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Japan-backed Australian LNG terminal near Sydney gets first firm order at oil-linked prices

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Australian Industrial Energy and two Japanese partners building the first Australian liquefied natural gas import terminal at Port Kembla to bring in shipments of LNG for the state of New South Wales by 2020 have received their first firm order at oil-linked prices.

AIE, part of the Minderoo investment and mining group, has joined with Japanese companies Marubeni Corp. and JERA Co. Inc. to develop an LNG import facility near Sydney to make up domestic natural gas shortfalls during peak demand periods on the southeast Coast.

The Port Kembla floating import terminal joint venture said the first order had come from EnergyAustralia, the nation’s third-largest utility.

Port Kembla is an existing industrial cargo port with man-made breakwaters about 100 kilometres south of Sydney in the Illawarra region.

The Port Kembla terminal will initially handle around 2 million tonnes per annum of LNG.

AIE said it had agreed to supply 15 petajoules a year of natural gas, or around 400 million cubic metres, to EnergyAustralia over five years starting from January 2021 at oil-linked prices.

Analysts said this was more lucrative for the sellers at a time of solid oil prices over $70 a barrel rather than natural gas benchmarks such as the Henry Hub used in US LNG sales deals.

“It’s an agreement that provides their business with certainty in the face of increasingly challenging domestic gas market supply,” said Stuart Johnston, Chief Executive of the AIE subsidiary, Squadron Energy.

AIE is seeking to secure customers before making a final investment decision on the A$250 million (US$170 million) project.

The NSW Government has already given planning approval for the AIE-led venture comprising a floating storage and regasification unit (FSRU), a wharf infrastructure and a pipeline to connect to the existing NSW East Coast gas network.

The Port Kembla project believes that once operational, the terminal could supply 70 percent of the state’s annual gas demand and help to ease the cost of energy bills for the 33,000 businesses and a million households in NSW that depend on natural gas.

The project is led by the Minderoo group, controlled by Australian billionaire Andrew Forrest.

Marubeni, a long-standing global LNG market participant, is also taking part along with JERA, now the largest Japanese utility company after being formed as part of a merger between many assets owned by Tokyo Electric Power Co. and Chubu Electric.

The choice of Port Kembla was the result of a joint feasibility study launched in February 2018 when the joint venture was first established.

The LNG terminal is regarded as a lower-cost alternative to a proposed Australian inter-state pipeline from West to East at a cost of around A$5 billion.

At least two other LNG regasification ventures are moving forward in NWS and in the southeast state of Victoria.