00:00We do have to start with the events in Iran, obviously.
00:02I mean, a fifth of the world's LNG, as we know,
00:04transits through the Strait of Hormuz.
00:07Is this making Australian gas more valuable?
00:11Absolutely.
00:13You know, Australia was the world's number one LNG exporter
00:16only a few years ago, but it's lost that crown,
00:19and most of the LNG industry and LNG buyers
00:22are starting to focus on growth coming out of the United States
00:25and out of Qatar for the next wave of LNG supply.
00:28But with these events, it's really put the lens on security of supply
00:32and the need to have proximate sources of supply,
00:35diverse supply outside of the Middle East,
00:37and supply that's closer to home for Asian customers.
00:40And that's making Australia exceptionally more important for LNG again
00:44and seeing a lot more interest from major LNG customers
00:47to buy LNG from Australia
00:49and to take equity positions in Australian LNG.
00:51Before these events, we were talking a lot about the risk of oversupply.
00:55We're still potentially heading in that direction,
00:57and this conflict will end eventually.
01:00It will, but what we're going to see now
01:02is that tipping point into oversupply is being pushed back.
01:06So we've got 20% of the world's LNG out of the moment.
01:09That came just as European gas stocks were near record lows.
01:13Stocks are still running short.
01:14We're seeing demand destruction, particularly in South Asia.
01:17And even once the war ends, and keep in mind,
01:20even if there's some miraculous deal tomorrow and the strait of whom was open,
01:22it's going to take three to six months for LNG flows to normalise again.
01:26And we've seen about 14 million tonnes per hour of capacity permanently damaged,
01:30which could take three to five years to fix.
01:32You put that together, and the oversupply is not going to come in 2026.
01:36It's probably not going to come in 2027.
01:38We're looking now to 2028, 2029.
01:41And given the pent-up demand, which is currently being lost,
01:44that could return, and we might not see significant oversupply eventuate at all.
01:48So is Australia and the rest of the world facing a shortage of gas,
01:52or just a shortage of cheap gas?
01:55Well, price will ultimately sort out the supply-demand balance as it is.
01:59Now, prices have remained high since 2022.
02:01So remember, when Russia turned off about 60 million tonnes per annum equivalent of LNG into Europe,
02:08that saw all the easy levers to reduce gas demand across the globe already being pulled.
02:12So now that we're seeing 80 million tonnes of supply impacted,
02:16there's no more easy levers to pull,
02:18and we're just seeing demand destruction across the board.
02:21That has resulted in higher prices to push that demand out.
02:25Now, once we see prices come back down, perhaps at $8 to $9 level,
02:28you'll start to see demand-side response.
02:31And that's why I think we might not see oversupply eventuate.
02:33We might just see prices moderate.
02:35But ultimately, we're looking at long-term prices now,
02:38which a few years ago were considered high.
02:42And now that's the new normal.
02:45In terms of Australia, we saw some measures in the budget to deal with this problem,
02:49one of which was a domestic reservation supply.
02:52Do you feel that this is going to put downward pressure on prices,
02:55or could it have some unintended consequences?
02:58Well, the federal government is talking about a gas reservation
03:01and working on it for over a year now,
03:02and still have not been able to provide any important details about how it works.
03:06Now, for a reservation policy, the devil is all in the detail.
03:09If they get the detail wrong, it will, just like their gas price cap policy in 2022,
03:15backfire, result in less supply,
03:16and ultimately, high prices are going to be sustained.
03:19Now, if you look at the progress to date,
03:21there's every reason to think that the government could still make a mess of the details here
03:25and ultimately not have a material impact
03:28and see them coming to intervene again in a few years' time,
03:31which would be my fear.
03:32There is an opportunity here to put in a proper broad-based reservation,
03:36but they're managing lots of stakeholders.
03:38They've agreed behind the scenes to deals with big customers and unions,
03:41but at the same time, they've agreed with our LNG export customers
03:45and maintaining contracts,
03:46and they've agreed with parts of the industry on making this equitably shared.
03:50And all of those commitments they've made are in contradiction with each other.
03:54And until they actually come up with the details,
03:55I don't think we have a reservation policy.
03:57We just have an idea of one.
03:59Is there a potential idea, too, to bring back or introduce a PRRT,
04:03Petroleum Resource Rent Tax, because we saw some broken promises
04:06in the budget around negative gearing, capital gains tax, discounts.
04:09Does that make you nervous?
04:10Perhaps we could see some more broken promises.
04:13Look, it's a possibility, but I think it's a remote possibility at this point.
04:18So Australia's LNG exports have actually saved Australia's fuel import dependency.
04:22Australia's one of the most vulnerable countries in the world
04:24in terms of fuel imports when we have a major disruption
04:28like we are having now through the Strait of Humus.
04:30Basically, there's been a quid pro quo
04:32where right at the highest level, the prime ministerial level,
04:35there have been behind-the-scenes understanding
04:37of the Singaporeans, the Koreans, the Malaysians, the Japanese,
04:40and even the Chinese,
04:42that as long as they keep sending fuel to us,
04:44we'll keep sending LNG to them,
04:46and we won't surprise them with attacks, for example.
04:49Now, to come back with attacks now after that
04:52would cause a major diplomatic incident with all our trading partners.
04:54I don't think the Albanese government wishes to do that.
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