1 00:00:05,730 --> 00:00:08,459 Sean Aylmer: Welcome to the Fear & Greed Business Interview. I'm Sean Aylmer. 2 00:00:08,520 --> 00:00:10,469 Sean Aylmer: Gold's having a great run at the moment, trading at 3 00:00:10,469 --> 00:00:13,259 Sean Aylmer: just under 2, 400 US dollars an ounce. It's been 4 00:00:13,259 --> 00:00:16,769 Sean Aylmer: above 2000 US dollars an ounce since about November last 5 00:00:16,770 --> 00:00:19,829 Sean Aylmer: year, suggesting that investors are perhaps a little uncertain about 6 00:00:19,829 --> 00:00:22,470 Sean Aylmer: the outlook for financial markets, but it's not the only 7 00:00:22,530 --> 00:00:25,259 Sean Aylmer: commodity in the spotlight right now. The price of iron 8 00:00:25,259 --> 00:00:28,080 Sean Aylmer: ore fell quite a bit over the weekend. It's steadied 9 00:00:28,080 --> 00:00:30,749 Sean Aylmer: since, but that certainly has a big impact on our 10 00:00:30,750 --> 00:00:34,528 Sean Aylmer: miners. And LNGs in the headlines amid talks of Middle 11 00:00:34,529 --> 00:00:37,860 Sean Aylmer: East bid for oil and gas giant Santos. Vivek Dhar is 12 00:00:37,860 --> 00:00:41,519 Sean Aylmer: the director of mining and energy commodities research at Commonwealth 13 00:00:41,519 --> 00:00:44,968 Sean Aylmer: Bank. One of the few people who can actually explain 14 00:00:44,970 --> 00:00:49,108 Sean Aylmer: commodities to me and I can understand it. Vivek, welcome 15 00:00:49,110 --> 00:00:49,980 Sean Aylmer: back to Fear & Greed. 16 00:00:50,549 --> 00:00:52,319 Vivek Dhar: Thank you. A very kind introduction. 17 00:00:53,129 --> 00:00:56,940 Sean Aylmer: I find commodities hard, to be honest. So, you're going 18 00:00:56,940 --> 00:00:59,790 Sean Aylmer: to have to go 101 here. Let's start with gold. 19 00:01:00,150 --> 00:01:04,709 Sean Aylmer: Why is it so expensive at the moment and what's 20 00:01:04,709 --> 00:01:05,490 Sean Aylmer: the outlook for it? 21 00:01:06,059 --> 00:01:10,049 Vivek Dhar: Sure. So, look, gold is a strange commodity in that 22 00:01:10,049 --> 00:01:12,690 Vivek Dhar: it trades more like a currency than it does in 23 00:01:12,690 --> 00:01:16,289 Vivek Dhar: terms of pure fundamental supply and demand. That's not to say 24 00:01:16,290 --> 00:01:20,190 Vivek Dhar: that demand elements can't play a big role, but if 25 00:01:20,190 --> 00:01:23,790 Vivek Dhar: we look at it historically, the factors that drive it 26 00:01:23,819 --> 00:01:26,969 Vivek Dhar: are more financial market indicators. And in particular, if we 27 00:01:26,969 --> 00:01:30,750 Vivek Dhar: look through, say, 2023, the financial indicator that really made 28 00:01:30,750 --> 00:01:33,959 Vivek Dhar: the most sense is gold's negative relationship with the US 29 00:01:33,959 --> 00:01:37,319 Vivek Dhar: dollar. And the logic really follows there that when the 30 00:01:37,319 --> 00:01:41,009 Vivek Dhar: US dollar weakens, gold looks more attractive to non- US 31 00:01:41,010 --> 00:01:44,999 Vivek Dhar: consumers. And that's really where that negative relationship makes sense. 32 00:01:45,569 --> 00:01:47,459 Vivek Dhar: But when we look at gold and how it has 33 00:01:47,459 --> 00:01:51,360 Vivek Dhar: tracked, it really spiked this year and it rose to 34 00:01:51,480 --> 00:01:56,099 Vivek Dhar: a record high of over $ 2, 400 an ounce sometime 35 00:01:56,099 --> 00:02:00,000 Vivek Dhar: in mid- May. And the reason it got up there 36 00:02:00,000 --> 00:02:02,550 Vivek Dhar: was probably the most interesting that I've seen in terms 37 00:02:02,880 --> 00:02:06,930 Vivek Dhar: of market movements, because both the US dollar lifted and 38 00:02:06,930 --> 00:02:09,840 Vivek Dhar: gold lifted at the same time. And this disconnect that 39 00:02:09,840 --> 00:02:13,139 Vivek Dhar: we saw between these two indicators for the period that 40 00:02:13,139 --> 00:02:16,020 Vivek Dhar: it did and the result that happened, was really quite 41 00:02:16,020 --> 00:02:19,380 Vivek Dhar: extraordinary. And the reason why the market really reacted this 42 00:02:19,380 --> 00:02:23,009 Vivek Dhar: way was the market said, " Look, gold is hot right 43 00:02:23,010 --> 00:02:26,730 Vivek Dhar: now because we're seeing central banks purchase gold, we're seeing 44 00:02:26,760 --> 00:02:29,430 Vivek Dhar: retail buying out of China, and that was safe haven 45 00:02:29,430 --> 00:02:32,370 Vivek Dhar: demand." And so, that was the reason why it really 46 00:02:32,370 --> 00:02:37,200 Vivek Dhar: rallied by mid- May, but now we've seen gold threaten that $2, 47 00:02:37,200 --> 00:02:41,070 Vivek Dhar: 400 an ounce level again, right? It's still below those 48 00:02:41,070 --> 00:02:43,919 Vivek Dhar: peak points that we saw in May, but right now, 49 00:02:43,919 --> 00:02:46,560 Vivek Dhar: we're heading in that direction, but this time we have 50 00:02:46,560 --> 00:02:50,309 Vivek Dhar: the tailwind of a weaker US dollar. And this is 51 00:02:50,309 --> 00:02:53,250 Vivek Dhar: something right now that the market is almost getting behind 52 00:02:53,490 --> 00:02:56,578 Vivek Dhar: and this is something that could potentially drive gold higher 53 00:02:56,580 --> 00:02:59,009 Vivek Dhar: this year. And in our view, if we keep seeing 54 00:02:59,010 --> 00:03:02,190 Vivek Dhar: the US dollar weaken, which is a base case forecast, 55 00:03:02,730 --> 00:03:05,250 Vivek Dhar: we could see gold actually finish the year closer to $2, 56 00:03:05,280 --> 00:03:06,690 Vivek Dhar: 500 an ounce. 57 00:03:09,210 --> 00:03:12,869 Sean Aylmer: So, I get what you're saying, but it's like a 58 00:03:12,870 --> 00:03:16,288 Sean Aylmer: paradigm shift or something rather, where as a store of 59 00:03:16,288 --> 00:03:20,730 Sean Aylmer: value, gold, it used to be worth X, it's now 60 00:03:20,880 --> 00:03:23,550 Sean Aylmer: worth X plus one. And so, suddenly it has this 61 00:03:23,550 --> 00:03:28,710 Sean Aylmer: new equilibrium level above 2000 US dollars a ounce, be it 2, 62 00:03:28,710 --> 00:03:32,820 Sean Aylmer: 200 or 2,400 or 2,500, or whatever. Whereas, a couple of years ago people thought 63 00:03:32,820 --> 00:03:37,320 Sean Aylmer: it was only 1, 500. That's what confuses me a bit, why 64 00:03:37,650 --> 00:03:40,080 Sean Aylmer: it doesn't seem to go back to whatever the equilibrium 65 00:03:40,080 --> 00:03:42,300 Sean Aylmer: amount, it's almost finding a new equilibrium amount. 66 00:03:43,050 --> 00:03:47,279 Vivek Dhar: Look, arguably it's like currencies, right? If you look at 67 00:03:47,280 --> 00:03:51,089 Vivek Dhar: say where the Aussie is, it's 60 to 70 cents to the US 68 00:03:51,089 --> 00:03:53,430 Vivek Dhar: dollar. And you go back a few years, it was, 69 00:03:53,699 --> 00:03:56,040 Vivek Dhar: say, structurally higher than that. Or, if you look at 70 00:03:56,310 --> 00:03:59,610 Vivek Dhar: the mining boom, it was well higher than that. So, there's 71 00:04:00,090 --> 00:04:03,389 Vivek Dhar: elements where it can trade at certain ranges. And certainly 72 00:04:03,389 --> 00:04:06,210 Vivek Dhar: what we've seen, if I had to really unpack it, 73 00:04:06,570 --> 00:04:10,980 Vivek Dhar: is that it's been a relationship driven predominantly by what 74 00:04:10,980 --> 00:04:15,029 Vivek Dhar: we've seen with the US dollar of late. But the 75 00:04:15,030 --> 00:04:18,539 Vivek Dhar: question right now is, it has so many tailwinds, I 76 00:04:18,540 --> 00:04:20,849 Vivek Dhar: think looking at it from a longer term perspective is 77 00:04:20,849 --> 00:04:24,928 Vivek Dhar: more challenging and it's just more trying to understand what 78 00:04:24,928 --> 00:04:27,660 Vivek Dhar: are the headwinds and tailwinds right now, and where it 79 00:04:27,660 --> 00:04:30,570 Vivek Dhar: lands, it lands, but we're really looking at movements in 80 00:04:30,570 --> 00:04:30,661 Vivek Dhar: the space. 81 00:04:30,661 --> 00:04:34,770 Sean Aylmer: Yeah. Okay. So, there's potential for it to push further 82 00:04:34,770 --> 00:04:37,710 Sean Aylmer: towards 2, 500 US dollars an ounce. That's gold. Let's 83 00:04:37,710 --> 00:04:41,849 Sean Aylmer: move on to iron ore. Incredibly important for Australia. Obviously, the 84 00:04:41,849 --> 00:04:45,870 Sean Aylmer: big miners, particularly the big three, Fortescue, Rio, and BHP, 85 00:04:45,870 --> 00:04:48,539 Sean Aylmer: but also for Australia's balance sheet, the budget, federal budget. 86 00:04:49,710 --> 00:04:51,690 Sean Aylmer: I mean, there was a dip late last week. What's 87 00:04:51,690 --> 00:04:53,490 Sean Aylmer: going on in the iron ore markets? 88 00:04:53,940 --> 00:04:57,419 Vivek Dhar: Sure. So, look, when it comes to iron ore, our 89 00:04:57,420 --> 00:05:00,330 Vivek Dhar: view has actually been that a stable point for iron ore 90 00:05:00,330 --> 00:05:02,878 Vivek Dhar: this year would be between 100 to $ 110 a ton. 91 00:05:03,330 --> 00:05:07,380 Vivek Dhar: So, prices staying in that range for us is really 92 00:05:07,380 --> 00:05:10,529 Vivek Dhar: aligned to this view that China's steel output will track 93 00:05:10,529 --> 00:05:13,650 Vivek Dhar: sideways this year. And that's really premised on the idea 94 00:05:13,650 --> 00:05:16,799 Vivek Dhar: that the property sector will keep unraveling and we'll have 95 00:05:16,800 --> 00:05:20,010 Vivek Dhar: the infrastructure sector step up and compensate and offset that. 96 00:05:20,820 --> 00:05:23,789 Vivek Dhar: Now, in terms of why prices are kind of on 97 00:05:23,789 --> 00:05:27,029 Vivek Dhar: the edge of 110, and I would say the risk 98 00:05:27,029 --> 00:05:29,880 Vivek Dhar: is on the upside of that, it's all to do 99 00:05:29,880 --> 00:05:35,009 Vivek Dhar: with policy hope and stimulus. So, come 15 to 18th of July, 100 00:05:35,040 --> 00:05:37,950 Vivek Dhar: we have in China what we call the Third Plenum, 101 00:05:38,040 --> 00:05:41,550 Vivek Dhar: a key policy meeting point where often in the past 102 00:05:41,639 --> 00:05:45,570 Vivek Dhar: massive structural reforms have been announced. In terms of what 103 00:05:45,570 --> 00:05:48,210 Vivek Dhar: can be announced, it's not going to be as meaningful, 104 00:05:48,330 --> 00:05:50,070 Vivek Dhar: in our view, as what we've seen in the past, 105 00:05:50,460 --> 00:05:52,860 Vivek Dhar: but we may see more support for the property sector. 106 00:05:53,370 --> 00:05:55,979 Vivek Dhar: And that's really what's giving a bit of edge to 107 00:05:56,339 --> 00:05:59,849 Vivek Dhar: iron ore. And the level of excitement around that is, 108 00:05:59,850 --> 00:06:02,790 Vivek Dhar: for us, what is driving this up and down movement, 109 00:06:03,180 --> 00:06:05,400 Vivek Dhar: particularly over the last week. But there is going to 110 00:06:05,400 --> 00:06:07,470 Vivek Dhar: be more and more speculation as we get closer to 111 00:06:07,470 --> 00:06:10,170 Vivek Dhar: that date, that if China steps in to support the 112 00:06:10,170 --> 00:06:13,650 Vivek Dhar: property sector, we're going to actually see iron ore run 113 00:06:13,650 --> 00:06:16,169 Vivek Dhar: a bit. And that's really where that hope is coming 114 00:06:16,170 --> 00:06:17,070 Vivek Dhar: from in the near term. 115 00:06:18,029 --> 00:06:21,419 Sean Aylmer: Okay. And again, iron all prices where they are now, we 116 00:06:21,420 --> 00:06:24,539 Sean Aylmer: might be talking about lower than they were, but if 117 00:06:24,540 --> 00:06:27,719 Sean Aylmer: you look over a 20, 30, 40- year timeframe, they're actually relatively 118 00:06:27,719 --> 00:06:28,350 Sean Aylmer: high, aren't they? 119 00:06:28,589 --> 00:06:32,279 Vivek Dhar: Absolutely. And this is why it's such a materially different 120 00:06:32,279 --> 00:06:35,640 Vivek Dhar: commodity to gold, because when we actually look at iron 121 00:06:35,969 --> 00:06:39,240 Vivek Dhar: ore, we're actually looking at cost support levels more structurally. 122 00:06:39,839 --> 00:06:42,570 Vivek Dhar: And when we look at it from that level, when we 123 00:06:42,570 --> 00:06:45,359 Vivek Dhar: talk about, say, your big three out in WA and 124 00:06:45,960 --> 00:06:50,490 Vivek Dhar: the Pilbara, their delivered cash costs into China, say, maximum 125 00:06:50,490 --> 00:06:54,029 Vivek Dhar: around $ 35 a ton. So, the level of margins we're 126 00:06:54,029 --> 00:06:58,590 Vivek Dhar: talking about from where current iron ore prices are, are significant. So, 127 00:06:58,710 --> 00:07:02,219 Vivek Dhar: it's basically your cash cow for the Australian iron ore 128 00:07:02,219 --> 00:07:05,219 Vivek Dhar: mines, and that is something that is going to persist 129 00:07:05,309 --> 00:07:08,669 Vivek Dhar: for us in the foreseeable future. But the key, I'd 130 00:07:08,670 --> 00:07:11,280 Vivek Dhar: say, risk to watch for is not so much 2024, 131 00:07:11,580 --> 00:07:14,880 Vivek Dhar: but come 2025, we have a massive iron ore project 132 00:07:15,660 --> 00:07:20,040 Vivek Dhar: being started in Guinea, the Simandou iron ore project. And 133 00:07:20,040 --> 00:07:22,320 Vivek Dhar: that's where we could see some pressure on iron ore 134 00:07:22,679 --> 00:07:26,160 Vivek Dhar: and price support levels instead of being 100 to 110, move closer 135 00:07:26,160 --> 00:07:29,490 Vivek Dhar: to 90 to $100 a ton. And that's something that's worth 136 00:07:29,490 --> 00:07:32,850 Vivek Dhar: watching because that is a sizable chunk of global supply 137 00:07:32,850 --> 00:07:35,910 Vivek Dhar: that can come online. We're talking roughly 7 to 8% 138 00:07:36,270 --> 00:07:39,510 Vivek Dhar: of seaborne supply can be coming online. And it'll take 139 00:07:39,510 --> 00:07:43,230 Vivek Dhar: it probably a good, we're talking five to eight years for 140 00:07:43,230 --> 00:07:46,469 Vivek Dhar: that to come online fully. But it's worth watching because 141 00:07:46,949 --> 00:07:49,950 Vivek Dhar: that's a big chunk of supply that is probably going 142 00:07:49,950 --> 00:07:52,560 Vivek Dhar: to affect where pricing eventually lands. 143 00:07:53,160 --> 00:07:55,050 Sean Aylmer: Stay with me, Vivek. We'll be back in a minute. 144 00:08:02,130 --> 00:08:05,399 Sean Aylmer: My guest this morning is Vivek Dhar, director of mining and 145 00:08:05,400 --> 00:08:10,020 Sean Aylmer: energy commodities research at Commonwealth Bank. Okay, we've done gold, 146 00:08:10,020 --> 00:08:11,610 Sean Aylmer: we've done iron ore, and I'm with you so far, 147 00:08:11,610 --> 00:08:14,820 Sean Aylmer: Vivek. Now, the challenge is to explain gas markets to 148 00:08:14,820 --> 00:08:17,610 Sean Aylmer: me because I've tried, I really have. We have things 149 00:08:17,610 --> 00:08:20,969 Sean Aylmer: like the East Coast gas market and then we have 150 00:08:20,969 --> 00:08:23,369 Sean Aylmer: the rest of the country gas market. Then, of course, 151 00:08:23,369 --> 00:08:26,100 Sean Aylmer: we have LNG, which is liquified natural gas. So, that's 152 00:08:26,100 --> 00:08:31,950 Sean Aylmer: kind of when gas is liquified at a temperature point 153 00:08:32,250 --> 00:08:35,190 Sean Aylmer: and it can be exported. I want to know how 154 00:08:35,190 --> 00:08:37,589 Sean Aylmer: they all play together. You talk about East Coast gas 155 00:08:37,590 --> 00:08:42,840 Sean Aylmer: prices, and does LNG prices affect because that's a global 156 00:08:42,840 --> 00:08:45,090 Sean Aylmer: commodity rather than East Coast gas prices? How does it 157 00:08:45,090 --> 00:08:45,900 Sean Aylmer: all work together? 158 00:08:46,800 --> 00:08:49,710 Vivek Dhar: Sure. So, look, if I had to give some background, 159 00:08:49,710 --> 00:08:53,190 Vivek Dhar: I guess, with the LNG market, look, about three quarters 160 00:08:53,190 --> 00:08:56,429 Vivek Dhar: of Australia's LNG is actually tied to the oil price. 161 00:08:56,549 --> 00:09:01,410 Vivek Dhar: So, it's tied to, say, your brent oil futures with 162 00:09:01,410 --> 00:09:03,990 Vivek Dhar: say, a three to four- month lag. Right? And so, 163 00:09:04,290 --> 00:09:06,809 Vivek Dhar: predominantly that's how a lot of these contracts are set 164 00:09:06,809 --> 00:09:09,420 Vivek Dhar: up. And about a quarter of your LNG out of 165 00:09:09,420 --> 00:09:13,860 Vivek Dhar: Australia is sold on a spot basis into predominantly the 166 00:09:13,860 --> 00:09:18,210 Vivek Dhar: Asian market. Right? Now, you have an LNG spot index 167 00:09:18,270 --> 00:09:21,360 Vivek Dhar: which basically tracks what is that Asian LNG spot price. 168 00:09:21,870 --> 00:09:26,280 Vivek Dhar: And that is governed fundamentally by what happens in terms 169 00:09:26,280 --> 00:09:29,939 Vivek Dhar: of supply- demand balance in the LNG space. And the 170 00:09:30,420 --> 00:09:34,199 Vivek Dhar: outlook there has been, more or less the consensus is 171 00:09:34,379 --> 00:09:36,809 Vivek Dhar: we're going to see a shortfall potentially over the next 172 00:09:36,809 --> 00:09:39,630 Vivek Dhar: two years, and then, we have the risk of moving 173 00:09:39,720 --> 00:09:42,660 Vivek Dhar: into a surplus by the backend of this decade. So, 174 00:09:42,660 --> 00:09:47,490 Vivek Dhar: from 2027, 2028 onwards. Now, the reason why all of this 175 00:09:47,490 --> 00:09:51,089 Vivek Dhar: is really critical to, say, the East Coast is when 176 00:09:51,089 --> 00:09:55,740 Vivek Dhar: you look at the Queensland's LNG export terminals, they basically 177 00:09:55,740 --> 00:09:58,590 Vivek Dhar: have a choice of either supplying gas to East Coast 178 00:09:58,590 --> 00:10:03,300 Vivek Dhar: gas users, so your industrial users or even your gas 179 00:10:03,300 --> 00:10:07,559 Vivek Dhar: power generators, or they can sell that to Asia at 180 00:10:07,559 --> 00:10:10,799 Vivek Dhar: the LNG spot price. So, the level of anchoring that 181 00:10:10,799 --> 00:10:13,950 Vivek Dhar: we're seeing in the East Coast on that international LNG 182 00:10:13,950 --> 00:10:18,930 Vivek Dhar: spot price is significant. And so, what happens with LNG 183 00:10:19,020 --> 00:10:22,860 Vivek Dhar: market dynamics actually has an enormous bearing in terms of 184 00:10:22,860 --> 00:10:25,799 Vivek Dhar: how East Coast gas prices develop. Now, it's not the 185 00:10:25,799 --> 00:10:30,238 Vivek Dhar: golden rule that international LNG prices dictate what happens in 186 00:10:30,240 --> 00:10:33,990 Vivek Dhar: the East Coast, and certainly, regulation has an impact, but 187 00:10:34,350 --> 00:10:38,098 Vivek Dhar: the big risk you run into in the East Coast 188 00:10:38,190 --> 00:10:41,219 Vivek Dhar: is that one of the big solutions to solve for 189 00:10:41,219 --> 00:10:45,689 Vivek Dhar: the shortfall that's expected by 2027 or 2028 in East 190 00:10:45,690 --> 00:10:50,250 Vivek Dhar: Coast Australia is an LNG import terminal. And if we 191 00:10:50,250 --> 00:10:53,189 Vivek Dhar: do see that developed, which is looking likely in our 192 00:10:53,190 --> 00:10:57,330 Vivek Dhar: view, that actually then cements the East Coast gas price 193 00:10:57,330 --> 00:11:01,108 Vivek Dhar: to the international LNG price. So, that is something that 194 00:11:01,469 --> 00:11:03,900 Vivek Dhar: we are watching very closely, but you can see now 195 00:11:03,929 --> 00:11:09,179 Vivek Dhar: how the international dynamics influences the East Coast dynamics. 196 00:11:09,870 --> 00:11:13,110 Sean Aylmer: So, if we talk about gas as the transition energy 197 00:11:13,110 --> 00:11:15,569 Sean Aylmer: and both sides of politics talk about it that way, 198 00:11:15,570 --> 00:11:18,360 Sean Aylmer: I think the consensus view is definitely that gas is 199 00:11:18,360 --> 00:11:21,389 Sean Aylmer: going to be the transition energy and that's over decades. 200 00:11:21,389 --> 00:11:23,219 Sean Aylmer: We're not talking two or three years here, we're talking 201 00:11:23,219 --> 00:11:28,500 Sean Aylmer: decades. I mean, demand for gas is going to be 202 00:11:28,500 --> 00:11:33,088 Sean Aylmer: higher, obviously. You've said that '28, '29 potentially the supply will 203 00:11:33,090 --> 00:11:36,839 Sean Aylmer: pick up significantly, but what's the longer term outlook, 10, 204 00:11:36,870 --> 00:11:39,299 Sean Aylmer: 20 years for gas, given it is going to be 205 00:11:39,299 --> 00:11:41,609 Sean Aylmer: the transition energy? 206 00:11:42,840 --> 00:11:45,328 Vivek Dhar: Yeah. Look, I would say there's a distinction between what's 207 00:11:45,330 --> 00:11:49,200 Vivek Dhar: happening internationally and what's happening domestic. So, almost the timing 208 00:11:49,200 --> 00:11:53,429 Vivek Dhar: of when we see a domestic shortfall is almost when 209 00:11:53,429 --> 00:11:58,740 Vivek Dhar: we see an international oversupply in LNG markets. Right? So, 210 00:11:58,740 --> 00:12:01,650 Vivek Dhar: there is a distinction between the two, but if I 211 00:12:01,650 --> 00:12:04,078 Vivek Dhar: had to point at what is happening in the East 212 00:12:04,080 --> 00:12:08,370 Vivek Dhar: Coast, what we're seeing is AEMO, which is the Australian 213 00:12:08,460 --> 00:12:12,269 Vivek Dhar: Energy Market Operator, it's very clear from what they're saying 214 00:12:12,480 --> 00:12:16,260 Vivek Dhar: that we're going to need gas over the next two 215 00:12:16,260 --> 00:12:21,120 Vivek Dhar: decades. And the gas demand profile, it's fairly flat if 216 00:12:21,120 --> 00:12:23,010 Vivek Dhar: we really look at it and step back over that 217 00:12:23,550 --> 00:12:27,389 Vivek Dhar: viewpoint. And really, that's because as coal exits, we're actually 218 00:12:27,389 --> 00:12:30,630 Vivek Dhar: going to require more gas power generation. And that's really 219 00:12:30,630 --> 00:12:34,559 Vivek Dhar: where we're having that offsetting impact, despite households shifting away 220 00:12:34,559 --> 00:12:39,810 Vivek Dhar: from gas heating and gas water heating into electrification. But 221 00:12:40,080 --> 00:12:42,540 Vivek Dhar: what that means is we need to have a gas 222 00:12:42,540 --> 00:12:46,620 Vivek Dhar: production policy that meets basically a flat demand forecast. And 223 00:12:46,620 --> 00:12:49,650 Vivek Dhar: that is where there's enormous challenges. And this is why 224 00:12:50,009 --> 00:12:53,400 Vivek Dhar: an LNG import terminal and these solutions that over a 225 00:12:53,400 --> 00:12:56,490 Vivek Dhar: decade ago we would've thought unthinkable, have really come into 226 00:12:56,490 --> 00:13:00,150 Vivek Dhar: play because of the challenges of getting domestic production up 227 00:13:00,150 --> 00:13:03,179 Vivek Dhar: and running, and in particular, solving some of the infrastructure 228 00:13:03,179 --> 00:13:07,110 Vivek Dhar: problems in the East Coast. So, if I had to summarize 229 00:13:07,110 --> 00:13:10,319 Vivek Dhar: and typify the East Coast right now, everyone talks about 230 00:13:10,320 --> 00:13:13,140 Vivek Dhar: we need more supply, we need more supply. But what 231 00:13:13,140 --> 00:13:16,140 Vivek Dhar: is happening is all the infrastructure in the East Coast, all 232 00:13:16,140 --> 00:13:18,900 Vivek Dhar: the pipelines, they were all designed to send gas from 233 00:13:18,900 --> 00:13:23,250 Vivek Dhar: Victoria up towards Queensland. What we're seeing play out, and 234 00:13:23,250 --> 00:13:26,009 Vivek Dhar: this is why we're getting shortfalls, is Victorian gas production 235 00:13:26,009 --> 00:13:29,429 Vivek Dhar: is going to fall off a cliff, and that's expected 236 00:13:29,429 --> 00:13:34,230 Vivek Dhar: by 2028. And all the pipeline infrastructure is designed to 237 00:13:34,230 --> 00:13:37,980 Vivek Dhar: send gas north, not south. So, that gas production from 238 00:13:37,980 --> 00:13:40,980 Vivek Dhar: Queensland is actually going to get to the point of 239 00:13:40,980 --> 00:13:44,309 Vivek Dhar: not being able to supply Victorian needs. And it's then 240 00:13:44,309 --> 00:13:47,400 Vivek Dhar: not just a supply problem, it's also an infrastructure problem, 241 00:13:47,969 --> 00:13:50,699 Vivek Dhar: and that's why import terminal is where that short- term 242 00:13:50,700 --> 00:13:53,970 Vivek Dhar: solution lies. But you can see that these dynamics are 243 00:13:53,970 --> 00:13:58,439 Vivek Dhar: really going to put pressure on gas users, because that 244 00:13:58,440 --> 00:14:01,468 Vivek Dhar: gas price stays quite elevated and there's a lot of 245 00:14:01,469 --> 00:14:04,289 Vivek Dhar: pressure, because a decade ago, East Coast was paying 3 246 00:14:04,289 --> 00:14:08,160 Vivek Dhar: to $4 a gigajoule for gas. The reality is that in two to three 247 00:14:08,160 --> 00:14:12,390 Vivek Dhar: years, we could be paying 15 to $20 a gigajoule for gas. And that's really where 248 00:14:12,390 --> 00:14:14,699 Vivek Dhar: the risk lies for the East Coast right now. 249 00:14:15,599 --> 00:14:18,179 Sean Aylmer: We're totally out of time, Vivek, and maybe we'll cut 250 00:14:18,179 --> 00:14:19,980 Sean Aylmer: this question out, to be perfectly honest, because I feel 251 00:14:19,980 --> 00:14:23,639 Sean Aylmer: really silly asking it, but does gas only flow one 252 00:14:23,639 --> 00:14:26,670 Sean Aylmer: way? So, when you talk about import terminal versus an 253 00:14:26,670 --> 00:14:29,880 Sean Aylmer: export terminal, you talk about pushing gas up to Queensland, 254 00:14:30,420 --> 00:14:33,389 Sean Aylmer: the infrastructure only flows gas one way? Or, is that 255 00:14:33,389 --> 00:14:34,440 Sean Aylmer: a really dumb question? 256 00:14:35,010 --> 00:14:38,400 Vivek Dhar: No, no, it's a perfectly valid question. And a lot 257 00:14:38,400 --> 00:14:42,269 Vivek Dhar: of the pipeline augmentations that are happening in the East 258 00:14:42,330 --> 00:14:45,300 Vivek Dhar: Coast is actually trying to reverse pipeline, so allow for bi- 259 00:14:45,300 --> 00:14:50,460 Vivek Dhar: directional flow. But the pipelines can send gas south and 260 00:14:50,460 --> 00:14:54,119 Vivek Dhar: north, most of them, some of them can't, but augmentations 261 00:14:54,120 --> 00:14:57,089 Vivek Dhar: will allow for that two- way flow. But the LNG 262 00:14:57,089 --> 00:15:00,239 Vivek Dhar: terminals, basically all they do is liquefy, send it on 263 00:15:00,240 --> 00:15:02,370 Vivek Dhar: a ship, then you have to send it to a 264 00:15:02,370 --> 00:15:04,710 Vivek Dhar: place where they can re- gasify, and then, send it 265 00:15:04,710 --> 00:15:08,880 Vivek Dhar: back to an import point. So, the way you get 266 00:15:08,880 --> 00:15:11,580 Vivek Dhar: around a new pipeline is basically you send a ship 267 00:15:11,580 --> 00:15:17,189 Vivek Dhar: with liquified gas. It sounds something that you don't expect 268 00:15:17,190 --> 00:15:20,460 Vivek Dhar: will be the case, particularly given that we are such a 269 00:15:20,460 --> 00:15:23,730 Vivek Dhar: massive gas LNG exporter, but such is the production and 270 00:15:23,730 --> 00:15:27,030 Vivek Dhar: infrastructure dynamics in the East Coast that an LNG import 271 00:15:27,030 --> 00:15:30,059 Vivek Dhar: terminal is looking like the key risk that will be developed. 272 00:15:30,840 --> 00:15:33,960 Sean Aylmer: Vivek, I've learned a lot this morning. I really appreciate 273 00:15:33,960 --> 00:15:35,820 Sean Aylmer: that, especially around gas. Thank you for talking to us 274 00:15:35,820 --> 00:15:36,749 Sean Aylmer: here on Fear & Greed. 275 00:15:37,109 --> 00:15:37,890 Vivek Dhar: No worries. My pleasure. 276 00:15:38,670 --> 00:15:42,510 Sean Aylmer: That was Vivek Dhar, director of mining and energy commodities research 277 00:15:42,510 --> 00:15:45,599 Sean Aylmer: at Commonwealth Bank. This is the Fear & Greed Daily Interview. 278 00:15:45,599 --> 00:15:47,610 Sean Aylmer: Join us every morning for the full episode of Fear & 279 00:15:47,610 --> 00:15:50,099 Sean Aylmer: Greed, daily business news for people who make their own 280 00:15:50,099 --> 00:15:52,379 Sean Aylmer: decisions. I'm Sean Aylmer. Enjoy your day.