LNG import scheme risks gas price hike, exports warn: APA Group

A stoush has broken out on the best way to address looming gas shortages on the east coast. The fix of importing LNG could send gas prices up further, according to APA Group

Squadron Energy is building Port Kembla Energy Terminal: Australia’s first LNG import, terminal and the only gas import terminal currently under construction.

A Victorian government-led proposal to underwrite LNG imports could hike domestic gas prices and introduce a fresh risk of political intervention in the market, investors and energy experts have warned.

The push for the commonwealth to underpin importing LNG into Australia for the first time will be presented to federal and state ­energy ministers on Friday in a major intervention aimed at fixing looming gas shortfalls on the east coast.

However, the move faces significant opposition with the nation’s leading gas pipeline company, APA, concerned the decision to prop up imports may trigger a jump in local prices.

The gas infrastructure player has floated its own $2bn plan to transport supplies from new sources at a cheaper cost than LNG terminals.

It pointed to the Australian winter Asian LNG spot price of $17.81 per gigajoule in 2024 and an average Australian summer price of $21.58/GJ. APA said that compares poorly with the federal government’s own Future Gas Strategy estimates for delivering gas from the Surat, Narrabri and Beetaloo basins to Melbourne for between $9 and $13 /GJ.

“We know that if Australia relies on imported LNG, it will set the price of gas for domestic users,” APA chief executive Adam Watson said. “Relying on imported LNG means burdening the domestic economy with significantly higher energy costs, impacting the competitiveness of our export industries and driving energy prices higher for small business and consumers.

“This is exactly what the federal government was aiming to avoid when it established a $12 per gigajoule cap on wholesale gas prices in 2022. Imported LNG just takes us back to this.”

Energy experts also weighed in, concerned a new government intervention on LNG imports may distort the market following price controls, threats of “big stick” interventions and the export “gas trigger” which threatens to curb Queensland LNG exports in the event of local shortfalls.

Victorian Minister for Energy and Resources Lily D'Ambrosio. Picture: Andrew Henshaw

EnergyQuest chief executive Rick Wilkinson said requiring the federal government to support the LNG terminals represented a further cost following the commonwealth’s previous mechanisms to tweak the gas market. “No other project can add anything like what an LNG project offers by 2026 when more shortages are expected,” Mr Wilkinson said, pointing out that a shortage of local gas production had driven the need for LNG terminals.

“Unfortunately price caps and government interventions, such as what we saw in 2022, took away much of the price signals needed for investors and participants to commit to the LNG terminals.”

Government support for LNG imports is needed, according to the Grattan Institute’s Tony Wood, given the financial risk of a plant investment had proven to be too high for a “simple” commercial solution.

“The solution requires the financial support of governments to underwrite this risk, a commercial arrangement to import and trade the gas, a commercial agreement around operating the import terminals, and a role for AEMO as market operator,” said Mr Wood, Grattan’s program director for energy and climate change.

“This role may include a strategic reserve and a demand response mechanism, similar to what is used in electricity. None of this leads to cheap gas, but it doesn’t mean a return to the high prices of a few years ago.”

Shadow Minister for Resources Susan McDonald said federal Labor’s decision to stall approvals for new gas projects and freeze the release of new gas exploration acreages had resulted in a pending gas shortage in Australia.

“The concept that Australia, as a net exporter of gas, is having to consider importing LNG from overseas is the product of pure economic negligence. Australians need to ask themselves how, after three years of Labor, have we found ourselves in this situation,” Senator McDonald said.

Shadow Minister for Resources Susan McDonald with Opposition leader Peter Dutton

Under the blueprint, the Australian Energy Market Operator would act as an anchor buyer of LNG likely from the two most ­advanced projects: Andrew Forrest’s Squadron Energy plant in Port Kembla, NSW, and Viva ­Energy’s Geelong facility, which is awaiting a decision in April from the Allan Labor government.

Another LNG import hopeful, Vopak, said it was monitoring the situation as it seeks development approval for its proposal southwest of Port Phillip Bay in Victoria.

A spokesman said Vopak had a long history of working with governments on LNG terminal developments around the world and is currently partnering the South African government on such a project. “We’d like to hear more as this idea progresses,” he said.

Victoria – Australia’s most gas dependent state – has sought to minimise demand to stave off the shortfall. It has offered concessional finance to households moving to switch to electric appliances but a cost-of-living crisis has dented its effectiveness.

The Victorian government insists switching to renewables will bring households substantial savings, and in a boost last week the federal government identified 56 projects that will receive priority status.

The projects include 24 transmission, 32 generation and storage projects. The federal government said this equates to 16 gigawatts of wind and solar capacity and 6GW of storage.

While the projects identified do not secure automatic regulatory approvals, they are in line to receive an expedited responsethat Labor said will ensure developers have greater clarity.

The Australian Aluminium Council said inherent systemic failures in the existing east coast gas market do not ensure delivery of adequate supply at reasonable prices.

“Increased supply of gas will require an increased diversity of sellers, new sources of gas that meet or exceed current domestic requirements and current LNG export capacity, and removal of physical congestion, to deliver internationally competitive outcomes for consumers,” the Council said.