The key Japanese backer of Andrew Forrest's proposed east coast gas import terminal has declared that it can source the world's cheapest LNG for the venture, helping ensure gas buyers get more bargaining power and lower prices.
JERA's strength in the LNG market, where it buys almost 15 per cent of global production, will ensure "very competitive" prices, said Kensuke Oyama, senior manager at the company's gas and power development team.
Mr Oyama was speaking after AIE announced it has chosen Port Kembla as the site for the terminal, paving the way for NSW to use foreign gas for more than 70 per cent of its needs.
Costing between $200 million and $300 million, the Port Kembla Gas Terminal is targeting start-up in early 2020, overtaking the schedule for AGL Energy's rival LNG import plant planned for Victoria's Crib Point, despite only having revealed its plans early this year. A final investment decision on the project, which is also backed by Japanese trading giant Marubeni, is pencilled in for late this year, compared with 2019-2020 for AGL's project.
"First to market is important; we want to be first," said AIE chief executive James Baulderstone. "We've got the best port, we've got the shortest route, we've got the best partners, we know the market, we've got the support of buyers."
South-east Australia is being forced to consider importing foreign gas amid a shortage of new domestic sources as Victoria and NSW ban or restrict onshore gas. Most new fields being developed on the east coast are in the LNG exporting state of Queensland, incurring transport costs to the south.
As reported in The Australian Financial Review, to date the venture has signed at least 12 initial deals with major industrial customers, providing enough confidence for the partners to begin detailed engineering. AIE is 50 per cent owned by Mr Forrest's private Squadron Energy, with JERA and Marubeni minority partners.
Mr Baulderstone has flagged likely gas prices from the terminal gate of $8-$12 a gigajoule. Though well above historical wholesale domestic prices of about $4, the range is lower than many new contract prices.
The body representing heavy energy users said the progress on the project was an important step towards a more competitive gas market.
"Establishing new avenues for gas supply must be part of the solution if we are to resolve the many challenges being faced," said Andrew Richards, head of the Energy Users' Association of Australia.
Mr Baulderstone, a former senior executive at Santos, said the import terminal would ensure prices for domestic gas buyers are tied to import parity rather than export parity, amounting to "dollars difference" per gigajoule. He previously led Santos' efforts to develop the Narrabri coal seam gas resource in NSW, which remains undeveloped, bogged down by a lengthy approvals process and environmental opposition.
"An import terminal breaks the nexus and the power that the upstream players have and provides that power back into the hands of the buyer because they can access gas outside of the domestic market," he said.
Port Kembla was selected ahead of Newcastle as the location, with AIE citing strong support from local industry, business and community leaders. With a capacity of more than 100 petajoules a year, the terminal could also trigger the development of a new gas-fired power station. BlueScope, which has a steelworks at the port, is thought to be one of the potential customers, while gas retailers are also in the mix.
Mr Oyama said the AIE project is important for the strategy of JERA, a venture between Chubu Electric Power Co and Tokyo Electric Power Co, to expand its business from LNG importing to include trading.
"JERA being the largest buyer in the world and also as a trader we believe we will be in a good position to bring in the best priced gas in the market," he said.
AIE's fast-track schedule for the import plan has raised eyebrows but Squadron managing director Stuart Johnston said it was possible because of the deep experience of the partners in LNG management, shipping and logistics. "If you were doing all these things for the first time it would take much longer," he said.
Though development applications have yet to be lodged, Mr Baulderstone said only state-based approvals are expected to be needed and pointed to bipartisan political support in NSW.
AGL is understood to have studied but rejected Port Kembla for its Crib Point project, which is aiming for a start-up in 2020-21.