APACD APA Group

By Robb M. Stewart

MELBOURNE, Australia--AGL Energy Ltd. (AGL.AU) has drawn up a short-list of potential suppliers of liquefied natural gas for an import terminal it wants to build near Melbourne, ahead of a final investment decision on the project early next year.

It comes as momentum builds for as many as five projects capable of easing an energy crisis along Australia's east coast where rising gas prices have prompted some manufacturers to threaten to move production overseas. It has also added to the cost of living for debt-laden households.

Phaedra Deckart, AGL's general manager for energy supply, said talks to provide some of the liquefied natural gas that will be processed through the 250 million Australian-dollar (US$173 million) project centered on an initial five-year contract term.

The company also expects to purchase more over a mid- and long-term basis and also buy fuel from spot markets as an expected natural-gas shortfall grows in eastern Australia, she said.

"There's no reason it can't be U.S. LNG," Ms. Deckart said in an interview with The Wall Street Journal. U.S. LNG meets Australian standards for and meets the specification for lean gas, she said.

U.S. companies are retooling existing facilities to meet rising demand for LNG, while also building new plants. That is helping to create a more liquid market for LNG--buyers not only have more options when negotiating supply deals but more flexibility around pricing structures and contract lengths.

If AGL clears a rigorous independent environmental review of its project, the company could begin importing LNG in 2021. Gas would then be connected via a new pipeline to its existing network, due to a deal with pipeline operator APA Group (APA.AU). The company has signed a contract with Norway's Hoegh LNG for a ship that will be docked at Crib Point, where it will store LNG and, when needed, warm it and pump natural gas ashore.

Depending on demand, AGL expects between 12 to 40 LNG ships a year would moor alongside its facility, known as a floating storage and regassification unit, at Crib Point. The company is looking to select one of two FSRU facilities available from Hoegh that have technology onboard capable of returning LNG back into a gas, possibly using seawater to warm it.

"When we started talking about this two or three years ago, the market thought we were crazy and no one thought it would ever happen. Now we have five projects being talked about, it does give support to the fact LNG imports are an necessary requirement to meet needs on the east coast, " Ms. Deckart said.

AGL currently purchases natural gas from domestic producers to supply its 1.4 million has customers, so import terminals must be part of a broader solution. Management thinks more gas deposits in Australia need to be developed as well.

The country's energy-market operator in March said gas shortages were likely in eastern states and territories from 2024, driven by declining reserves in Victoria state that had long accounted for much of supply. Also, aging pipelines need upgrading to deliver more gas when demand is high. Ms. Deckart said the shortfall could come soon during periods of peak demand in Australia's winter.

Neil Beveridge, senior oil analyst at Sanford C. Bernstein in Hong Kong, expected AGL and others to look to gas-export plants on Australia's far western coast for supply first but that the U.S. could have a role to play, too. U.S. exports have surged since early 2016 and there are now three export facilities operating from the U.S. mainland, with several more set to open over the next few years.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

June 03, 2019 01:41 ET (05:41 GMT)

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