Energy security must be prioritised, Santos and Woodside insist as merger talks expected to resume

Australia is in the midst of an anti-fossil fuel war threatening regional energy security and the country must move to counter it, says Santos boss Kevin Gallagher.

Australia is in the midst of an “anti fossil fuels war” and it risks affordable and reliable energy supplies, the chief executives of two of the country’s largest gas companies have said.

As talks between Santos and Woodside over a potential tie-up are set to resume within weeks.

Australia is moving rapidly to reshape its $2.5tr economy and wean off its fossil fuel dependency, Kevin Gallagher, the chief executive of Santos, said the country is at risk of being dangerously idealistic.

“My biggest concern is for energy security and affordability, both at home and for our trading partners in Asia who rely on us for the energy that drives their economies. We cannot turn the taps off on oil and gas before there are replacement technologies,” said Mr Gallagher.

“Renewables are a big part of the solution, but we are still a long way from technologies that would replace fossil fuels in making steel, cement, fertilisers and the petrochemicals that make medicines, medical products, paint, plastics and the polymers that are the foundation for so many products we take for granted in modern life.”

“Renewables are a big part of the solution, but we are still a long way” says Santos CEO Kevin Gallagher. Picture: Kelly Barnes

Santos is moving to develop new sources of LNG, while also developing a carbon capture and storage project set to come online later this year.

Carbon capture and storage is controversial, with critics insisting it is unreliable and will delay the transition to renewable energy, while proponents argue the technology will minimise the disruption on the economy allowing for existing infrastructure to be used as well as sufficient time to build replacement renewable energy sources.

Mr Gallagher said Australia must embrace carbon capture and storage.

“My fear is that we continue to delay the transformation of energy markets because of a debate that centres on one solution or one technology rather than a pragmatic, market-led, technology-neutral approach that allows industry to get on with decarbonisation.”

The vision for Australia’s LNG industry was echoed by Woodside’s chief executive Meg O’Neill, who said the country must demonstrate its commitment to the sector by removing regulatory uncertainty surrounding new LNG projects.

“Reform is needed to resolve ongoing policy uncertainty related to timely approvals of much-needed investment, not only in new gas developments but across the energy and resources sectors more broadly,” said Ms O’Neill.

“Without certainty around project approvals, Australia’s position as a globally competitive investment destination is challenged and we risk missing the opportunity to demonstrate leadership in the energy transition.”

Environmentalists have secured a spate of legal victories in recent months, challenging regulatory approvals.

Santos and Woodside have been hit most notably, and Ms O’Neill late last year said she expected further challenges to its $16.5bn Scarborough project.

The two LNG giants are still only in early stages of merger talks, Santos and Woodside confirmed late last year, and The Australian understands the two sides are expected to resume discussions later this month.

A deal would create a global LNG giant, allowing a combined company to profit from the near-term demand for gas.

Woodside, under Ms O’Neill, has positioned itself to capitalise on strong near-term demand for fossil fuels, while the company envisages demand for LNG to remain robust until 2050 as traditional sources of energy run low and new sources take longer to mature.

But a Woodside-Santos merger would not be entirely smooth. Some investors question the WA oil and gas giant’s interest in some assets owned by Santos.

Santos holds quality assets in PNG, but its WA assets service the domestic market, and doubt remains over whether the company’s massive investment in coal seam gas in Queensland was worth the money spent.

Originally published as Energy security must be prioritised, Santos and Woodside insist as merger talks expected to resume