ExxonMobil brings forward next Bass Strait budget review as price caps loom

US energy giant ExxonMobil has drastically shortened the investment cycle for its gas operations in the Bass Strait,from 12 to six months,for the first time in its 50-year history because of the looming threat of federal government intervention in the energy market.

As the Albanese government finalises a plan to tame soaring power and gas bills facing consumers across the eastern seaboard,Treasurer Jim Chalmers has indicated his preferred market intervention is to impose caps on the prices that coal and gas producers can charge local buyers. A decision on the price caps could be made as early as this week.

The soaring cost of gas is pushing power prices higher,making cost of living a burning issue for the federal government.

The soaring cost of gas is pushing power prices higher,making cost of living a burning issue for the federal government.John Woudstra

ExxonMobil,whose local subsidiary Esso operates the gas fields of Victoria’s Gippsland Basin through a joint venture with Woodside,said it was taking steps to minimise the risks of the “uncertain regulatory environment” and had been forced to allocate its investments on a much shorter-term basis for 2023.

The company’s budget is ordinarily planned for a full year and reviewed toward the end of the year,but it will now be reassessed mid-year.

“The annual investment cycle has been crucial to the success of the Gippsland Basin joint venture,which has invested in Australia and supplied natural gas domestically for more than 50 years,but the current uncertainty requires an unprecedented approach,” a company spokesman said.

“Esso is taking steps to minimise the business risk of the current uncertain regulatory environment and has opted to reduce its investment cycle from 12 to six months for the first time.”

The decision by ExxonMobil is significant because the Bass Strait gas fields are rapidly declining and will require hundreds of millions of dollars of new investment in coming years to maintain reliable supplies.

Esso and Woodside’s Bass Strait operations supply about 20 per cent of 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.

“New gas developments are not simply a matter of flicking a switch,” ExxonMobil’s spokesperson said. “They require extensive planning,resources and capital as well as stable regulation in order to deliver critical energy supplies to Australian households and businesses.”

Last week,Woodside chief executive Meg O’Neill told investors that price caps would force the company to reconsider new spending on the assets,too. “If there’s a price cap it is very hard to see those opportunities being attractive,to be really blunt,” she said.

A gas rig at the West Barracouta wells in the Bass Strait.

A gas rig at the West Barracouta wells in the Bass Strait.Supplied

In Australia and around the world,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 continue to spike 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 pressing the federal 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.

For households,the number of customers with unpaid energy bills of more than $2500 hasrisen by an alarming 39 per cent,the energy regulator says,as gas prices have risen by up to 15 per cent and power bills by up to 20 per cent.

However,coal and gas companies,whose 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,where demand is highest,but traditional offshore fields are rapidly drying up.

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

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