Victoria’s Bass Strait gas at risk from price caps,Woodside warns

Woodside,the nation’s largest oil and gas producer,has warned it may be forced to reassess its investment plans for Victoria’s Bass Strait gas fields if the federal government imposes limits on domestic fossil fuel prices.

Treasurer Jim Chalmers has said the Albanese government’s preferred market intervention is to cap the costs of gas and coal for power stations and other domestic buyers as it comes under increasing pressure to halt soaring energy bills,which are tipped to rise even higher next year.

Victoria’s Bass Strait gas reserves are rapidly running out.

Victoria’s Bass Strait gas reserves are rapidly running out.ExxonMobil Australia

Woodside and ExxonMobil’s 50-year-old joint venture in the Bass Strait supplies about 20 per cent of the eastern seaboard’s natural gas,a fuel widely used to heat homes,generate electricity and power a range of industrial processes. Victoria is Australia’s largest consumer of gas,with more than 2 million gas-connected homes and businesses.

However,the Bass Strait fields are rapidly declining and require hundreds of millions of dollars of new investment to maintain reliable supplies.

“If there’s a price cap it is very hard to see those opportunities being attractive,to be really blunt,” Woodside chief executive Meg O’Neill told investors on Thursday.

Federal Climate Change and Energy Minister Chris Bowen said the government had not finalised its plan to curb power prices. The government has committed to reveal its solution by the end of the year,and speculation is mounting that it will release its plan at a national cabinet meeting on Wednesday. Ahead of the talks,tensions have flared,with NSW and Victoria demanding an urgent solution to soaring bills,while Queensland,which has abundant coal and gas production,is demanding it be fully compensated for any financial hit from price caps.

Bowen said some recent media reports of potential market interventions,including a windfall tax on gas and coal,east coast gas reservation and household energy subsidies,were “way off the mark”.

Victorian Premier Daniel Andrews on Thursday stepped up his attacks on gas producers,accusing them of “profiteering off misery in Europe” and “gouging in its purest form”.

“The ideal outcome in terms of gas is that Victorians,indeed Australians,are not expected to pay European prices for something that comes out of the ground here,” Andrews said.

East-coast gas prices have soared this year,driving record sales revenue for gas producers including Woodside,which reported more than $9 billion in sales for the September quarter alone. Prices have been spiking as the war in Ukraine has deepened a global energy shortage as Western nations shun Russian supplies and intensify competition for any available cargoes of liquefied natural gas (LNG). At the same time,cold weather has combined with a series of failures at Australia’s ageing coal-fired power stations to drive up demand for gas-fired electricity generation.

The manufacturing sector has been advocating for the government to set a $10-a-gigajoule cap on wholesale gas prices,warning factories that depend on gas for energy or as a raw material are struggling to stay viable under prices currently trading at more than $20 in Australia’s south-east.

Energy Users Association of Australia chief executive Andrew Richards,who represents large manufacturing firms,said many of his members were “horrified” at the price of gas being offered to them,as they looked to replace expiring long-term supply contracts with new deals priced for the current market. There are reports in the industry of long-term gas supply contracts being offered at more than $40 a gigajoule.

“It’s getting to the point where those companies that can pass the costs through to products on the supermarket shelves can’t compete against imported products,” Richards said. “That’s when they say,‘What’s the point of staying in business?’”

Opponents of the proposed price caps,including coal and gas companies whose sales revenue stands to be affected,are ramping up warnings that such a move could deter investment needed to develop new sources of domestic supplies that would be crucial to putting downward pressure on prices in the longer run. The gas industry insists the best way to drive down prices is to increase locally produced supplies closer to the demand centres in Victoria and NSW that need the fuel the most.

Former Australian Competition and Consumer Commission chairman Professor Rod Sims said the three Queensland liquefied natural gas (LNG) exporters should be pressured to sell more gas to the domestic market as part of their social license to operate,with the aim getting prices down to about $10 per gigajoule.

Sims,who ran a years-long inquiry into the east-coast gas market,said he did not believe this would create a disincentive for exploration. “If it’s not economic at $10,then you probably want to leave it in the ground,” he said.

O’Neill on Thursday said price caps would not only derail future Bass Strait investments,but also damage the viability of a proposal to build Victoria’s first specialised shipping terminal to receive imports of LNG from other parts of the country or overseas.

As output from Bass Strait falls and Victoria faces tighter supplies in coming years,Viva Energy’s proposal to build an LNG terminal at the Geelong oil refinery,which would be able to receive liquefied gas from anywhere in the world and turn it back into vapour,could present a significant short-term source of additional supplies.

If price caps were introduced,O’Neill said,“it’s really hard to see LNG imports being attractive”.

“It might feel good for a short period ... but the outcome will be under-investment in supply and under-investment in the kinds of capacity mechanisms things like floating storage re-gasification units that could help alleviate the pressure for the long term,” she said.

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Nick Toscano is a business reporter for The Age and Sydney Morning Herald.

Josh Gordon is a senior reporter for The Age.

Mike Foley is the climate and energy correspondent for The Age and The Sydney Morning Herald.

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