Chris McPherson

Solutions to low cost gas

8 creative solutions to long term, low cost gas For large gas users

Chris McPherson

Energy Xpert Advice and Solutions

e) [email protected]

t) 0439 652 119

The problem – gas price is doubling

Gas prices are doubling as world pricing comes to Australian gas This will be a major challenge for large energy users (thousands of job losses) This is a price problem, not a gas volume problem Local gas producers can now get much higher world prices for their gas, they have lost enthusiasm

for selling gas cheaply (wouldn’t you). They want world pricing for Australian gas. The future East coast gas price from the major sellers will be based on Asian LNG prices

Recent actual offers from gas sellers

Gas prices used to be $3 to $4

Future Australian prices based on world LNG gas prices

The need - Bring back cheap gas prices

We need to bring back low cost gas in order to keep industry and jobs in NSW & Vic Australian industry needs cheap gas to retain jobs $8-$10 gas from existing gas sellers means industry closures, large job losses We need new solutions that bring back lower priced gas This requires “thinking outside the box”

Industry needs lower priced gas to have a future in Australia

Future Australian prices based on world gas prices

Deals in negotiation today

Reservation is a distraction, not a solution

Reservation is not a viable solution to rising gas prices This is a price problem not a volume problem Reserving gas at the new higher prices solves nothing

There are only 4 ways to implement price reservation that I can think of: Government dictating prices in a free market Government subsidizing cheap gas prices for some Nationalize the assets & government runs them Government dictates supply and over-supplies market (what else have I missed ??)

When you ask for reservation you are asking a politician to take some action Next time someone suggests reservation, ask them what action they are asking for The solution lies not in overriding the free market But rather encouraging the free market for new solutions

Which politician is going to agree to one of these actions ??

Chris McPherson, Energy Xpert advice and assistance

8 new solutions to cheaper gas

Below are the top 8 potential solutions that may deliver long term low cost gas Creating new gas sources and new gas sellers from onshore gas in Victoria (tight gas, shale gas & lignite CSG) Creating new gas sources and suppliers in NSW

(waste coal gas, remote CSG) Buy some spot market gas, especially on the days when it’s cheaper

Use a blend of contract gas and opportunistic cheap spot gas Fuel Switching Coal and coal derivatives become much more attractive Swapping Tier 2 CSM gas from Qld into NSW

The upstream price is lower than the wholesale price Get your own gas in ground and develop it at cost ($2-$3)

e.g. Large Gas User Co-op Buying existing 2nd tier gas companies at a price equivalent to <$2/GJ

Buy the whole company for the price of 5 years gas Encouraging new sales through the side door from existing producers

Existing producers who are probably looking for a better deal

Chris McPherson, Energy Xpert assistance to find new gas solutions for your business

“Outside the box” solutions to cheaper gas

Creating new gas sources and new gas sellers from onshore gas in Victoria New gas supply from sellers who do not have LNG plants And will sell gas on a cost plus basis to local gas buyers There are three new potential gas sources tight gas, shale gas & lignite CSG There are two new onshore basins: Gippsland and Otways There are a range of new gas companies who are potential producers A better price for foundation customers Foundation customers who help to enable new gas producers and new gas sellers can share in the benefit via foundation, low cost gas deals This is real and available today The Orica Strike deal is an example of this at work There are more in negotiation (I’m arranging two at the moment)

Chris McPherson, an energy expert on your team


Creating new gas sources and suppliers in NSW (waste gas, coal gas, NSW regional CSG)

There are a number of new potential gas sources • waste gas, (eg Brick Works) • coal mine gas, (Central Coast & Hunter) • CSG in regional areas (Pilliga, Gloucester, Central West, South coast) • shale gas (far NW state, close to cooper basin) • tight gas (interesting work in West)

There are a range of new gas companies who are potential producers NSW is not the basket case it has been made out to be by some people Foundation customers who help to enable new gas producers and new gas sellers can share in the benefit via foundation, low cost gas deals

Chris McPherson, helping business to find new gas solutions


Swapping Tier 2 CSM gas from Qld into NSW The upstream price is lower than the wholesale price AGL/Origin sell gas at $7-$9 but they don’t buy gas at $7-9 They can produce their own gas for $3-$4 2nd tier producers don’t sell retail, they sell wholesale (probably at $3-$5)

Can anyone see an opportunity here??

Buying gas direct from second tier producers at above wholesale but below retail -The producers are interested, ( I know I have spoken with a few of them) -There are a number of current and future producers -This was never a viable option before, but things are changing

-Smart buyers are disaggregating gas purchasing and creating new solutions -This is well worth exploring -The risk are very low, this is gas flowing today -The markets exist now to facilitate this

Chris McPherson, “Outside the box” new gas solutions

But gas is not core business !

It is now. “My company won’t spend millions on a non-core business expense” New gas solutions require thinking outside the box They are hard, they are challenging, they require new thinking

“But gas is not core business” If a doubling of the gas price erodes your companies profits ………then gas is core business If it makes your product uncompetitive with imports…………..………then gas is core business If it makes local manufacturing unviable ……………………………..………then gas is core business If I puts a serious dint in profitability …………………………………..………then gas is core business

For many large energy users gas is now core business ………even if you didn’t want it to be Don’t outsource your core business

Chris McPherson, helping business to find new gas solutions


Get your own gas in ground and develop it at cost ($2-$3) e.g. Large Gas User Co-op

If you are going to encourage a new gas producer And he is going to make lots of profit on the gas And your business underwrites the new field development …………..why not do it your self and keep all the benefit Getting your own gas in ground -Provides a 20 year hedge on rising gas prices -Insurers the long term profitability of your business -You can develop the gas when you need it -Get gas at raw cost (traditionally$2-$3/GJ)

Realistic & achievable -Acreage has already been applied for in NSW

Chris McPherson, making new gas solutions happen


Fuel Switching Doubling of the gas price creates strong incentives for industry to switch to coal and to switch to electricity Coal becomes more financially attractive as a cheap energy source -A number of industries still use coal for fuel -In the medium and long term business can switch fuel sources -There are some clever new approached to enhanced coal (coal liquids)

-Electricity prices are likely to stabilise over the next 5-10 years -Declining demand removes the drivers for large price increases -We can see a more stable, electricity price -Electricity and gas are often interchangeable

-Do your analysis based on future prices (not past prices) -If you use past prices you will get the wrong answer



Buying existing 2nd tier gas companies at <$2/GJ

Buy the whole company for the price of 3-5 years gas You can buy gas for the next 20 years, or you can buy a whole gas company, with 20+ years of gas for the price of 3 -5 years worth of gas spend There are lots of gas companies, at various stages of development, for various prices

We are thinking outside the box now, We need to get creative in order to secure your operation for the next 20 years. If it was simple and easy everyone would have done it We just agreed that gas is core business now How much will you spend to have a profitable future ? Or, a foundation shareholding in a gas company Or, joint development of a new gas field Or, combined purchase with two or three others Or, ………… there are a number of variation on the possibility


Buying spot market gas There are new gas spot markets Prices are low for most of the time, with occasional high price spikes Buy gas when its cheap and don’t buy gas when its expensive Disaggregate the gas buying process -Smart companies are un-bundling the gas supply chain to find cheaper sources

-Ideal for variable loads or plants with multi fuel choices -An alternative for those who are challenged

-Build a portfolio of gas solutions Lots of choices, lots of alternatives helps find solutions


There are solutions

But they require new approaches and new solutions -Gas prices are doubling as world pricing comes to Australian gas -Business will be fundamentally challenged -Household gas prices will rise substantially

-This is a major problem for jobs and industry - We will see major industry closure and major job losses

-There are potential new solutions to long term low cost gas -But they require new approaches and new thinking -Industry should look at all the potential solutions and how they might work for you -This may require a portfolio of gas solutions -This will require thinking outside the box -There are long term, low cost solutions available today (for a few first movers)

If gas is a major input – you should be investigating these now

Chris McPherson, expert help to find a solution that works for your business

A major problem

But there are some solutions

Chris McPherson

Energy Xpert Advice and Solutions

e) [email protected]

t) 0439 652 119

Chris McPherson

Business

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