Origin Energy’s (ASX: ORG) gas sales agreement with the Gladstone liquefied natural gas project has provided a clear sign that Australia’s gas market is changing to the benefit of producers.
Specifically, it is where Origin says the sale is a “pathway to monetise its portfolio of fuel resources in line with international oil-linked pricing”.
This is a clear indication that the forecasted rise in East Coast gas prices, as espoused by analysts and several companies, is actually happening or about to happen.
Gas prices on the East Coast have already increased from the average of about A$4 a gigajoule in September 2011 to an average of about A$5.21 per gigajoule in the March quarter, according to Santos (ASX: STO).
This is likely to increase further, with gas prices expected to reach between A$6 and A$9 per gigajoule in the next couple of years, allowing gas explorers and producers the expectation that they will receive higher prices for their products, giving them the added incentive to explore for and develop new resources.
Coal Seam Gas
Junior coal seam gas players in Queensland and New South Wales like Red Sky Energy (ASX: ROG), Blue Energy (ASX: BUL) and WestSide Corporation (ASX: WCL) can count on improved economics for their project development or expansion decisions.
This could be especially valuable for companies operating in New South Wales where a recent inquiry into the industry has recommended significant changes to the regulatory regime that could see the process of approving wells and projects take longer and cost more, which drew criticism from upstream oil and gas industry body the Australian Petroleum Production and Exploration Association.
Red Sky has been working on proving up both its tight gas and CSG assets in New South Wales, with the managing director Rohan Gillespie telling Proactive Investors recently that interest in the use of its gas for domestic power generation has been growing – an indication that consumers are already looking to lock up gas supplies at somewhat lower prices.
Over in Queensland, Blue Energy has embarked on an aggressive exploration and appraisal program in Queensland headed up by former Santos managing director John Ellice-Flint to build up its reserves while WestSide continues to ramp up production from its Meridian SeamGas project.
However, the increase in East Coast gas prices is arguably going to be of the most benefit to the fledging shale gas industry in the Cooper Basin.
Companies such as Beach Energy (ASX: BPT), Senex Energy (ASX: SXY) and Strike Energy (ASX: STX) have already started up their exploration and appraisal efforts, which have so far produced encouraging results.
A higher gas price would not only make the case for raising capital a fair bit easier, it would also serve to help attract farm-in partners, which would be a must for any large scale development.
The prospect of higher gas production brought about by higher gas prices is also likely to turn around and reduce said gas prices as supply ramps up.
Unlike the U.S., which currently has no external markets to alleviate the gas glut brought about by the shale gas revolution, Australia has an established and growing LNG industry that can and will likely swallow up any spare gas production for export to energy hungry Asian markets.
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