Santos supplies gas for export via the GLNG project in Queensland, which has signed massive long-term contracts with Malaysia and South Korea.
The company and its partners in the $25 billion venture are seen as the biggest potential losers in the Government’s move, with Santos shares sinking by more than 7 per cent in trading today.
Santos is seeking more details about the Federal Government’s policy to determine how the measures might impact the GLNG project and its foreign commercial partners, amid warnings from the industry about “sovereign risk”.
Prime Minister Malcolm Turnbull said today his policy would protect jobs and bring down prices.
However, he added that the move was only a short-term solution to Australia’s gas supply problems and again pressured state governments, especially Victoria, to open up gas exploration.
“The longer term solution is more gas. In the short time I have to protect Australian jobs,” he told ABC radio in Brisbane today.
“In Victoria, where there is a huge amount of gas, you have a Labor government, which will not allow even conventional gas exploration and development.”
Under new powers, the Federal Government will restrict the amount gas companies can export whenever The Australian Energy Market Operator forecasts a domestic shortage.
Turnbull said this would protect 65,000 jobs in gas-dependent industries and bring Australian gas prices in line with the global market.
Prices on Australia’s east coast are currently substantially above those on offer for Australian gas overseas, despite the country being on track on become the world’s biggest exporter on LNG.
Turnbull said domestic prices were sometimes four or five times those on offer in the US.
“People are being offered prices of $20 a gigajoule (in Australia). It should be around half of that, or less.”
Santos told the ASX today that it wanted “clarification” from the Federal Government on how the policy would work.
It insisted that it had supplied natural gas to the domestic market at “affordable rates” over a long period of time.
“Moving forward Santos will supply more gas into the Australian domestic market than it purchases for its share of LNG exports,” the company said in a statement.
“Santos will seek clarification of how the new policy will work in practice in order to understand from Government the terms on which it is proposing to introduce this mechanism and how
proposals that have been put to Government to address the domestic market situation are being considered.
“Santos will work collaboratively with Government and its joint venture partners to ensure an outcome in the best interests of its shareholders.”
The peak body for the industry, Australian Petroleum Production & Exploration Association, was less diplomatic, warning the gas export controls risked “exacerbating tight market conditions unless accompanied by genuine reforms”.
“Restricting exports is almost unprecedented for Australia,” said APPEA chief executive Malcolm Roberts.
“At a time when we need billions in new investment to create more gas supply, any intervention that creates sovereign risk is alarming.”
Roberts said the east coast gas market was tight, but APPEA had been warning governments for years that they needed to address the political and regulatory barriers to developing new gas supplies.
“Over the last five years, the industry has tripled east coast gas production, creating an entirely new supply from coal seam gas,” he said.
“The main obstacle to developing more supply has been the opposition of some state governments.
“Queensland and South Australia have shown the political courage and economic common sense to support gas production.
“But government failure in New South Wales and Victoria has prevented projects that could have averted the current market conditions. The current moratorium in the Northern Territory is also preventing the development of new gas supplies.
“It is bizarre that state governments which ban or frustrate gas projects should also be complaining about tight gas supply and higher prices.”
He said the industry would need to carefully consider Turnbull’s announcement over the “very short consultation period”.
“However, governments must address the real problem – a lack of supply created by high regulatory costs and political barriers. With exploration at a 30-year low, the pipeline for future supply is precarious.”
Unlike some other states, South Australia’s Labor government has been a strong supporter of unconventional gas exploration while the State Liberals have announced a moratorium on such exploration in the state’s South-East.
The Australian Industry Group welcomed the federal intervention, saying Australian businesses needed to saved from “ruinous” gas price increases.
The group’s chief executive, Innes Willox, said the Government’s announcement was “an appropriate and welcome response to an extraordinary crisis”.
“The export approval process announced today gives the gas industry maximum flexibility to make commercial agreements to fill the hole in domestic supply due to the over-commitment to exports,” he said. “And the firm prospect of an export ban should ensure that they take this opportunity.”
“We are hopeful that the Government’s intervention will see the gas supply and price crisis ease in the near future – and that these steps will also take pressure off electricity prices.
“However, major energy challenges will remain. All states need to work with their communities, gas users and gas producers to ensure that enough gas can be produced to meet our needs.”
The Federal Government’s announcement today comes after two unsuccessful meetings between gas company bosses and the prime minister in Canberra.
“They haven’t got us to where we’d like to be,” Federal Resources Minister Matt Canavan told ABC radio.
He stressed companies would be able to choose how they responded to the powers.
“All we want is the outcome of the jobs being secure and the gas being at a reasonable, affordable price,” he said.
“There are different ways to achieve that, gas swaps could be an element of that – that is that gas could be found elsewhere in the world or in Australia to meet the contractual needs in Asia.”
Canavan said if shortfalls didn’t emerge, or more gas came back onto the domestic market, the government would not need to activate the new rules.
“That would be ideal,” he said.Jump to next article