Spot natural gas prices in Australia's domestic market have jumped on winter demand and some supply outages, and the increase supports high gas and LNG prices in the wider region, according to market participants.
Australia is one of the world's largest LNG exporters and its domestic gas prices have typically increased in the Australian winter, which coincides with the northern hemisphere summer, in the months of June to August.
This has not been a concern for gas markets in the past as supply in the June-August period is relatively healthy and the market really tightens in the northern hemisphere winter of December-February (Australian summer), when global LNG prices truly spike.
However, this year global gas prices have hit multi-year highs in summer, with European and US benchmarks like TTF and Henry Hub surging because of high carbon prices, outages and heat waves, and strong demand from China's economic rebound.
Australian domestic gas prices are also increasingly forming a feedback loop with international gas prices --- its gas exporters are incentivized to divert uncommitted volumes to the domestic market if prices are high and to meet energy security obligations, and conversely, high international gas prices also influence local gas prices.
LOCAL PRICE SURGE
Australia's regulator Australian Competition and Consumer Commission or ACCC publishes an LNG netback price which is a measure of an export parity price that a gas supplier can expect to receive for exporting its gas.
At current levels domestic prices are already competitive with netback prices.
Spot gas prices in the state of Victoria hit A$20 per gigajoule on July 6 afternoon, the highest price since June 27, 2016, five years ago, according to Adelaide-based energy consultant EnergyQuest.
It said other east coast prices were also high -- A$18.20/GJ at the Wallumbilla hub, A$15.44/GJ in Sydney, A$14.79/GJ in Adelaide and A$14.39/GJ in Brisbane, due to strong winter gas demand, an outage at Longford and a spike in international gas prices.
"Using the ACCC methodology a JKM of $14.31/MMBtu translates to a Wallumbilla netback of A$15.99/GJ and A$18.44/GJ delivered to Melbourne so spot prices are currently a bit higher than LNG netbacks," Graeme Bethune, Chief Executive Officer of EnergyQuest said. "A A$20/GJ gas price in Melbourne at the LNG netback would imply a JKM of US$15.62/MMBtu," he added.
The S&P Global Platts JKM for August deliveries was assessed at $14.247/MMBtu on July 6, which is the highest price for the northern hemisphere summer since 2013.
EnergyQuest said Victoria's largest gas plant, the Esso-operated Longford plant, has had one processing train out of action since June 28 and the company expected a reduction in daily supply into the east coast market.
"According to the Gas Bulletin Board Longford produced 981 TJ on June 27 but this dropped by over 100 TJ on June 28 to 877 TJ. Short-term plant capacity is now listed as being 860 TJ/d. This is 10% below production immediately before the outage and 22% below nameplate capacity," the data provider said.
Meanwhile, S&P Global Platts Analytics says JKM continues to find support from a rising TTF anchor, although a rebound in supply and signs of a softening in Asian demand means the JKM-TTF spread has narrowed since moving to the August assessment window, potentially keeping much needed volumes of lexible LNG in the Atlantic from August.
Global loadings continue to be depressed compared to month ago levels due to maintenance, with Sakhalin the latest plant to announce an outage, however, supply is expected to rebound into the third quarter, with the pickup in US feedgas over the last week a harbinger of what's to come, Samer Mosis, Team Lead, Global LNG Analytics, S&P Global Platts, said on July 7.
Mosis said headwinds are emerging for Asian LNG demand, including higher prices and fresh COVID-19 restrictions, easing tightness in the Asia Pacific market, although this is being replaced by bullish fundamentals in the Atlantic, with continued restraint from Gazprom and surging South American LNG imports increasingly injecting bullish sentiment into global gas markets.
"Looking forward, persistent Chinese import strength, strong power-sector driven LNG demand in South Korea and flat Asian LNG supply year on year means that Asia's pull on Atlantic Basin supply is expected to grow nearly 100 million cu m/d through the balance of summer," he said.