Origin Energy moves to import LNG into east coast with early stage deal

The takeover target is turning to imports to help Australia’s east coast deal with its gas supply crunch as traditional sources run dry and permissions to dig new wells get harder.

Origin Energy may begin importing LNG into Australia’s east coast after it struck an agreement to potentially underwrite the development of Venice Energy’s LNG import terminal in South Australia, as the company moves to secure supply routes ahead of a looming east coast domestic crunch.

Australia’s east coast gas market is on course to experience a shortage as soon as 2025 as traditional sources of supply run low and developers struggle to secure regulatory and local approvals to drill new wells.

The outlook threatens to see Australia’s largest industrial customers struggle to source gas as retailers are forced to trim their customer books.

But in a move that could allow Australia’s largest electricity and gas retailer to circumvent the supply crunch, Origin and Venice Energy have agreed a non-binding structural framework that will may see the retailer underwrite the commercial viability of the Outer Harbor LNG import terminal at Port Adelaide.

Venice Energy chair and managing director Kym Winter-Dewhirst said Origin and Venice Energy’s subsidiary Venice Regas will now enter into an exclusivity arrangement that will allow for the completion of a fully-formed Terminal Use Agreement over the coming weeks.

A full agreement could be agreed by the end of the year that will see Origin become the sole user of the facility for at least 10 years.

“The project’s approvals allow up to 110 petajoules per annum of LNG to pass through the terminal and into local and interstate gas networks, thereby reducing forecast gas shortages in the southeast of Australia from mid-2026 and beyond,” Mr Winter-Dewhirst said.

“Without the security of supply provided by this terminal, the network’s ability to maintain 24/7 on-demand energy to commercial, industrial and domestic customers would be in jeopardy.”

Venice Energy’s LNG import facility has been dubbed a “tolling” infrastructure project. Under the scheme, Origin will have the sole use of the plant to process its own LNG – negating the difficult task of other LNG import terminals in aligning gas supply agreements with end-user demand.

An Origin spokeswoman confirmed the deal but cautioned it may not eventuate into a formal agreement.

“Origin is assessing a range of different supply options to help meet the gas supply needs of customers in future years, and this includes continuing to work with Venice Energy on a potential agreement to toll gas through its proposed Outer Harbour LNG import facility,” the spokeswoman said.

LNG import facilities in Australia have to date been difficult to establish. Developers are unwilling to sign up to buy gas without certainty that they have domestic customers to purchase the supplies, while retailers have historically been unwilling to enter into firm contracts without assurance of available gas.

An import LNG business will be welcomed by Australian officials, who are struggling to safeguard domestic supplies despite the country being one of the world’s largest LNG exporters. Pressure on Australia’s east coast market is expected to be exacerbated as supplies from traditional sources slow.

ExxonMobil – one of Australia’s largest producers of domestic gas – this year said its Gippsland Basin joint venture, which historically supplies more than 70 per cent of southeast Australia’s domestic gas demand, was rapidly dwindling.

ExxonMobil said the number of producing wells had shrunk from 122 in 2010 to 68, and would drop to 36 by winter 2024.

The structural deficit leaves the east coast facing an uncertain future. New developments have been curtailed in NSW and Victoria, while new pipelines would be needed to unlock potential supplies in Queensland and the Northern Territory, and this could be prohibitively expensive and would require significant local support.

Both NSW and Victoria have been under sustained pressure to push through new gas developments but support has been lukewarm.

Australia’s energy industry is increasingly concerned, with APA Group – the country’s largest gas infrastructure business – on Thursday calling for immediate work to unlock new sources to supply. APA chairman Michael Fraser said the company had invested significant sums to ready infrastructure linking Queensland and the southern states but governments continue to allow work on new gas sites to meander.

The Venice Energy development would temper those concerns, with Origin able to import LNG that could be processed and sent through pipelines into Victoria, one of Australia’s most gas dependent states. Gas can then be sent to NSW if needed.

The Venice and Origin deal will also marks a challenge to billionaire Andrew Forrest. The Forrests’ Squadron Energy, which owns the under-construction Port Kembla Energy Terminal, is looking for customers and has run formal market soundings over the past few months.

Squadron earlier this month said it was in talks with potential customers, but deals remain unsealed with users continuing to hold fire until determining whether they may be able to source supplies from Queensland.

Originally published as Origin Energy moves to import LNG into east coast with early stage deal