Dutton’s gas plan will chill investment, warns global energy giant

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Global energy major Shell is warning Opposition Leader Peter Dutton that his plan to impose unprecedented export curbs on Queensland’s liquefied gas producers would stunt investment in new projects while failing to boost supplies of the fuel.

The Coalition has unveiled an east-coast gas reservation plan to keep more supplies onshore, rather than loaded onto ships to be sold to buyers in Asia, as it seeks an election fight with the Albanese government over energy prices and the cost of living.

While Australia is one of the world’s top shippers of LNG, most of that gas is produced in Queensland or WA, and is sold on long-term contracts to buyers in Asia.Credit: Bloomberg

The proposed scheme is being billed as a way to head off the worsening threat of gas shortfalls emerging in Victoria and NSW later this decade as ageing gas fields in the Bass Strait that have long supplied the local market rapidly deplete with scant new projects to replace them. But the Coalition’s plan drew immediate scrutiny from experts and industry leaders doubtful of its ability to affect gas and electricity bills.

In a major intervention in the debate, the Australian chair of British oil and gas supplier Shell will tell a conference on Tuesday that forcing a domestic gas-reserve scheme on the industry risks worsening the shortfall risks in NSW and Victoria by disrupting the market and making it more difficult for companies to green-light spending on crucial new supply projects.

“The fact that the easiest lever the federal government now has to solve the southern gas problem is export controls is not a reason to pull that lever harder,” Shell Australia chair Cecile Wake will tell the Australian Domestic Gas Outlook forum in Sydney.

“This does not increase supply – it simply redistributes it.”

Shell runs one of Queensland’s three LNG joint ventures, called QCLNG, which converts most of the gas it produces into super-chilled LNG and sells it on long-term export contracts to customers in Asia.

Shell’s gas is also sold domestically to Australian consumers, typically comprising about 15 per cent of the east-coast market, while other surplus “uncontracted” volumes are shipped overseas and sold as one-off deliveries on the international LNG spot market.

Under the Coalition’s reservation plan, two of the biggest Queensland LNG ventures – Shell’s QCLNG and the Origin Energy-backed Australia Pacific LNG (APLNG) – would be forced to hold back even more of their uncontracted supplies for Australian buyers only. Dutton flagged they would be required to reserve between 50 and 100 petajoules of their uncontracted gas each year, enough to satisfy an additional 20 per cent of the eastern seaboard’s demand.

“Our gas needs to be first and foremost for our people,” he said.

In a draft of her speech to be delivered on Tuesday, Wake says Shell recognises the need for strict rules governing the gas industry, but warns that regulations, when not “done well”, can add unnecessary costs and fail to meet their objectives.

“If there is a need for a conversation about more commitments to the domestic market, let’s do so with proper consultation and design a system where all participants and states contribute their share and that protects, rather than erodes, the investment case for Australian gas,” Wake says.

Dutton claimed his plan would deliver enough gas locally to swiftly cut the wholesale price of $14 a gigajoule to $10.

However, that promise may prove challenging, as the cost of producing gas in Australia has been steadily increasing over time as the lowest-cost sources run out. Gas could once be provided for $4 per gigajoule or less, but today eastern Australian fields will struggle to supply gas for less than double that amount.

The Australian Energy Market Operator assumes gas produced at new projects may typically cost between $9.20 and $12.50 a gigajoule at the wellhead – and that’s before adding other significant costs, such as transporting the gas via pipeline to where it’s needed. “It’s hard to see how lower pricing will emerge,” Macquarie energy analyst Ian Myles said.

The Coalition is yet to explain exactly how it would hold back exports and deliver the extra gas from Queensland into southern markets due to limited storage options and pipeline capacity to transport the gas thousands of kilometres during winter when it’s needed most.

Krishan Pal Birda, vice-president of Australasian oil and gas at consultancy Rystad Energy, said the Coalition’s proposal may offer some temporary relief, “but it’s not sustainable in the long run due to the inflexible nature of coal seam gas production and existing pipeline constraints”.

Still, Dutton’s gas plan has been welcomed by Australia’s biggest corporate gas users, including companies in the manufacturing sector, which need the fuel for energy or as a feedstock.

“Gas prices above $10 per gigajoule are simply untenable in a gas-rich country like Australia,” said Ben Eade of Manufacturing Australia, whose members include companies such as BlueScope Steel, Brickworks, Cement Australia and CSR.

“Exporting surplus gas at a time when regulators are forecasting gas shortages, and Australian manufacturers are bearing the brunt of high gas prices and supply uncertainty, simply cannot continue.”

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