Pipeline chief Mick McCormack fuels hopes of east-west gas link

Mick McCormack has stepped into the boardroom as a director of Northern Territory gas producer Central Petroleum.

“Nice to be back.” After 12 months of gardening leave Mick McCormack, the former pipeline king at APA, is back in the game, as he puts it. This month, he stepped into the boardroom as a director of Northern Territory gas producer Central Petroleum. The share price jumped 20 per cent in expectation. In 14 years, McCormack built a $24bn pipeline grid around Australia, far too successfully if you ask the regulator. Now with a producer hat on, the pipeline king is calling on the government to put a bucketload of stimulus into a new $5bn pipeline to deliver gas from the west to the east coast. And all just ahead of the October budget and the government’s response to the Liveris recommendations on a manufactur­ing-led, gas-propelled recovery.

It is unusual for a board member to be vocal, and McCormack stresses his personal views, but presumably that is why the ambitious NT producer with 180,000sq km of tenements wants the can-do Queenslander with more connections than the APA network on board. “Central Petroleum, while it’s only a small company, has got a couple of very attractive growth prospects and I’d rather be helping to grow a company than just sitting around a board table wondering what’s going on.”

Until early in 2019 Central Petroleum’s gas assets, not far from Alice Springs, were effectively stranded, with just Territory customers. It was the Northern Gas Pipeline built by energy company Jemena that connected its gas to the giant Moomba hub in the northeast corner of South Australia. But the new link still means gas travels effectively along three sides of a square.

McCormack has wasted no time, already out lobbying for Central’s planned pipeline from its Amadeus resource direct to Moomba. “That will cut at least a thousand kilometres off the current physical path to market via the Northern Gas Pipeline and the APA east coast grid,” he says. Asked how much this could bring down transport costs (given LNG prices are expected to average at around $6/GJ in 2021), the pipeline king launches into a pitch for the entire sector. “Let’s just say it will be substantially cheaper, probably in the order of at least $1.50-$2.00/GJ. However, the bigger the pipeline, the more gas delivered, the unit cost goes down. That is one of the things on a personal note that I’ve been pumping for. If there’s talk of government subsidising the gas supply chain, my view is to make it a truly nation-building project and have it extend all the way across the North West Shelf.”

Hang on — can this really be the same Mick McCormack who argued vociferously against the same project on economic grounds as part of a Turnbull government study? “It’s eminently doable, but at the time, it wasn’t economic on its own merits,” McCormack says. “Like they say, if the facts change, I’ll change my opinion.” That quote, attributed to the founder of Keynesianism, John Maynard Keynes, is choice. That is because what has changed, McCormack argues, is the government’s decision to prop up the sector in these recessionary times. And a pipeline delivers the best bang for the government buck. “Bringing gas from the NT and WA means that you’ll solve the east coast gas issue. There’s plenty of gas on the east coast, everyone knows that, but it’s problematic to get access to it, there’s land access issues, activists, all that sort of thing.”

Building a pipeline across Western Australia brings its own issues in the wake of the Juukan Gorge fallout which cost Rio Tinto chief Jean-Sebastien Jacques his job last week. “I’m not saying a pipeline from Karratha to Moomba is going to be necessarily easy, but on the face of it, if the government is going to throw a big chunk of money to the gas supply chain on the east coast, let’s help rural and regional Australia rather than just write a cheque for $5bn to underwrite a gas supply, particularly on the east coast, with the east coast producers, because all you do is entrench exactly the same issue.”

“I’m just putting it out there for people to throw sticks at,” he pitches. “The government could build it, charge a nominal tariff, $2/GJ all the way through, $1/GJ from Alice Springs, operate it for five years, 10 years, and sell it out to the private sector. Whatever the government doesn’t get back, the Australian economy will reap many, many times in excess of any loss by virtue of gas coming into the east coast and manufacturing and also energy supply.”

McCormack’s clarion call comes just as Melbourne shutdown bites, with Viva Energy warning that its Geelong refinery — with 700 jobs and businesses dependent on it — risk closure. Funding support for refineries is expected in the upcoming federal budget but McCormack wants a bigger, bolder decision. “One thing that COVID-19 has shown me, and I don’t think I’m Robinson Crusoe here, is how reliant the Australian economy is on other countries’ economies. We want to revitalise our manufacturing base — let’s do it with our own resources and get on with it.”

This view could have come straight out of the Liveris report on a gas-led recovery now burning a hole in the government’s in tray. Not everyone in Canberra is quite so Keynesian.

Ironically, even where there is supply today, in Western Australia, the state government has shut the borders to the east for gas. “I’ll let the politicians sort that out,” McCormack grins. “I’m just trying to be pragmatic here.”

There is vast potential for gas in the Northern Territory, both at Central Petroleum and the giant Beetaloo shale basin, but it needs proving up and developing and that is a chicken and egg dilemma for private investment. “I’ve been stunned by my new colleagues here at Central Petroleum, the numbers that are potentially out there. But the issue is, there hasn’t been all that incentive to get it to market.”

There is politics too on the foreign investment front. Central Petroleum’s building partner for the Amadeus to Moomba pipeline is the Hong Kong-based CKI, whose 2018 bid for APA when McCormack was in charge was knocked back by the federal treasurer on national interest grounds. “As I said at the time, in the business dealings I’ve had with CKI over many years now, they have proven to be genuine honourable people and I don’t think that’s changed. What I want to see is the cheapest option for Central Petroleum. I’m just waving the flag personally that if there’s going to be government money put on the table, it goes to big projects like that and make it bigger. And if that can involve CKI or even APA, great.”

The most curious part of Mick McCormack’s return to public life is that it should be to Central Petroleum, where he had a long-running stoush with former chief executive Richard Cottee. The equally outspoken Cottee accused McCormack and APA of monopolistic behaviour and demanding excessive rents on pipelines. “Ridiculous, untested, ignorant and clearly self-interested arguments designed to wind up an anti-APA feeling,” McCormack said at the time.

Now in the Central camp, does he have any sympathy for Cottee’s views? “I was wondering how long it would take you to bring that up on national television,” he quips. “It’s interesting. Richard did a good job for Central. I’ll just make one point about pipeline tariffs. The tariff on the Northern Gas Pipeline, together with the APA tariffs, make it uncompetitive for Central to take its gas to say, Brisbane. The tariffs being offered in the Northern Gas Pipeline bidding process that I offered would have had Central’s gas competitive right now, so yes there’s a new pipeline that has been built, but no in my view it was built by the wrong company.” Ah, the beauty of scale.

McCormack has one other board with blue sky that he will be joining, although away from the gas sector. “I didn’t give up full-time work to work full-time, and so I’m very comfortable in focusing on a couple of businesses that have got some growth prospects, some challenges and I’m helping both companies execute a growth strategy. My legacy is about growth, not sitting around a board table doing compliance … even though compliance is very important I might add.”