Energy Spotlight: Oz ALP says it has locked in 1O7PJ of domestic natgas for 2023; no shortfall

Looking at Australia this week, gas prices aren't likely to recede far past $10/GJ on the east coast, according to ALP resources minister The Hon Madeleine King MP.

The good news: Australians won’t pay more than what International customers are already paying.

In a press conference yesterday, however, King noted the country had gotten its gas exporters to commit 107PJ of natural gas for domestic markets, which otherwise would have gone overseas.

At the same time, those producers noted domestic contracts already saw some 195PJ of natgas locked into Australia next year, across residential and industrial purchasers. 

All of this work was done to avoid a natural gas shortfall, expected to hit domestic markets in 2023, and significantly raise the price of gas during the summer and winter months. 

Issues may arise

Worth noting is that commitments to deserve gas for domestic purposes were “made in writing” to King, who in turn, negotiated a ‘code of conduct’’ with participating producers. 

If you’re reading in between the lines: the deal isn’t legally binding at all. 

Interestingly, ‘transparency’ became a large focus of the negotiations, and now gas flow volume data will be displayed “clearly” on the website of each participating company, in an attempt to reduce opacity in the east coast domgas pricing market. 

All in all, the negotiations were useful for one key reason: the Feds did not have to step in and half-nationalise the industry, seizing control of export operations and, in turn, mandating prices. 

“Australia is still a safe place to invest,” King told a room of reporters. 

Good news in the Gulf of Mexico, too: Hurricane Ian appears set to miss offshore oil and gas infrastructure. As of yesterday, BP was returning workers to offshore platforms it had earlier evacuated. 

Ok. So what about energy commodities? 

US gas futures are down as Hurricane Ian’s devastation of Florida led to less demand from millions of users. However, futures are still up almost 80% this year, buoyed by pressure from Europe and subsequent effects from Asia. 

US and UK gas futures are also down as storage levels across the region continue to impress, but, the commodities are still much higher year on year. 

Oil rose slightly but it is one the way back down. Low prices are leading some to speculate whether OPEC’s next Oct 5 meeting will be the platform to announce a further supply cut.

Macro Environment remains undesirable 

High inflation means more interest rates, and fears that continued interest rate hikes may trigger a recession continue to dampen sentiment wholemeal. Recession is just one of many issues investors need to cope with right now. 

A conflation of macro factors are at play. A non-exhaustive list includes:

• Central banks worldwide will continue raising interest 

• Beyond the noise, the US Fed will continue tightening 

• The US is in a technical recession; UK set for the same

• Business sentiment in the EU has plunged since July 

• UK consumer confidence at a record low following the BoE’s rate rise overnight

• Need for higher unemployment to battle inflation is harming sentiment 

• Chinese lockdowns continue to restrict megacities

Europe’s scramble for gas is affecting the price of gas in the US; both are affecting the price of gas in Asia, which then has knock-on effects for the price of gas in Australia. 

Australian operators exporting gas, however, are probably over the moon. 

Price headwinds

• The US is in a technical recession and Chinese megacities remain locked down

• The Bank of England has had to intervene in British markets wholemeal to avoid pension funds dissolving 

Price drivers

• Southern Hemisphere summer on the way

• Ongoing hurricane season being closely watched in the US

• Geopolitical volatility continues to boost gas futures in Western Europe, echoing into US and Asian markets

What to look out for next week 

Saturday 

• Baker Hughes US rig count data

Tuesday

• RBA interest rate decision

Friday

• RBA financial stability review

• US unemployment rate

Oz majors

Woodside (ASX:WDS) down -0.6% to $31.69

Beach Energy (ASX:BPT) up 0.68% to $1.48

Santos Limited (ASX:STO) up 1.14% to $7.10