Australia in Talks With Gas Majors to Avert Local Shortage

 

Australia's top gas producers, led by ExxonMobil Corp and Royal Dutch Shell (RYDAF), agreed to boost supply to the country's domestic market to help avert an energy shortage following crisis talks with Prime Minister Malcolm Turnbull.

 

Australia is on track to become the world's largest exporter of liquified natural gas (LNG), yet its energy market operator has warned of a domestic gas crunch from 2019 that could trigger industry supply cuts and broad power outages.

 

"We are a massive gas exporter. It is utterly untenable - unacceptable - for us to be in a position where domestic gas consumers ... cannot have access to affordable gas," Turnbull told reporters on Wednesday after the meeting.

 

He said the producers had guaranteed to ensure that gas would be available for the national electricity market.

 

Australia's power supply problems made international headlines last week when Tesla Inc boss Elon Musk offered to save South Australia, the country's most renewable-energy dependent state, from blackouts by installing large-scale battery storage.

 

The South Australian government on Tuesday outlined plans to spend A$510 million ($385 million) to keep the lights on, including A$150 million to encourage the development of 100 megawatts of battery storage.

 

Australian manufacturers have long complained of tight gas supplies and soaring prices as producers have focused on supplying gas to LNG plants that have locked in 20-year export contracts. Three LNG plants have opened in the country over the past two years, which has tripled gas demand and sent gas prices rocketing from around A$6 a gigajoule (GJ) to as much as $22/GJ.

 

"That's apocalyptic as far as the cost structures of energy-intensive manufacturers are concerned," Tennant Reed, policy adviser at the Australian Industry Group, said at a gas outlook conference this week.

 

Companies like top Australian steel maker BlueScope Steel , fertiliser maker Incitec Pivot and packaging maker Orora Group have urged the government to reserve gas for the domestic market or risk losing thousands of jobs as plants shut.

 

Both sides of government have resisted a domestic gas reservation, acknowledging that would create sovereign risk for existing projects and threaten future investment in the country, but Turnbull left the door open to imposing a domestic quota.

 

"We've made considerable progress today, but there is more work to be done. But the considerable powers the Commonwealth has are obviously ones that we would never shirk from using in the national interest," he said.

 

Shell, which runs the Queensland Curtis LNG plant (QCLNG) and is sitting on undeveloped coal seam gas in the state, said it has sold significant volumes into southeastern Australia.

 

Diverting gas from LNG plants into the domestic market would be the easiest short-term solution, as two of the three LNG plants in Queensland - Shell's QCLNG and Origin and ConocoPhillips (COP)' Australia Pacific LNG (APLNG) - have some capacity that is not locked into export contracts.

 

Turnbull said both QCLNG and APLNG had committed to being net suppliers to the domestic market, while Santos' Gladstone LNG, which is short of gas, had taken the request on notice.

 

A challenge, however, would be finding space on the gas pipeline network, said Saul Kavonic, an analyst at Wood Mackenzie.

 

Producers blame state drilling bans, uncertainty over Australia's climate policy and, more recently, potential increases in petroleum producer taxes, for deterring development of new gas fields.