Santos's Australian GLNG cuts back on third party gas amid political pressure

Sydney (Platts)--20 Apr 2017 648 am EDT/1048 GMT

Australia's Santos has ramped up gas production to feed its Gladstone LNG export facility in Queensland, while cutting back on third-party purchases after coming under increasing pressure to address a potential gas shortage in the region.

"GLNG produced higher LNG volumes in the first quarter, as strong upstream field performance delivered higher volumes of equity gas to the LNG plant," Santos CEO and managing director Kevin Gallagher said Thursday.

Santos and the operators of Queensland's two other LNG export terminals -- Australia Pacific LNG and Queensland Curtis LNG -- have helped put Australia on course to become the world's largest LNG exporter but have come under fire in recent months for doing so due to their role in causing a potential gas supply shortage for the country's eastern seaboard.

Platts Analytics expects Australia to surpass Qatar as the world's largest exporter of the fuel in 2019.

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"It is not acceptable for Australia to be, shortly, the world's largest exporter of LNG and, yet, to have a gas shortage on the east coast in its domestic market. This is clearly unacceptable," Prime Minister Malcolm Turnbull said Tuesday, ahead of a Wednesday meeting with the heads of the region's major gas companies.

Following the meeting, the government said it had directed the Australian Competition and Consumer Commission to establish a monitoring regime to compel the gas industry to provide information allowing new transparency into the market.

"This work will run over three years, with regular public reporting, and will give the ACCC and market participants a complete picture of the gas market," the government said.

In a statement after the meeting, the government said it remained concerned that the east coast export LNG operators have not yet clearly articulated how the region will get adequate supply at reasonable prices.

"The government has asked the exporters to provide further information, in the context of possible regulatory options to address the short term market issues," it said.

The government has, in the past, threatened a domestic gas reservation policy to tackle to issue.

The Wednesday meeting followed one in March which saw Origin Energy's APLNG and Shell's QCLNG make commitments to be net domestic gas contributors -- an undertaking which Santos's Gallagher earlier in the week said was a "fake construct".

"None of the LNG projects are net contributors; they all export all of the gas that goes through their facilities," he also told Sky News. "I would describe this concept of a net contributor as a fake construct designed to put the spotlight on the operating model of the GLNG project."

The commitment to be a net contributor means the projects will supply more to the domestic market than they purchase.

Santos's share of GLNG sales volumes in January-March was 400,900 mt, up from 289,400 mt a year earlier, and from 399,700 mt in the October-December quarter, the company said Thursday.

Its own product made up 172,900 mt of the sales during the quarter, up from 106,800 mt in the January-March period last year, and from 153,700 mt in the December quarter.

Third-party product contributed 228,000 mt in the January-March quarter, up from 182,600 mt a year earlier but down from 246,000 mt in the October-December quarter, it said. SANTOS'S LNG SALES RISE, GUIDANCE ON TRACK

Santos's total equity share LNG sales stood at 729,000 mt in January-March, up from 664,500 mt in the first quarter of 2016, and from 741,900 mt in the fourth quarter, it said.

The company's LNG assets include a 30% interest in GLNG, a 13.5% stake in PNG LNG in Papua New Guinea, and 11.5% of the Darwin LNG facility in the Northern Territory of Australia.

Santos's share of LNG sales from PNG LNG were 232,800 mt in January-March, down from 282,100 mt during the same months in 2016, and from 279,000 mt in the October-December period, it said.

"LNG sales volumes were lower than the prior quarter primarily due to timing of delivery of cargoes. Three DES cargoes shipped late March and were still on the water at end of month," it said.

The facility operated at an annualised rate of around 8.3 million mt/year during the quarter, Santos said, which was well above its nameplate capacity of 6.9 million mt/year.

The company's share of LNG sales from Darwin LNG was 95,300 mt in the three months to March, up from 93,000 mt year on year and from 63,200 mt quarter on quarter, it said. Santos maintained its production guidance.

--Nathan Richardson,
--Edited by Dan Lalor,

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