Energy bills likely to rise due to changing LNG market, report says

Australian wholesale and domestic energy consumers could be hit with a 50 per cent increase in gas prices due to the country’s focus on liquid natural gas, a new report by National Australia Bank has revealed.

NAB’s Gas and LNG Market Outlook said Australia is significantly ramping up LNG production capacity, and is expected to have the world’s largest LNG production capacity at around 85 million tonnes per annum (more than 20 per cent of global capacity) once new terminals in WA, Queensland and the NT are complete.

Growth has occurred slower than expected, the report said, with some terminals running well below capacity.

“Global LNG prices have fallen significantly since mid-2014 on the back of lower oil prices, to which many LNG contracts are tied,” the report said.

“While global dynamics have been somewhat more favourable of late, prices remain well below previous peaks and new supply from competitors will place further pressure on the market.”

The exposure of eastern Australia to LNG export markets will have far reaching implications for domestic gas use, NAB said.

“Wholesale prices are likely to increase significantly and some questions remain over availability of commercially recoverable gas from Queensland coal seam gas fields,” the report said.

“Higher wholesale gas prices are likely to spill over into electricity markets by increasing fuel costs for peak load open cycle gas turbines.

“Higher gas prices are already flowing through to large domestic customers, with reports that contracts are being offered well in excess of current netback export parity prices.

“While wholesale gas prices generally constitute a smaller portion of residential customers’ bills, higher prices are likely to see some fuel substitution to electricity, especially for space heating.”

Australia exported 27.6 million tonnes of LNG in 2015, and more than 40 million tonnes in 2016.

NAB forecast exports will total around 64 million tonnes in 2017, and more than 70 million tonnes in 2018.