Emergency measures invoked by the Australian Energy Market Operator on Wednesday resulted in all three of Queensland’s LNG exporters, including Santos’ GLNG, diverting about 100 terajoules a day of gas to the domestic market for power generation, according to one source.
But the gas pipelines south from Queensland are now full, and Mr Gallagher said that was in any case not a good solution given the foreign partners that invested in the LNG export ventures to ensure their own energy security. It would discourage the major investments needed from Asian investors to build a hydrogen export industry longer-term, he warned.
Santos’ partners in GLNG include Korea Gas Corporation, the world’s biggest LNG importer, Malaysia’s Petronas and French energy giant TotalEnergies.
Mr Gallagher said it was “too soon to tell” what impact the AEMO-ordered gas diversion would have for Santos and GLNG but said that maintaining it would send a “bad message” to overseas investors.
“I haven’t had a chance to discuss with my joint venture partners at this point in time, and I would hope that they will understand a short-term fix is needed,” he told The Australian Financial Review.
“We will work together and will do the right thing by Australia. Long term though, if this is a solution, I don’t think any of the foreign investors who have invested in these LNG projects would think this is a good solution for the longer term….From an energy security point of view, I think that would be a bad message to send to overseas investors, when we need that investment.
“We will not build a hydrogen export industry without Japanese, Korean and Asian money, I can assure you of that, just like the LNG industry, we need that investment from these countries, if we’re going to build that infrastructure, because our own markets will never be big enough to justify that investment on their own.
AEMO issued a “threat to system security” notice on Wednesday in Victoria’s market and triggered the Gas Supply Guarantee mechanism for the first time since it was introduced in 2017 due to low electricity reserves in Victoria, South Australia and Tasmania for Thursday. That obliged the Queensland LNG producers to make gas available for power generation to avert an electricity shortfall as per a voluntary deal signed with the federal government.
“This is about supply, there is no supply. We don’t have gas we can just turn on. We’ve not got gas sitting in storage: we’ve exhausted all of that over the last few years. This is about projects like Narrabri,” Mr Gallagher told the Financial Review just before speaking with federal Resources Minister Madeleine King about the fast-evolving crisis.
“The solution here is if you want more gas you’ve got to …develop more gas. You can’t just conjure it up magically when coal-fired power stations turn off and renewables aren’t performing.”
As industry minister Ed Husic also talks to industrial gas users on their needs for supply, Santos has put forward a proposal for a broader meeting involving government, gas producers and industrial users to hammer out options to resolve the crisis, which is threatening critical manufacturing.
Mr Gallagher said he had spoken to Orica CEO Sanjeev Gandhi on Thursday morning about the problem, getting the message about how critical Orica’s operation are for the global mining industry.
He said the tight domestic gas market and the price shocks of recent weeks had “nothing to do with the behavior of gas producers or exporters, who are doing everything they can to support the market”.
Rather the root of the problem lay in underinvestment in new supply, under pressure from climate-focused activists and activist influence on investors.
“We have on our east coast a prime example of what happens if the energy transition is focused only on stopping new oil and gas projects,” Mr Gallagher told a Melbourne Mining Club luncheon earlier.
Manufacturers have accused gas producers of cashing in from the high prices, which have been capped by AEMO in three states over the past few days as prices in Melbourne threatened to surge to an extraordinary $800 a gigajoule, but that was rejected by the Santos chief.
“Santos isn’t making any money out of these high prices, I can assure you, all of our gas 99 per cent of our gas are sold on long-term contracts, not in the spot market, and that’s way, way below what you’re seeing on the spot market today.”
Mr Gallagher said the scarcity of new developments today was “frightening”, with forecasts of tight supply over coming years and noted all output from Narrabri was destined for the domestic gas market.
Santos, which is aiming to reach a final investment decision on the first phase of the Narrabri project in 2023, lost one of its customers for the project last week when NSW’s Weston Energy lost its retail licence, but he said demand for gas from the venture has increased over recent weeks.
“We could sell the Narrabri gas two or three times over, we have a lot of demand for that gas, I’m sure you can imagine over the last few weeks that demand is intensifying,” Mr Gallagher said.
“Customers are crying out for this gas with more demand than we can meet when it comes to market around 2026. And I am trying to bring Narrabri to market earlier if that is possible.”
But he said Santos would “need the governments to help us with that”, given the processes Santos has yet to complete on its final approvals that are likely to give rise to further legal challenges.
Santos has so far spent more than $1.5 billion over about 10 years on its Narrabri project, which could meet up to half of NSW’s gas needs, and which has faced numerous legal challenges through its approvals process. While the last major legal challenge was cleared early this year, it still has secondary approvals to secure as well as appraisal wells to drill before it can give the go-ahead for development.