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Shell’s QGC to sell gas to Orica, Engie as trims LNG exports

Shell’s QGC to sell gas to Orica, Engie as trims LNG exports

Shell has signed two new deals to supply gas to east coast buyers in response to mounting pressure on the Queensland LNG exporters not to let industrial customers on the east coast go short.

The short-term agreements to supply gas to Orica and power producer Engie mean that Shell’s LNG venture in Gladstone will trim LNG exports to make more available for local users, said the oil major’s new Australia chair, Zoe Yujnovich.

However Shell wouldn’t disclose its revised forecasts for LNG exports from its $25 billion Queensland Curtis venture which typically ships about eight cargoes a month from its 8.5 million tonnes a year Curtis Island plant.

Neither the oil major nor the two customers disclosed details of the price of the gas, but Shell is believed to have gone through a competitive process for the volume it decided to make available leading to expectations of prices as much as $10 a gigajoule. The customers would also be paying transportation costs to get the gas from QGC’s fields in Queensland’s Surat Basin to their plants.

Prices of about $10 a gigajoule would be about double those in expiring contracts but well below the $20-plus per gigajoule that some small manufacturers have said their retailers have offered for new firm supplies during the peak winter months.

Shell was among a group of east coast gas producers hauled in front of Prime Minister Turnbull in Canberra last month to explain why prices for gas for local users were rocketing while some were unable to get hold of any supplies they could afford. The weakness in LNG prices in Asia has compounded the frustration of local manufacturers who say they are paying more for Australian gas than some of the customers for Queensland LNG in Japan and China.

The producers were given a month to come up with suggestions to address the worsening squeeze in east coast gas, with a follow-up meeting expected some time after the Easter break. Both Shell’s QGC venture and Origin Energy’s APLNG venture committed at the initial meeting on March 15 to supplying more gas into the domestic market than they bought, but Santos’ GLNG venture, which relies heavily on buying gas from the local market, could only take the request “on notice”.

Under Shell’s latest contracts, the major’s QGC division will supply about 8 petajoules of gas to Engie’s Pelican Point generator in South Australia for five months over the peak winter period, while an unspecified smaller amount of gas will be sold over 18 months to Orica’s Yarwun plant near Gladstone. 

The move follows Shell’s recent commitment to spend $500 million to drill more coal seam gas in Queensland, mostly for its LNG export plant, but also to help supply local customers. 

Ms Yujnovich, who took over this month from predecessor Andrew Smith, said that together with contracts sold with power generators and retailers, QGC’s domestic gas sales were now set to represent about 11 per cent of east coast demand this year.

“Make no mistake the business I lead is pursuing further domestic supply agreements – and has taken proactive steps to supply the east coast gas market,” she said.

The Shell deals follow last week’s announcement by Origin that it would supply gas to Engie’s Pelican Point power station and would buy electricity from the plant to supply customers. The French power plant owner committed to restarting the second turbine at the site to run on a regular basis, beefing up South Australia’s fragile energy security.

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