The Adelaide oiler announced this morning it had entered into binding agreements with Toyota Tsusho Corporation and related parties to acquire its interests in the OGP and BassGas, including the Thylacine and Geographe offshore gas fields, the Thylacine well head platform and the onshore Otway gas plant.

 

BassGas includes the Yolla offshore gas field, the BassGas pipeline and onshore Lang Lang gas plant, along with various exploration permits and retention licences.

 

Assuming its acquisition of Lattice Energy from Origin Energy and the concurrent acquisition of Benaris' 27.77% interest in the OGP go ahead, Beach will end up with all of the OGP, 53.75% in the BassGas producing assets and 50.25% in BassGas' exploration permits, offering yet more potential upside.

 

Beach believes grabbing the reigns at OGP will allow it to optimise work programs efficiently as it progresses with the next phase of activities in the region.

 

The OGP's fields that include Thylacine and Geographe supply about 100 terajoules a day into Victoria's hungry gas market and 2500 barrels of oil equivalent a day of LPG and condensates.

 

Beach sees the OGP infrastructure as strategically important as it also currently processes gas from the 100% Lattice-owned Halladale and Speculant gas fields, and spare gas processing capacity is also available for potential future expansions as Beach or others explores and develops in the area.

 

Beach CEO Matt Kay said the deal was of strategic importance to his company as it not only gives it greater flexibility and control over future work programs but allows the potential introduction of new JV partners.

 

He also believes the deal will ensure efficient management of JV and other commercial arrangements.

 

"The acquisition demonstrates Beach's intent to pursue value accretive bolt-on acquisitions consistent with our growth strategy whilst we complete the acquisition and integration of Lattice," Kay said.

 

While the purchase price is confidential, Beach said it was consistent with pricing parameters comparable to recent deals in the sector.

 

East coast demand

 

The deal was announced just as Deutsche Bank said the long-feared LNG oversupply next year as propagated by Macquarie and others believe will last until at least 2022, if not longer, may not eventuate.

 

China's switch from coal to gas to reduce pollution has seen the Asian giant's LNG imports soar by 48% this year, and another larger-than-expected leap in 2018 could wipe out the oversupply forecast for that year, while South Korean demand will also be maintained as it's shifting away from nuclear and restricting coal power.

 

These Chinese and Korean factors, along with project delays in Australia (Ichthys) and a handful in British Columbia, could bring forward the time when demand starts outstripping supply by about five years.

 

"We believe this could see 2018 as a transition year for LNG, moving from a buyer's market to a seller's market, potentially bringing forward the commonly accepted 2023-24 inflection point where demand overtakes supply," Deutsche's Sydney-based energy analyst  John Hirjee said in a client note.

 

RBC Capital Markets' Ben Wilson said the scale of the government mandated coal to gas switching has seen demand outstripping supply with suppliers cutting back on gas supplied to industrial customers to meet residential heating demand.

 

Xinhua reporting implies that Chinese natural gas consumption for November was 23.2 billion cubic metres (about 27.8 billion cubic feet a day), 20% up on the prior period and is still running more than 19% YTD on 2016. 

 

Chinese gas production, which was up a more modest 2% for November at 12.6Bcm (15.2bcf/d), is more than 10% YTD on last year, which Wilson said was a strong run up to the core winter heating months of December-February which over the past few years have been the strongest gas demand months. 

 

While this is good news for the likes of Woodside Petroleum, Chevron and Queensland's LNG operators, it could also put under pressure efforts by both industry and government to reign in east coast gas prices which are now linked to LNG because Queensland's LNG producers are diverting exports into the domestic market.

 

Beach was up by more than 3% this morning at $1.15.