Shell issues warning on gas market intervention

Energy giant Shell warns Australia is becoming a riskier place to invest amid a string of policy interventions aimed at boosting gas supply and cutting prices.

Shell Australia chairman Tony Nunan: ‘We’re going through a period right now where there’s a lot of change, and we’ve got to keep an eye on the cumulative impacts, so that we continue to see investment.’ Picture: Britta Campion

Energy giant Shell has warned Australia may miss out on future investments needed to bridge a gas supply shortage after a series of heavy-handed policy interventions damaged the nation’s reputation as an investment destination.

Shell, one of Australia’s biggest foreign investors, joins a list of powerful energy producers increasingly worried over multiple policy clampdowns including gas price caps, the increasing threat of export restrictions and a looming mandatory code of conduct that extends price controls.

“We shouldn’t take it for granted that the investment will come,” Shell Australia’s outgoing chairman Tony Nunan told The Australian ahead of the opening of the annual APPEA oil and gas conference.

“Multiple interventions where there are multiple changes in a regulatory environment — they can cumulatively get to a point where the investment environment and investment climate can be impacted. That’s what we really got to watch for.”

Shell sold its stake in the massive West Australian Browse gas field to joint venture partner BP in late April, and a string of investment decisions are due this decade on its $10bn Arrow Energy joint venture in Queensland, a critical source of gas for industrial users on the nation’s east coast.

“Lots of changes, while all individually justifiable, can have a cumulative impact and the consequences of which can be too great and impact investment. That’s the thing that I think as a country, we’ve got to get right long term,” Mr Nunan said.

“And we have in the past, and I certainly believe that we can in the future. But we’re going through a period right now where there’s a lot of change, and we’ve got to keep an eye on the cumulative impacts, so that we continue to see investment.”

Shell operates the QCLNG export plant in Queensland. Picture: Bloomberg

Shell is one of the dominant players in Australia’s booming ­energy sector, operating the QCLNG export plant in Queensland, the Prelude floating LNG project off northern Australia along with stakes in Western Australia’s North West Shelf and Gorgon ventures and Arrow, its Queensland gas business.

Shell, along with Woodside Energy, suspended talks with buyers in December to supply new gas into Australia’s east coast, blaming the Albanese government’s intervention into energy markets and warning the move could lead to shortages and gas rationing.

“We’ve got to be really careful that we don’t push too far down a path where the risk reward balance starts to reduce the willingness to invest here. Because I think that will create the risk for the country as a whole that it will not get the additional capital that we need. And that will long-term affect Australians. And no one wants that.”

Mr Nunan said it had been a complicated regulatory environment for the industry.

“Regulatory change will have an impact in the short term, because companies have got to make sure they seek to understand how they comply with the new regulation. And if they’re not confident that they can comply, they will most likely pause until they do know they can comply and then restart,” Mr Nunan said.

“And that’s exactly what we did in the gas market. When the changes were announced in December, we weren’t confident that we were able to comply with them, because we didn’t have clarity on the rules yet. We paused until we got the clarity from the ACCC. And once we had that clarity, we immediately moved back into the market.”

He also pointed to energy security as a critical issue for Australia following ructions in gas markets due to Russia’s invasion of Ukraine.

“That’s the challenge with the energy system. If there’s an under investment over time, it becomes more vulnerable. And over time, if that vulnerability plays out then that impacts families. I think the lessons from last year are that we need to have an energy system that continues to attract investment. And it’s got to be investment in the energy we need today,” Mr Nunan said.

Shell’s Prelude floating facility. Picture: Royal Dutch Shell

The energy player endued a series of problems at its troubled $US12bn Prelude floating LNG project off the northwest coast with production issues and a standoff with unions.

Shell endured a 76-day standoff with unions in mid-2022 after being at loggerheads over a new enterprise agreement and Mr Nunan said there were a number of lessons learned from the project given its remote location.

“The challenges are actually more driven by the remoteness and the logistics of being able to operate an LNG plant 500 kilometres from Broome, rather than doing it on the coast of Australia. And so that’s been what’s actually unique about Prelude,” Mr Nunan said.

“It’s that we’ve been operating a facility or an LNG plant so remotely, that has taken us time to be able to fully understand and comprehend and to be able to work through.”

Shell and PetroChina have seen losses on their Arrow Energy joint venture top $10bn since it was formed in 2010 after posting a further $307m loss in 2022 despite booming oil and gas prices.

The company has previously paid $729m to scoop up Meridian’s highly prized retail business, Powershop Australia. It then bought a 49 per cent stake in WestWind Energy Development, handing the company its first exposure to wind power in Australia along with a 3 gigawatt project pipeline across Victoria, NSW and Queensland. It also owns ERM Power, co-founded by Trevor St Baker.

Shell in March promoted Arrow Energy boss Cecile Wake to become the multinational’s new Australian chair with Mr Nunan heading to London for a role as chief of staff to global chief executive Wael Sawan.

Ms Wake endured a testing time at Arrow navigating landholders in Queensland. Last year the state’s GasFields Commission called on all stakeholders to “urgently act’’ to resolve their differences over the $10bn Surat gas project near Dalby on the western Darling Downs.

Current Shell Australia East boss Godson Njoku has succeeded Ms Wake as chief executive of Arrow Energy.

Originally published as Shell issues warning on gas market intervention