Gas companies 'hoarding' for export projects

Gas companies have been accused of leaving gas in the ground that could be profitably sold today, so they can sell the gas more expensively in the future.

Gas companies have been accused of leaving gas in the ground that could be profitably sold today, so they can sell the gas more expensively in the future.

The claim comes as gas prices along the east coast are forecast to rise to international levels after the development of a string of export gas projects in Queensland.

This has already driven the price of gas for some large industrial users to $9 a gigajoule from 2016, up 50 per cent.

"An oil company that expects to sell ... LNG [liquefied natural gas] at a price of $14.85 ma unit in 20 years' time would be better off if it secured $3 for that same unit of gas in the domestic market today," Mike Lauer, director of Gas Trading Australia, told the Australian Pipeline Industry Association on Monday.

"The overwhelming focus of our oil and gas producers on big, exciting and sexy LNG developments has come at a substantial cost to resource allocation in Australia.

"This focus has seen oil company executives decline to profitably sell gas in domestic markets today so that the gas can be reserved for sale in 15 or 20 years as LNG."

An example is the Northern Territory, where more than 150 petajoules of gas is brought into Darwin each year and exported to Japan.

"Apparently, there was not 12 PJ to 20 PJ of gas per annum available to supply Channel Island, 12 kilometres away from the LNG plant, because the gas was needed to supply LNG in the plant's 17th contract year," he said. "It beggars belief that there was no price at which such small volumes of gas could be liberated from the LNG project.

"Instead, the Northern Territory is paying for Bonaparte Gulf gas and, in addition to that gas price, has had to underwrite a $130 million pipeline to deliver the gas to Darwin.

"On face value, it would be hard to find a better example of gross resource misallocation."

His comments came as pipeline owner and operator Jemena said government must be prepared to intervene to prevent "demand destruction" among some gas users when the gas price spikes, which would put trade-exposed industries that use large volumes of gas at risk.

"Temporary, targeted government assistance for trade-exposed industries would be justified to ease transitional pressures," said Shaun Reardon, Jemena's executive director.

The South Australian government flagged spending would surge to a "conservative estimate" of $3.5 billion over the next five to seven years on the Cooper and Eromanga basins of central Australia after the Queensland export gas projects. It also forecast a more than sixfold rise in the number of wells drilled from the 33 drilled in South Australia last year.

South Australian Mineral Resources and Energy Minister Tom Koutsantonis said there was a "reasonable expectation that petroleum well drilling activity will increase beyond 200 wells in just five years' time".

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