PERTH (miningweekly.com) – The Australian Petroleum Production and Exploration Association (Appea) has warned the Australian government not to replicate the Henry Hub model in Australia, as part of its gas-fired recovery plans.
The Henry Hub, in the US is a natural gas distribution hub in Louisiana, which interconnects with nine interstate and four intrastate pipelines. Spot and future natural gas prices set at the Henry Hub is generally seen as the primary price set for the North American natural gas market.
In a submission report to the federal government’s gas fired recovery consultation, Appea CEO Andrew McConville noted that the industry body was supportive of the federal government’s plans to create the Wallumbilla gas hub in Queensland, but said that transparent reporting on the side of both producers and manufacturers would be necessary, and that moves to replicate the Henry Hub model in Australia was both unrealistic and could have perverse price outcomes.
“The industry played a leading role a decade ago in the development of the existing gas supply hub at Wallumbilla, and the other short-term trading markets that exist on the east coast,” McConville said.
“We look forward to drawing on that experience and on the industry’s experience trading in these markets, as we move to the next stage of more detailed design and consultation.”
McConville pointed to a recent Ernst & Young study, which found that with the right policy settings, the oil and gas industry could boost national gas economic output by more than A$350-billion and support the creation of 220 000 jobs over the next two decades.
“Already the industry has spent A$450-billion developing infrastructure and domestic gas prices have steadily declined since 2016, our submission is about igniting the industry and Australian economy again for the next 20 years.”
McConville said while Appea believed the Wallumbilla gas hub near Roma had a role to play in any gas-fired recovery, any reporting requirements put in place must be fair, warning that any moves to turn it into a US-style Henry Hub would backfire.
“We need to ensure the Hub structure should minimise the need for government intervention in the operation of the market. Development should be market-driven, and large-scale changes driven by the requirements of existing and future participants,” he said.
“Any reporting requirements must be from all market participants, not just gas producers, to ensure the efficient operation of markets. Currently, there is no emphasis placed on improved transparency around the activities of domestic consumers of natural gas and that needs to change for this concept to be successful.
“Importantly, any efforts to model Wallumbilla on the Henry Hub will fall drastically short, we need an Australian solution for an Australian industry. The fundamentals of the US gas market, particularly on the supply side, are vastly different given that the gas is largely a by-product of significant liquids development compared to very dry onshore gas developments in Queensland,” he said.
“The Henry Hub is also surrounded by an extensive network of infrastructure, that offers access not only in the US but stretching to Canada and Mexico. It offers interconnections into nine intrastate and four interstate pipelines that provide an artery of supply to the rest of the country, while direct connections into three storage caverns add further flexibility, allowing gas to be traded.
“The US domestic market also has the benefit of enormous scale, being around 50 times the size of Australia’s east coast domestic gas market.”
McConville noted that efforts to model Wallumbilla on the Henry Hub were ill-conceived if they expected the same outcomes could be achieved.
“While there are lessons to be learned from the Henry Hub, we need an Australian solution for an Australian industry, not something based on a different market we are not connected to more than 14 000 km away.”