MB has a love-hate relationship with The Australian’s Judith Sloan. The hate is usually about gas.
I’m sure I’m not the only one who thinks it’s passing strange – more than passing strange – that Australia is about to become an importer of liquefied natural gas as well as an exporter.
…How did this bizarre situation come to pass? How is it that a country so blessed with resources, including large reserves of natural gas, can achieve such a ridiculous and costly arrangement?
…If there is a single individual who can be blamed, it is Lily D’Ambrosio, Victoria’s long-serving Minister for Climate Action, Energy and Resources. Notwithstanding the knowledge that Victoria’s reserves would run out, her hostile approach to the gas industry has led to the current stalemate. Some of her actions include imposing a constitutional ban on fracking, banning the conventional drilling for gas (until recently), banning use of gas appliances in newly constructed dwellings, and banning replacement of gas appliances in existing dwellings. She refused to allow gas to be one element of a capacity mechanism to shore up the electricity grid when electrons from renewable energy are unavailable. According to her misguided thinking, renewable energy can back up renewable energy.
Not that other parties should be let off the hook. NSW has faffed around, erecting road blocks to the gas development around Narrabri. This is notwithstanding the fact that the company has always guaranteed the gas would be reserved for domestic purposes. Note here NSW is almost completely reliant on other states for gas.
…The attempt by the federal government to cap the price of domestic gas at $12/gigajoule when war in Ukraine began has been a complete failure. While the intervention served to deter investment in the industry, virtually all gas producers were able to secure conditional ministerial exemptions from the Gas Code’s reasonable price provisions.
The main game now is to lock in a suitable site in the southern states for an LNG receiving terminal, including the need for adequate storage. There are several options being floated including the terminal at Port Kembla developed by Squadron Energy owned by Andrew Forrest, a terminal at Corio Bay and a floating terminal in Port Phillip Bay.
Whatever the final decision, the outcome will be expensive. There will also be a need for foundation customers as well as the potential for the government to underwrite the arrangement, possibly through AEMO. It is a clear example of a pig with lipstick but this is the current situation.
…Even if the Queensland producers released more gas for use in NSW and Victoria, the pipeline is already at capacity. It’s just a pity our governments have let us down so badly.
So, let’s unpack what is wrong with this.
First, the number one culprit in the debacle is Santos. It was STO that made the last-minute decision to double its LNG export capacity on Curtis Island when it had dubious reserves of gas to fill it. Sloan was a long-term board member of STO at the time.
Second, Sloan knows that reserving Narrabri gas is meaningless. The volumes are not large enough to prevent imports, and the STO export cartel will ship other gas offshore to keep the market tight.
Third, why is it OK to build southern storage for LNG exports that cost double QLD gas piped south? And 400% more than a reasonable return on said gas? But building the same storage to be filled with gas piped from QLD in the off-season is not a good idea? The only pipelines that are full right now are going to China not VIC and NSW.
If you have pipeline bottlenecks, then fix them. Don’t build import terminals.
Judith Sloan should confess to her role in the debacle instead of re-writing history. From her own newspaper in 2017.
As Santos worked toward approving its company-transforming Gladstone LNG project at the start of this decade, managing director David Knox made the sensible statement that he would approve one LNG train, capable of exporting the equivalent of half the east coast’s gas demand, rather than two because the venture did not yet have enough gas for the second.
“You’ve got to be absolutely confident when you sanction trains that you’ve got the full gas supply to meet your contractual obligations that you’ve signed out with the buyers,” Mr Knox told investors in August 2010 when asked why the plan was to sanction just one train first up.
“In order to do it (approve the second train) we need to have absolute confidence ourselves that we’ve got all the molecules in order to fill that second train.”
But in the months ahead, things changed. In January, 2011, the Peter Coates-chaired Santos board approved a $US16 billion plan to go ahead with two LNG trains from the beginning….as a result of the decision and a series of other factors, GLNG last quarter had to buy more than half the gas it exported from other parties.
…In hindsight, assumptions that gave Santos confidence it could find the gas to support two LNG trains, and which were gradually revealed to investors as the project progressed, look more like leaps of faith.
…When GLNG was approved as a two-train project, Mr Knox assuredly answered questions about gas reserves.
“We have plenty of gas,” he told investors. “We have the reserves we require, which is why we’ve not been participating in acquisitions in Queensland of late — we have the reserves, we’re very confident of that.”
But even then, and unbeknown to investors, Santos was planning more domestic gas purchases, from a domestic market where it had wrongly expected prices to stay low.
And so the East Coast gas cartel was born.
