Shell canvasses industrial gas buyers in new east coast push
Shell has ramped up its efforts to capture a bigger share of the east coast industrial gas market, inviting buyers to bid for supplies out to 2025 just as LNG import projects proposed by rivals in NSW and Victoria also hunt for customers.
The move underlines the energy giant's near-term ambitions to leverage off its growing trading presence in gas and power on the east coast, targeting commercial and industrial (C&I) customers which have become a lower priority for some gas retailers that are focusing on higher margin sales to households.
The NSW LNG import project backed by iron ore billionaire Andrew Forrest is also targeting the largely forgotten sector of commercial gas buyers and is in the market seeking commitments from customers. AGL Energy, meanwhile, is continuing to progress plans for a $250 million LNG import terminal in Victoria, with a decision whether to go ahead due in 2018-19.
Shell's initiative also reinforces that the industrial market remains the near-term focus for the group's energy retailing business, with any move to re-enter the household retailing sector, as suggested by senior Shell executives to The Australian Financial Review last month, remaining a longer-term option.
Gas buyers on the east coast have been struggling to lock in affordable long-term supplies as production costs rise and more gas is exported from Queensland. Shell's move to broadly canvass interest in new local demand follows last year's blind tender process used by the Esso/BHP Gippsland Basin joint venture for gas available over 2018 and 2019 which was targeted at large customers willing to agree to strict fixed terms.
"Our team in Shell Energy Australia is reaching out to all wholesale and C&I customers across the east coast, to understand what demand exists and how we can meet it beyond just this year out to the middle of next decade," said Shell's chair in Australia Zoe Yujnovich.
"We welcome responses from all wholesale and C&I buyers and will work hard to meet that demand."
The request from Shell's east coast trading arm for expressions of interest (EOI) on gas supply is for deliveries between January 1 next year until January 1, 2025. Shell, which owns the QGC domestic gas and LNG export business in Queensland, is expected to assess the bids before drawing up a shortlist of potential customers by mid-May to negotiate with on contracts.
Customers can elect for year-round deliveries, or only through the peak winter months of June-August, or for another period. Supplies are on a 90 per cent take-or-pay basis.
"Our EOI targets both existing and potential clients as it makes sense to build up capacity in the industrial customer base first," Ms Yujnovich said.
"Additionally, given this is a strategy we are learning a lot about through our organisation globally we want to learn and adapt as we return to the power market."
NSW-based Weston Energy, which sources gas for medium-sized users, has responded to the tender but chief executive Garbis Simonian is unconvinced gas will be cheap enough.
"We've said we're ready to deal and buy, but we're not convinced," Mr Simonian said. "It all depends on prices. Their gas is in Queensland and it's $2.50 or $3.50 [a gigajoule] to get it down south, so what's it going to cost?"
Spot gas prices have risen post the Easter lull, and were about $8 a gigajoule in NSW on Wednesday.
Still, a three-year gas "swap" arrangement signed last year between Shell and Santos means in theory that the costs of transporting gas from Queensland could be avoided for some deliveries into southern markets.
Ms Yujnovich underlined the significant changes in the energy market in recent decades, as well as developments in Shell's own portfolio that underpin a new push into east coast supply. She said shifts in Shell's asset mix in Australia means the group is "largely now an integrated gas player which we believe positions us well to support the energy transition" both in export markets and in domestic gas.
Thursday, April 05, 2018
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