillMD of Innovative Energy Consulting Pty LtdEUAA Qld Energy Forum BrisbaneApril 19 2012

1

Disclaimer

2 April 2012 EUAA Qld Energy Forum

IMPORTANT NOTICE This presentation document was prepared by Innovative Energy Consulting Pty Ltd (ldquoIECrdquo) for the 2012 EUAA Qld Energy Forum attendees and the information contained in it are based on information supplied by third parties and from sources believed to be reliable No attempt has been made to verify the information and no representation is made as to its accuracy or completeness Any forecasts and statements of opinions contained in this document or given during the presentation are views of IEC and others and are therefore subject to change and should not be regarded as predictions of future events They are based on assumptions uncertainties and contingencies Actual future events may vary significantly from forecasts

This presentation speaks only as of the date it is given and the views expressed are subject to change based upon a number of factors including market conditions IEC has no obligation to tell EUAA Forum organisers or any attendees if an opinion changes or if IEC becomes aware of any change in the information or any inaccuracy in or omission from this presentation document

It is the responsibility of any and all recipients of this document to satisfy itself as to the accuracy of any and all data contained herein

IEC and the officers directors employees and agents of IEC do not accept any responsibility or liability (including in negligence) for this document or its contents This does not apply to the extent that liability by law cannot be excluded

Contents

1 How did we get here2 Challenging Producer Rhetoric3 Alberta or Norway ndash which will it be for

Qld


How did we get here


Eastern Australiarsquos Gas Industry Pipeline sector rhetoric

ndash Light handed regulation or else no further investment will occurndash No need for a level playing fieldndash Infrastructure tolls are not a major cost component

Producing sector rhetoricndash Long term contracts with secret pricing clauses and take or payndash Gas to gas competition is unacceptablendash Exxon resisted the construction of the Eastern Gas Pipeline by BHPDukendash Incumbents trashed the CSG industry during its genesisndash WA LNG players initially trashed the CSG to LNG aspirationsndash Warehousing gas reserves for possible export salesndash LNG export parity pricing for domestic gas market

Gas reform initiatives have not resulted in abundant low cost clean energy in Australia

Large energy end users have not had any major victories5 April 2012 EUAA Qld Energy Forum

Challenging the Rhetoric

LNG Parity Pricing For The Domestic Market


The Producerrsquos Dream - Convert Gas into Oil

Gas Dumping Era

Low oil prices resulted in LNG netbacks to wellhead that were much less than that received from WArsquos domestic market ndash hence the $12 Billion flare comments by Woodside in the 1990rsquos

Export Parity Pricing Era


Santosrsquo View of World Gas Trade

Source Santos 2012


The Wisdom of the Day

ldquothe future gas price in the eastern and western markets is in transition toward a price linked to the international LNG price and hence crude oilrdquo

Quote from Q1 2012 NT submission to Commonwealth regarding draft EWP


The Experts


Expert price forecasts that ignore gas supplydemand fundamentals amp discount the formulation of an integrated Australian energy policy that encourages onshore energy intensive industry given the surplus of energy supplies that exist in Australia

Source Dart Energy

Clean Energy Initiative

ldquoIt is important for Australia to have the lowest possible cost of energy as we move to a carbon constrained worldrdquo

March 2012 Clean Energy Finance Corporation report to Commonwealth Government

$10 billion dollar fund to invest in clean energy Gas is clearly by far the cleanest fossil fuel and it

will be a long time before we are weaned off fossil fuels but all of the gas is earmarked for the export market unless parity pricing exists11 April 2012 EUAA Qld Energy Forum

Reality Check


Intrsquol Gas Union 2009 Survey


Source IGU Nexant

IGU 2009 World Gas Market Study The survey was across all categories of gas trade domestic

production pipeline imports amp LNG imports The largest single gas price formation driver in 2009 was gas-

on-gas competition at 36 Oil price escalation was the second most popular driver at

21 but was largely attributed to pipeline imports and LNG imports into net importing countries

The three price regulation categories totaled 35 were split fairly equally and applied almost exclusively to domestic gas production


Wholesale Gas Price Comparison


Source IGU Nexant

2009 Wholesale Gas Price Derivation


Source IGU Nexant

Gas to Gas Competition Only Canada the US lower 48 amp the UK have liquid

GTG competition Always commences with the creation of a vibrant

spot market (STTM) at a gas supply hub Commenced in gas supply regions of the USA and

Canadandash Alberta since the discovery of gas in the 1950rsquosndash GoM region of the US in the 1970rsquos ndash Spread to the rest of North America in the early 1990rsquos

Expands to downstream gas trading hubs over time


European Gas Market in Transition

UK is leading the market liberalisation race to increased GTG

Pressure from LNG imports and pipeline imports from Russia to maintain oil linked gas pricing

Historical dominance of oil linked pricing amp escalation is wanning

Europersquos gas market fragmentation is also wanning


Dynamics of Gas Market Development


How Gas Markets Work

Net gas importing countries are forced to pay for imported gas based on replacement cost of liquid hydrocarbonsndash Liquid hydrocarbons including LNG attract a price

premium due to transportation amp storage cost advantages related to its much higher energy density and liquid state

Net gas exporting countries have the benefit of getting high gas prices for exports and abundant low cost gas for their domestic markets


Qldrsquos Future ndash Norway or Alberta


Which Model with Qld Select

Alberta Canadabull Vibrant gas intensive

industries bull value adding of resource

within the provincebull Exports from Alberta to the

rest of Canada amp to US markets are a privilege earned by first supplying low cost gas to Alberta gas demand

Norwaybull 95 of gas production

exported to Europebull Small domestic gas demandbull Maximise royalty received

from gas production for Government coffers with little regard to the domestic gas industry


Benchmarking Alberta Canada Qld Australia

Population 37 million 46 million

Gas industry commencement

Early 1950rsquos Early 1960rsquos

Annual Gas Production 4125 PJa 260 PJa

Annual Gas Consumption 1600 PJa 215 PJa

Gas Price Floats daily and monthly Negotiated amp escalated

RP Ratio 8 years (Canada)lt10 years for past 2 decades

150 years (80 years for Australia)

of nations gas production

75 77 in 2011 but expected to grow substantially

Gas Export Policy Alberta top priority over exports to rest of Canada amp

to USA

No State nor Federal policy in place


Do Exports Really Add the Most Value


Source American Chemistry CouncilExcept from Dow Chemicalrsquos submission to EWP

Alberta Gas Demand


Alberta Gas Price Differentials


Alberta Canadarsquos Gas SupplyDemand


Source ERCB

Domestic Market Future Price Path


LNG Export Parity PricingOil-linkedGas Producers DreamSurplus Gas Resources become a curse to Domestic Market gt$6GJ

Status QuoNegotiated pricesCPI escalationlong term GSArsquosLittle price discovery$4GJ

Major End Users Dream Responsible Resource OwnerLiquid Wallumbilla gas hubSTTM Price DiscoveryAll GSArsquos use floating STTM price$2 to 3GJ amp volatile

Indicative Gas Plant Gate Price

Either future scenario has price volatility

Thank-you


Innovative Energy Consulting Pty Ltd


Innovative Energy Consulting Pty Ltd ABN 81 122 373 719

gleninnovativeenergycomau wwwinnovativeenergycomau

PO Box 1008 Maleny Qld Australia Tel +61 5435-8288 Mobile 0400772512

Managing Director ndash Glen W GillGlen has 30+ years of gas industry experience across the value chain in primarily North America and Australia This experienced includes executive positions with a number of world leaders in the gas industry and many years providing consulting services to large end users of gas large gas producers and midstream infrastructure ownersoperators Of particular relevance to this presentation is his experience leading gas trading and marketing operations with again some of the largest gas production and gas trading organizations worldwide This experience involved immature rather dysfunctional gas markets as well as open transparent and very liquid gas markets Glen is now provides consulting services from his Sunshine Coast based office

Slide 1

Disclaimer

Contents

How did we get here

Eastern Australiarsquos Gas Industry





The Experts


Reality Check


IGU 2009 World Gas Market Study



Gas to Gas Competition






Benchmarking


Alberta Gas Demand




Thank-you


Disclaimer


IMPORTANT NOTICE This presentation document was prepared by Innovative Energy Consulting Pty Ltd (ldquoIECrdquo) for the 2012 EUAA Qld Energy Forum attendees and the information contained in it are based on information supplied by third parties and from sources believed to be reliable No attempt has been made to verify the information and no representation is made as to its accuracy or completeness Any forecasts and statements of opinions contained in this document or given during the presentation are views of IEC and others and are therefore subject to change and should not be regarded as predictions of future events They are based on assumptions uncertainties and contingencies Actual future events may vary significantly from forecasts

This presentation speaks only as of the date it is given and the views expressed are subject to change based upon a number of factors including market conditions IEC has no obligation to tell EUAA Forum organisers or any attendees if an opinion changes or if IEC becomes aware of any change in the information or any inaccuracy in or omission from this presentation document

It is the responsibility of any and all recipients of this document to satisfy itself as to the accuracy of any and all data contained herein

IEC and the officers directors employees and agents of IEC do not accept any responsibility or liability (including in negligence) for this document or its contents This does not apply to the extent that liability by law cannot be excluded

Contents


Qld


How did we get here











Gas Dumping Era





Source Santos 2012






The Experts



Source Dart Energy






Reality Check




Source IGU Nexant









Source IGU Nexant



Source IGU Nexant











































to USA






Alberta Gas Demand






Source ERCB








Thank-you








Slide 1

Disclaimer

Contents

How did we get here






The Experts


Reality Check











Benchmarking


Alberta Gas Demand




Thank-you


Contents


Qld


How did we get here











Gas Dumping Era





Source Santos 2012






The Experts



Source Dart Energy






Reality Check




Source IGU Nexant









Source IGU Nexant



Source IGU Nexant











































to USA






Alberta Gas Demand






Source ERCB








Thank-you








Slide 1

Disclaimer

Contents

How did we get here






The Experts


Reality Check











Benchmarking


Alberta Gas Demand




Thank-you


How did we get here











Gas Dumping Era





Source Santos 2012






The Experts



Source Dart Energy






Reality Check




Source IGU Nexant









Source IGU Nexant



Source IGU Nexant











































to USA






Alberta Gas Demand






Source ERCB








Thank-you








Slide 1

Disclaimer

Contents

How did we get here






The Experts


Reality Check











Benchmarking


Alberta Gas Demand




Thank-you











Gas Dumping Era





Source Santos 2012






The Experts



Source Dart Energy






Reality Check




Source IGU Nexant









Source IGU Nexant



Source IGU Nexant











































to USA






Alberta Gas Demand






Source ERCB








Thank-you








Slide 1

Disclaimer

Contents

How did we get here






The Experts


Reality Check











Benchmarking


Alberta Gas Demand




Thank-you



Source Santos 2012






The Experts



Source Dart Energy






Reality Check




Source IGU Nexant









Source IGU Nexant



Source IGU Nexant











































to USA






Alberta Gas Demand






Source ERCB








Thank-you








Slide 1

Disclaimer

Contents

How did we get here






The Experts


Reality Check











Benchmarking


Alberta Gas Demand




Thank-you






The Experts



Source Dart Energy






Reality Check




Source IGU Nexant









Source IGU Nexant



Source IGU Nexant











































to USA






Alberta Gas Demand






Source ERCB








Thank-you








Slide 1

Disclaimer

Contents

How did we get here






The Experts


Reality Check











Benchmarking


Alberta Gas Demand




Thank-you







Reality Check




Source IGU Nexant









Source IGU Nexant



Source IGU Nexant











































to USA






Alberta Gas Demand






Source ERCB








Thank-you








Slide 1

Disclaimer

Contents

How did we get here






The Experts


Reality Check











Benchmarking


Alberta Gas Demand




Thank-you




Source IGU Nexant









Source IGU Nexant



Source IGU Nexant











































to USA






Alberta Gas Demand






Source ERCB








Thank-you








Slide 1

Disclaimer

Contents

How did we get here






The Experts


Reality Check











Benchmarking


Alberta Gas Demand




Thank-you










Source IGU Nexant



Source IGU Nexant











































to USA






Alberta Gas Demand






Source ERCB








Thank-you








Slide 1

Disclaimer

Contents

How did we get here






The Experts


Reality Check











Benchmarking


Alberta Gas Demand




Thank-you




Source IGU Nexant











































to USA






Alberta Gas Demand






Source ERCB








Thank-you








Slide 1

Disclaimer

Contents

How did we get here






The Experts


Reality Check











Benchmarking


Alberta Gas Demand




Thank-you












































to USA






Alberta Gas Demand






Source ERCB








Thank-you








Slide 1

Disclaimer

Contents

How did we get here






The Experts


Reality Check











Benchmarking


Alberta Gas Demand




Thank-you





Alberta Gas Demand






Source ERCB








Thank-you








Slide 1

Disclaimer

Contents

How did we get here






The Experts


Reality Check











Benchmarking


Alberta Gas Demand




Thank-you






Source ERCB








Thank-you








Slide 1

Disclaimer

Contents

How did we get here






The Experts


Reality Check











Benchmarking


Alberta Gas Demand




Thank-you









Thank-you








Slide 1

Disclaimer

Contents

How did we get here






The Experts


Reality Check











Benchmarking


Alberta Gas Demand




Thank-you








Slide 1

Disclaimer

Contents

How did we get here






The Experts


Reality Check











Benchmarking


Alberta Gas Demand




Thank-you


The Plight of Qld’s Domestic Gas Market – Prosperity or Doom? By Glen Gill M.D. of Innovative...

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Transcript of The Plight of Qld’s Domestic Gas Market – Prosperity or Doom? By Glen Gill M.D. of Innovative...