Canacord comments
Event
The Government has proposed the introduction of export restrictions when there is a “shortfall” of gas into the domestic market. In its statement the Government has made clear that domestic prices should not be higher than the prices paid in markets to which Australia exports gas.
The restrictions will be targeted at exporters who are not “net-contributors” to the domestic market eg GLNG. It does not prescribe how the exporter must respond during a restriction period which means it is up to them to find the best commercial response.
Consultation with industry will now take place with the regulations to be implemented by 1 July 2017
CG Comment
This move was very faintly flagged a week ago when the Government refused to rule out “possible regulatory options" if there is any short-term risk to domestic gas supplies. We expect a huge amount of noise today and a lot of sovereign risk talk from industry. That said the perception of putting “Australian’s first” is in keeping with the current zeitgeist and likely considered a vote winner.
Amongst our SMID cap universe the potential restrictions likely blunts some of the potential for extreme gas prices but does not impact our base case (we assume $8/GJ for uncontracted/spot). Additionally it is worth noting that Japan is currently paying $10/GJ for Australian LNG (customs cleared, prior to re-gas tariff and distribution charges). Using this as a net-back for Cooper Energy (COE) would lift our price target to $0.58ps (+18%).
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