Photo: Image courtesy of Santos

Australian watchdog starts LNG netback price publication

The Australian Competition and Consumer Commission started publication of LNG netback prices in order to boost transparency. 

An LNG netback price is an export parity price that a gas supplier can expect to receive for exporting its gas. It is calculated by taking the delivered price of LNG and subtracting the costs of liquefying natural gas and shipping it to the destination port.

It represents the price that a gas supplier would expect to receive from a domestic gas buyer to be indifferent between selling the gas to the domestic buyer and exporting it, ACCC said.

The watchdog added that the LNG netback price is not the sole factor influencing the domestic prices in the east coast gas market.

“The prices paid by domestic gas users could also depend on demand and supply. If there were sufficient additional gas produced to fill existing LNG train capacity, excess gas available to the domestic market could see prices below the LNG netback price,” ACCC chair Rod Sims said.

In addition, the prices will depend on the terms and conditions of the gas supply and applicable transportation or retailer charges.

When the current ACCC gas inquiry commenced in April 2017, however, many domestic gas buyers in the east coast were receiving offers for gas supply at prices that were well in excess of LNG netback prices, ACCC said.

The published LNG netback price series will assist east coast gas users to identify trends in LNG netback prices and to estimate an indicative reference price of gas for supply over the near term.

LNG netback prices have increased considerably since the start of the ACCC’s gas inquiry, driven by an increase in global demand for gas and a weaker Australian dollar.

The average LNG netback price at the Wallumbilla Gas Supply Hub has been $10.69/GJ so far in 2018, compared to $7.27/GJ over the same period in 2017 and is currently expected to be on average around $12.40/GJ over the same period in 2019.

However, ACCC still notes there is a need to produce more lower-cost gas, especially in the south.

The published forward LNG netback price series is likely to be most useful for gas users that are negotiating gas supply with a term of up to two years.