More gas cartel whinging today at Cartel Headquarters.
Forcing east coast gas producers to sell 20 per cent of their LNG exports into the domestic market will kill gas companies and destroy businesses, according to Santos chief executive Kevin Gallagher, who says Australia risks going the way of Argentina and its failed export industry.
The Albanese government’s proposed domestic gas reservation policy will require east coast LNG producers to sell – not just offer – gas to domestic customers, part of a strategy to drive gas prices lower.
Although the proposal has been welcomed by Australian manufacturers, Gallagher led several gas industry chief executives in slamming that detail of the plan at the annual Australian Energy Producers conference in Adelaide on Tuesday.
Australia should throw this bloke out for being a pest.
The only company really affected by the 20% reservation policy is his. And that’s because it stupidly didn’t have enough gas to build two LNG trains over a decade ago and thought nobody would notice when it sucked up everybody else’s gas.
Let’s go way back to GFC times.
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. This was revealed in August 2012, after the GLNG budget rose by $US2.5bn to $US18.5bn because, Santos said, of extra drilling and compression requirements.
If David Knox is still here after moving on to run the Snowy Hydro 2.0 disaster, throw him out as well.
In substance, the only negative outcome of the gas reservation policy for the cartel is that STO will have to declare force majeure and recontract the gas it steals locally from global supply to meet its export customer contracts.
This move will obviously cost it money. The money you are currently paying for your utility bills.
Should STO pay for its mistakes, or should you pay for them?
It’s a rather simple answer, and if you can’t reach it yourself, then you, too, walk the plank.
