Australian (ASX) Stock Market Forum

The future of energy generation and storage

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Smurf1976 said:
Pointless drilling more when they'll just send more of the stuff overseas as they're already doing with 70% of what comes out of the ground.

What happens 30 years from now when there's nothing at all left apart from whatever is kept off limits from the drillers who would export if they could?

Anyone who thinks we've got enough gas to last 100 years is in for one hell of a shock. We did until we tripled the rate of extraction.

I'm not generally in favour of red tape but I just can't see how more of the same is the answer. If a 200% increase in production hasn't fixed the supply issue, because they've just siphoned off all that into exports, then how does a further increase do any good when they've already built the capacity to export that as well?
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Exports are limited to the capacity of the LNG plants,

But, every new well thats proved up, will be contracted to someone, and the more that is proved up, the more there are for local retailers to bid on, and local retailers will always have an advantage do to the added costs of shipping etc the export market has.
 
SirRumpole said:
but my own selfish view is that we use our own resources to benefit our own citizens first, like every other country besides us does.
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Our citizens will always have a natural cost advantage to export markets.

But the current issue is that the government is restricting the amount of capital that can be invested to increase supply.

The Market would naturally adjust if the government hadn't prevented the investment of capital to increase supply.

You want to regulate lower prices, but the lack of supply and high prices only exists because of government intervening and retarding the amount of capital able to be invested to boost supply.
 
Value Collector said:
Exports are limited to the capacity of the LNG plants,

But, every new well that's proved up, will be contracted to someone, and the more that is proved up, the more there are for local retailers to bid on, and local retailers will always have an advantage do to the added costs of shipping etc the export market has.
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As more wells are developed they will go into the export market to cover the contract shortfalls and there will not be the opportunity for bidding. The saving grace will only be a reduction in the global gas price so that it becomes more economical to access overseas supplies to meet existing contracts freeing up local gas for domestic market.

Value Collector said:
The Market would naturally adjust if the government hadn't prevented the investment of capital to increase supply.
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The market stuffed it up in the first place by contracting more than could produce in the early stages of the contracts.
 
Value Collector said:
local retailers will always have an advantage do to the added costs of shipping etc the export market has.
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So why don't local retailers, or even big mining companies, have such an advantage at the moment?

It has come to the point where it is cheaper for AGL to build an LNG import terminal and import LNG from overseas to supply Vic and SA whilst another company plans to do the same for NSW.

The facility AGL plans to construct will be able to meet over 50% of Vic's maximum (coldest day) gas demand and could supply up to 75% of all gas used in Vic over the course of a year. A similar proposal by another company could supply about 75% of that state's demand.

I'm not ideologically opposed to the concept that Australian gas prices ought to match those internationally but something is very, very wrong when it stacks up financially to import large volumes of gas into Vic and NSW so that gas flows from Moomba (SA) to Sydney and Adelaide can be reduced or reversed, with that gas redirected into Qld so as to produce LNG. That's nothing short of outright madness and shows very clearly that Australian gas prices are above the level available internationally.

I'm not opposed to the concept of a market so long as it works but at the moment it's not working at all well. Looking at it internationally, the price in Australia's east coast markets (Qld, NSW, Vic, ACT, Tas and SA) is about 2.4 times that of the USA (which exports gas) and is slightly higher than the UK and EU countries (which import gas).

So we have the situation where not only has the transport advantage theoretically available to Australian consumers disappeared it has actually reversed. Places which import LNG have lower prices in their domestic market than we do and yet we're exporting the stuff.

The problem I see with this is that it's effectively a tax on just about all businesses and all consumers across most of the country since there aren't many who use literally no mains electricity (the price of which is heavily influenced by gas) and/or gas at all.
 
SirRumpole said:
If that was true then there would be no problem with gas supply.

But there is a problem.
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As I said the problem with gas supply is the red tape that restrictions the driller face.

The gas export deals were signed before all the restrictions were put in place, they sold the gas because they thought they were going to be able to keep drilling and open up new areas, however that has been stopped, But Offcourse the contracts still need to be filled, so there is an artificial shortage of gas available for NEW contracts.

NSW, could be producing alot of its own gas if it weren't for the restrictions, There is even companies wanting to search for gas offshore on the central coast and Newcastle, but the nimbys are trying to squash it.
 
Value Collector said:
As I said the problem with gas supply is the red tape that restrictions the driller face.

The gas export deals were signed before all the restrictions were put in place, they sold the gas because they thought they were going to be able to keep drilling and open up new areas, however that has been stopped, But Offcourse the contracts still need to be filled, so there is an artificial shortage of gas available for NEW contracts.

NSW, could be producing alot of its own gas if it weren't for the restrictions, There is even companies wanting to search for gas offshore on the central coast and Newcastle, but the nimbys are trying to squash it.
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I assume the red tape is in opposition to fracking which has been shown to be an environmental risk.

Too bad if companies have signed overseas contracts based on blue sky projections, governments have the right to take some of that for local use, it's the way democracies work.
 
Smurf1976 said:
So why don't local retailers, or even big mining companies, have such an advantage at the moment?

.
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Because of the artificial supply restrictions due to red tape.

If the international price of gas is say $6 Australian Producer has 2 options,

1, Sell it overseas for $6 but have to pay an extra $1 in transport (real revenue of $5)

2, Sell it in Australia for $5.10 ($0.90 cheaper than international price but, but higher profit to producer)

So when New contracts are up for bids, Australian consumers will always have an edge.
 
I think most on this forum would have a good understanding that a naked short position with no means of exit is a very high risk strategy.

That's what the gas companies did, spending $ billions to sell gas that hasn't even been proven to exist, and they need to accept that they took a very high risk approach that hasn't worked out.

There's also the reality that anyone should have been able to see that one way or another gas would have to go into the domestic market. Contract or no contract anyone should have been able to see that gas consumption wasn't about to suddenly stop and would have to come from somewhere.

As for environmental rules, well I think it's pretty well established as a concept that you generally can only access somewhere around 50% of a resource. The other half is off limits due to either technical, economic of environmental factors. Maybe in a specific case it will be 60% or 40% but the broad concept that it's around half has played out so many times around the world with resource development that anyone in that industry ought to be aware of it.

In the case of gas, they may not have known the detail of what was off limits but they should reasonably have assumed that there would be areas with gas under them that would be declared off limits for environmental reasons. Plus there would be some that is technically too hard. Plus there would be some that is simply uneconomic. Plus anything with a city or town on top of it won't likely go ahead either.

You can't just look at a map of the gas basins showing how much is theoretically there and assume all of that is available. That's the sort of resource economics done at a high school level and it's not bad in that context but one would hope those investing $ billions realise it's more complicated in practice and the available reserve base is always lower than what's in the ground.

Even with renewable resources the same principles apply. You can never use all of it, there's always some reason why you can't. :2twocents
 
SirRumpole said:
The NT has just lifted a ban on fracking, so maybe some more will come out of there, if it does there should be a domestic reserve policy for it.
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There is so much gas available in the NT, the Northern pipeline that is currently under construction will help bring gas from the NT into the east coast grid and offshore NT, is a huge gas resource that has be largely undeveloped,

But, even a pipeline across the desert gets the nimbys upset as soon as. the word "fracking" is used, its the new "Nuclear"

 
Value Collector said:
the word "fracking" is used, its the new "Nuclear"
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Much as I have some disagreement with the way gas companies go about things (I'll post some more reasons) I do strongly agree that they whole anti-fracking thing has been massively overdone.

Yes it can be done badly but so can anything from running an orchard to building a high rise. Anything can be done badly but that's not a reason to not let anyone do it.

I'm in favour of oil and gas exploration certainly. How we put to good use what's found is where my concerns lie.

57% of world energy supply is from oil and gas and in Australia it is 62%. In specific regions or in some industries, for example transport or agriculture, dependency on these resources is far higher and in many cases 100% or very close to it.

Energy is the enabler if everything else. If you don't have energy then for practical purposes you don't have an economy. Nor do you have food or a military. The whole damn lot depends on energy otherwise it's useless. Even the water supply depends on it these days.

On the supply side the big problem is that reserves are heavily concentrated in a small number of countries, many of which have tended to have strained (at best) relations with the West over an extended period. Given the critical reliance on ongoing supply of oil and gas this gives rise to a major political, economic and military risk.

Russia, Iran and Qatar between them have 52% of the world's known gas. Add in Saudi Arabia, Turkmenistan, UAE, Venezuela, Nigeria, Algeria and Iraq and that's almost 72%.

Oil is a similarly concentrated resource as is well known.

Now get yourself a meeting with any of the gas company CEO's and start a conversation about national security and strategic interests. Almost certainly you'll get a response along the lines of "that's a matter for government, we're just a gas company".

Hence why it is entirely reasonable and necessary for government to regulate the extraction of oil and gas noting that there is no gas exporting country other than Australia which does not do so. Not one. Left to market forces the outcome will be the most rapid possible rate of extraction and a situation not too long into the future where there's not much left with all the problems that brings.

Much of this comes down to timeframes. 10 years is short term when it comes to this sort of thing but speak to those on the financial side and they're not joking when they say they consider 10 years to be "long term". In finance it might be but when it comes to energy and resources it's short term indeed and that's where the conflicting objectives originate.

Overall I'm in favour of exploration for oil and gas and there's nothing wrong with exporting the surplus but it seems entirely reasonable to me that domestic demand be met first. Australia is, after all, the only gas exporter in the world to have gone down a "free market" approach. There's a reason why the rest haven't.

In all this it must be remembered that Australia's oil production is down more than 50% over the past 15 years due to depletion. Oil and gas are finite resources which do indeed run out, they're not some sort of magic pudding like a farm is. For those who think it's limitless - I remind you that the greater than 50% decline is actual fact not a forecast and whilst that relates to oil it's inevitable that gas will be in the same position eventually. Ensuring long term supply, not turning reserves into cash as fast as possible, is the rational objective of government but that does conflict with the likely objective of most gas producers. :2twocents
 
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