By Nick Toscano
The Kerry Stokes-backed Beach Energy has flagged ongoing challenges making investments in future east coast gas drilling projects, despite relief across the industry that a federal government regulatory clampdown was not as severe as originally feared.
Following months of friction between the Albanese government and gas producers over proposals aimed at curbing soaring energy prices, a mandatory code of conduct governing the sector was released last week. The code extends a $12-a-gigajoule cap on domestic gas sales until 2025 but exempts smaller producers who sell all their gas domestically rather than export it overseas as liquefied natural gas (LNG).
Beach Energy is using the Ocean Onyx drill rig to develop new natural gas wells off the coast of Victoria.
The government also reaffirmed that it had backed down on its most controversial proposal, to include a requirement for gas contracts to be struck at prices that reflect production costs plus a margin allowing for a specified “reasonable” rate of return.
Beach Energy, whose biggest shareholder is billionaire Stokes’ Seven Group, confirmed it qualified as a small domestic supplier under the gas code, with yearly gas production of less than 100 petajoules, and was therefore exempt from the price cap for any gas sales made from 2024.
However, chief executive Morné Engelbrecht issued a warning that affordable and reliable energy supplies hinged on policy and regulatory settings that encouraged the development of new projects to serve the domestic market.
“We appreciate the opportunity to consult with the government on the code of conduct, however Beach suggests that ongoing market interventions and further regulatory burdens only discourage and delay much-needed further investment in gas supply,” Engelbrecht said.
While the world must urgently reduce its use of fossil fuels to avert the worsening climate crisis, millions of homes and businesses across south-eastern Australia are still reliant on gas for cooking, heating, hot water and manufacturing processes, but face the threat of shortfalls emerging later this decade.
The Australian Energy Market Operator (AEMO) is warning gas users in Victoria, NSW and South Australia are facing yearly gas supply deficits from 2027 unless more supplies are made available.
Australia is one of the world’s largest producers of gas, but massive volumes of production from Queensland’s gas fields are locked into long-term export contracts to LNG buyers, while several gas fields that have supplied southern markets from the Bass Strait for decades are entering rapid decline without new projects to replace them.
Decisions on whether to proceed with two east coast gas supply projects – Cooper Energy’s offshore Otway Basin project known as OP3D, and Senex’s $1 billion Atlas project in Queensland – were put on hold pending the terms of the code of conduct.
Following the release of the code last week, Cooper Energy managing director Jane Norman has expressed support for new rules, saying they provide much-needed investment certainty to companies considering boosting production of the fuel.
“We welcome policy certainty and stability, in the form of the gas code, to facilitate investment into new gas supply,” she said.
Adelaide-based Beach Energy, the nation’s third-largest independent oil and gas producer, operates onshore and offshore gas production and supplies about 12 per cent of gas demand in the east-coast market via its Otway gas plant near Port Campbell and the Lang Lang Gas Plant south-east of Melbourne. All of Beach Energy’s east-coast gas is delivered domestically, while its under-construction Waitsia LNG project in Western Australia will be subject to the state’s domestic reservation requirement.
Engelbrecht said Beach was doing its part to bring more gas supply into the Australian east coast domestic market, but needed “policy stability” to make long-term investment decisions in the interests of energy security.
In a joint statement, Treasurer Jim Chalmers, Energy Minister Chris Bowen, Resources Minister Madeleine King and Industry Minister Ed Husic last week said the code would ensure gas was available for Australian users at reasonable prices, give producers the certainty they need to invest in supply and help to ensure Australia remained a reliable trading partner.
The government said gas producers had already made supply offers of at least 260 petajoules – the equivalent of about 40 per cent of typical east coast annual demand – out to 2027. “These indicative commitments will reduce the risk of shortfalls as assessed by the ACCC and AEMO,” the ministers said.
The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.