EnergyAustralia cools on LNG import fix

Two mooted LNG import plants may not be enough to fill a supply gap, says the energy giant.

Electricity giant EnergyAustralia has cast doubt over the ability of gas import terminals to fill a projected shortfall in supplies on Australia’s east coast, adding a code of conduct may hamper the industry’s appetite to sanction investment.

The competition regulator has warned extra gas will need to be transported from Queensland to Australia’s southern states to avoid winter shortfalls for 2024 amid a continuing tight outlook for users on the east coast.

Both industry and policymakers have been hopeful several large LNG imports plants dotted along the east coast would help bridge a looming gap, but EnergyAustralia said additional sources were required.

The two leading projects are Andrew Forrest’s Port Kembla project in NSW and Venice Energy’s LNG import terminal in South Australia, recently backed by Origin Energy.

“The extent of forecast shortfalls, combined with construction lead times, should warrant a market response beyond the scale and scope of these two projects,” EnergyAustralia said in a submission to the federal government’s future gas strategy.

“To our knowledge, the import terminal being constructed at Port Kembla still does not have any off-takers and we do not expect such an approach will be repeated even if it is successful,” EnergyAustralia added.

EnergyAustralia in 2019 struck a five-year, $500 million-plus supply deal with the LNG project at Port Kembla and as recently as June 2022 said it supported boosting gas through the proposed terminal.

Mr Forrest’s Squadron Energy has funded the project, but customers willing to commit to take supplies have proved elusive since the development was first mooted several years ago.

Squadron Energy's Port Kembla Energy Terminal. Picture: Supplied

Origin Energy in October struck an agreement to potentially underwrite the development of Venice Energy’s LNG plant, as the company moves to secure supply routes ahead of a looming east coast domestic crunch.

However, EnergyAustralia also pointed to issues with the arrangement.

“The recent tentative announcement regarding the Venice terminal would have Origin as the sole off-taker for all import capacity,” EnergyAustralia noted.

“This type of arrangement suggests that suppliers using new facilities, in the context of declines in conventional production sources, could wield market power in a sustained manner and so may warrant responses from a policy or regulatory perspective.”

The Albanese government had requested feedback on whether the construction of LNG import terminals could contribute to improving energy security and whether this would be a commercially viable option.

Resources Minister Madeleine King said in October the discussion paper, which will inform a final strategy to be released in 2024, would provoke a national conversation on “whether there will be decreasing demand for gas as the world decarbonises”.

The federal government moved in late 2022 to impose a mandatory code of conduct — the centrepiece of which included a cap of $12 per gigajoule on new supplies — as heavy users led by Australia’s manufacturing sector complained their viability was at risk.

EnergyAustralia said it held reservations over the code hampering the ability to get more gas into the system.

“The imposition of the Competition and Consumer (Gas Market Code) Regulations this year has made contracting more complex, which will affect investment decision-making,” it noted.

The $12/GJ cap is currently in place until 2025, although it could be extended.

Energy companies have struggled to win regulatory and local support for new gas developments, while environmentalists have successfully managed to block work on several potential sources of supplies.

Originally published as EnergyAustralia cools on LNG import fix