![A mock-up by Shell of a floating LNG facility at Port Botany, south of Sydney.](/content/dam/images/g/p/c/l/i/8/image.related.afrArticleLead.620x350.gtqmyf.png/1484297561415.jpg)
AGL Energy has been fielding keen interest from industry in its $300 million plan to import natural gas into the south-eastern states, with chief executive Andy Vesey saying the potential project was an important option to guarantee "critical" energy security for customers.
Mr Vesey said the company believed the project, for which a site is to be selected in the June quarter, would be viable "under a broad range of pricing scenarios". His words shrug off some commentary that the economics of such a venture may only look attractive in the short term when LNG prices are weak.
The plant would enable AGL to source the lowest-cost competitive gas for its customers – possibly from Western Australia – providing a new source of supply and competition to existing domestic production, he said.
The news of the market's warm response to AGL's idea, revealed by the energy retailer in November, reflects escalating worries over pricing of gas for manufacturers on the east coast as state bans on accessing onshore gas prevents production increasing to match surging demand driven by Queensland LNG exports.
Shell estimates Victoria's wholesale gas price could be $6-$7 a gigajoule lower were Victoria to scrap its ban on onshore gas drilling, but the state government says the ban isn't impacting supply or prices.
Mr Vesey described gas supply for users in the south-east as "finely balanced-to-short" over the next five years.
"Without any further exploration and development across eastern Australia, additional sources of supply into the domestic market will be required to maintain price stability and security of supply into the future," he told AFR Weekend.
"AGL's strategy to stimulate wholesale gas market competition requires scenario planning for an uncertain future – LNG imports forms an important new initiative."
AGL is investing $17 million to prepare the project for a final investment decision in 2018-19, aiming at starting imports in 2021. Mr Vesey said AGL had identified various potential sites in NSW, South Australia and Victoria and feasibility studies for each are under way, weighing up the merits of each in terms of costs, regulatory conditions and markets.
Mr Vesey said that the "multiple" parties that had shown an interest in participating or backing the project included LNG sellers, traders, infrastructure funds, engineering contractors and suppliers of equipment and services.
Government responses have been "broadly positive", recognising the security of supply benefits and the important role of gas generation to complement renewable energy, he said.
Phil Dalidakis, the acting resources minister in Victoria, reacted positively to the potential for LNG imports while reiterating government support for the state's drilling ban.
"While it is difficult to predict the potential price and supply impacts that would result from a decision to import LNG, additional supply could result in broader benefits in the east coast market," Mr Dalidakis said.
Some commentators say the possibility of LNG imports demonstrates a failure in the east coast gas market given Australia is set to overtake Qatar to become the world's biggest gas exporter later this decade.
But Mr Vesey said it was "a natural progression" for developing gas markets that outgrow indigenous gas supplies, pointing to countries such as the US, Indonesia and the Netherlands that both import and export gas to address regional mismatches in supply and demand.
"This allows production to access export prices and domestic consumers to access global commodity prices," Mr Vesey said.
"An import terminal also means that the eastern market can access Western Australian gas, which has abundant gas reserves," he added, noting that building a pipeline from the west coast to the eastern states was "cost prohibitive".
Queensland's three monster LNG export projects are causing a tripling of demand for gas on the east coast just as new sources of supply are being thwarted by drilling bans and cutbacks in spending after the oil price crash.
Mr Vesey also pointed to reduced flexibility in the market within the course of the year to manage winter demand peaks.
AGL is considering two options for the design of the import terminal. Both involve a floating LNG storage vessel that is typically moored at a purpose-built jetty, but while one would convert the liquefied gas into gaseous form on board, the other would use onshore regasification.
Such floating import terminals have gained in popularity in recent years because they are cheaper and more flexible, and can be installed more rapidly. t Nineteen floating terminals exist among the 110 regasification terminals worldwide, with another 20 being built.
The potential import project sits among several other strategies AGL has to ensure it has enough gas for its customers, including an agreement to buy gas from Cooper Energy's new Sole gas project in Victoria, access to gas storage at plants at Iona in Victoria, Newcastle in NSW and Silver Springs in Queensland, and ongoing negotiations with suppliers in the Cooper and Gippsland basins for long-term supplies.