Industry unrest was triggered when the Coalition said that if elected it would require east coast LNG exporters to withhold 10-20 per cent of domestic needs from uncontracted supplies.
The policy will inhibit the activities of Australia Pacific LNG (APLNG), part-owned by Origin Energy alongside a consortium of global giants, and Shell Energy’s Queensland Curtis LNG (QCLNG).
Santos’ own LNG facility, Gladstone LNG (GLNG), is entirely contracted so has no excess supplies that would be diverted under the Coalition’s policy. Industry figures insist GLNG has exacerbated the domestic supply issues.
Santos has insufficient amounts of its own gas to supply its LNG facility and has to purchase supplies from the domestic market.
Both APLNG and QCLNG in contrast supply the domestic market, fostering resentment from some quarters – especially when the Coalition signalled Origin and Shell’s facilities would be in line to carry an increased burden.
So when reports of Mr Gallagher’s attendance at a Liberal Party event emerged, critics quickly seized on it.
“The Coalition comes out with a policy that Santos escapes on the whole and now Kevin is at a Liberal Party event. It doesn’t pass the pub test,” said one senior industry source who declined to be named.
The Australian understands the internal industry backlash against Santos has dialled up in the wake of Mr Gallagher’s attendance at the event.
Sources close to Santos insist the criticism is vastly unfair. They say Mr Gallagher’s attendance was typical of his normal political engagement with both sides of the aisle. They cite representation of other companies within the sector as evidence Santos enjoys a relationship with the Coalition similar to its peers.
It is also true that Mr Gallagher has been a vocal critic of both sides of government for failing to act to bolster gas supplies.
Sources familiar with the thinking of Santos also dispute that it will escape the impact of the Coalition’s energy policy. While GLNG is fully contracted, should the Coalition succeed in lowering gas prices, Santos will receive less for its supplies.
The Coalition has also signalled its distance from Santos. Opposition energy spokesman Ted O’Brien last week suggested that the South Australian company will have to bear some burden from its gas reservation policy despite GLNG being fully contracted.
“We’ve made it very clear that within the first 100 days of government we will be settling new arrangements with the gas industry. That includes all three. We cannot continue to have a situation where we have one of our major gas consortium taking from the domestic market and making negative contributions. That will be part of the negotiations,” Mr O’Brien said.
But while tension within Australia’s gas industry is normal, the souring of ties is consequential – especially as the country’s gas market begins to tighten and commercial players jockey to shape policy.
Santos has a major gas supply deal with Origin that will expire soon and while it will soon complete work on its $5.4bn Barossa LNG development, it needs to maintain a harmonious relationship with its peers.
Santos is pushing hard for approvals for its Narrabri gas project, which it has committed to supply domestic customers exclusively, and has advocated for the advancement of carbon capture and storage to allow for internationally produced carbon dioxide to be stored in Australia.
The Australian Energy Market Operator has warned the east coast will experience structural deficits from 2029, and a seasonal issue possibly from 2028, as traditional sources are depleted amid a failure to bring new developments online.
The looming eastern seaboard shortage will add pressure on domestic manufacturers and households.
Manufacturers are unable to switch away from gas and have said their viability would be threatened by higher prices.
A record number of households are already struggling to pay their utility bills and increased gas prices would heighten pressure.
The looming shortage could force NSW and Victoria to have to import LNG to meet domestic demand – which critics insist will inflate domestic prices.
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The spotlight is on the Coalition’s pledge to curtail LNG exports – a plan that split the gas industry between apparent winners and losers – after the decision of Santos chief executive Kevin Gallagher to attend a Liberal Party event last weekend.