LNG exporters face sinking prices as fuel shortage fears fade

Reductions to LNG and oil prices have prompted investment houses to slash earnings forecasts for some of Australia’s largest energy producers. Royal Bank of Canada analyst Gordon Ramsay named Woodside as the most leveraged producer to the pricing changes because of its strong spot LNG exposure, followed by Santos.

While near-term LNG supply contracts have fluctuated as the weather turns warmer, Adelaide-based energy consultancy EnergyQuest said December gas futures contracts in Europe – the most expensive contracts for the remainder of the year – had gained about 9 per cent in the past two weeks.

“That shows worries over Europe’s second winter without normal flows from former top supplier, Russia, have yet to disappear,” EnergyQuest chief executive Rick Wilkinson said.

“High stockpiles and muted demand are keeping a lid on prompt prices for now … but traders are closely watching a potential rebound in rival Asian markets, as well as the possibility of higher fuel usage in power generation and the industrial sector.”

The nation’s $91 billion LNG industry has enjoyed record profits over the past year as Russia’s invasion of Ukraine roiled global energy markets, intensified competition for fossil fuels and ignited prices. However, the sector is now facing mounting political pressure as the federal government seeks to tame soaring power and gas bills on the east coast and shore up domestic gas supplies to avert potential shortfalls.

In December, the federal government set a temporary $12-a-gigajoule cap on the price of domestic gas sales and is finalising a new mandatory code of conduct for the industry, which will contain a long-term requirement for gas contracts to be sold at “reasonable” prices.

From July, major gas processing plants that rank among the nation’s 215 top industrial polluters will be forced to comply with new emissions limits under the so-called “safeguard mechanism”. East coast gas producers are also facing the more regular threat of having exports forcibly diverted to the domestic market under changes to the Australian Domestic Gas Security Mechanism.

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On Monday, Treasurer Jim Chalmers said he was weighing a series of recommendations from federal Treasury, including raising taxes on the gas sector’s soaring profits through reforms to the $2 billion-a-year Petroleum Resources Rent Tax (PRRT).

While the government is yet to finalise its position, Chalmers declared there was an open question over whether the scheme was delivering the revenue that the community expected.