Australia’s regulatory environment ‘killing’ $91bn LNG industry, says Santos CEO Kevin Gallagher
The energy giant’s CEO says Australia must move quickly on legislative changes as the country’s $91bn LNG industry is being ‘killed’ by opponents exploiting regulatory ambiguity.
Australia’s $91bn LNG export industry is being “killed” by regulatory ambiguity that has been used by opponents to hinder work on several gas developments and deterring much-needed inward investment, the chief executive of energy giant Santos has warned.
Environmental advocates have in recent months won a spate of legal victories to suspend work on new gas developments – a tactic that has badly affected Santos especially.
The company’s $5.3bn Barossa development has been hampered by two legal challenges that threaten the production timetables for a project that Santos has earmarked to fuel future growth.
Santos chief executive Kevin Gallagher said the legal challenges have been permitted by regulatory ambiguity around who a company must consult and consider when developing environment plans, and that threatens Australia’s broader LNG market.
“Nothing will drive investment away faster than this regulatory environment,” Mr Gallagher said.
“The uncertainty is killing us.”
The warning to Australia’s $91bn LNG export industry is the latest in a string of alarms raised by Australia’s gas industry, which has claimed legal-induced delays to projects will threaten local and regional energy security and inflame diplomatic tensions.
Nations in Asia that are energy resource poor – notably Japan, Korea and China – are major buyers of Australian LNG shipments and have moved to lock in supplies with co-investments in new projects.
But Australia’s perceived willingness to allow legal blocks to new developments had potentially dire consequences for the region. Japan’s former ambassador, Shingo Yamagami, said Australia in March was “quiet quitting” LNG.
Anthony Albanese insists his government understands the vital role of gas to the country’s $2.5tr economy but critics said its lack of urgency in limiting legal avenues to slow LNG developments indicates its commitment to the fuel source.
The federal government insists it will move on the issue, and earlier this month The Australian exclusively earlier revealed that Labor was considering narrowing the criteria about who must be consulted prior to works beginning, but any regulatory changes will not occur before late 2024.
The changes, however, will come too late to ease the legal burden on the Barossa project.
Drilling work at the Santos gas project in the Timor Sea has been suspended since 2022 after the Federal Court found the oil giant failed to consult local Indigenous people adequately on the development.
Adding to its woes, a second Federal Court ruled Santos could not complete works on an undersea pipeline until January 2024 at the earliest, following claims by a Tiwi Islands traditional owner Simon Munkara that the 262KM pipeline would cause irreparable harm to traditional owners’ connection to sea.
To resume drilling, Santos must receive approval from regulator NOPSEMA for its amended environment plan. Mr Gallagher said that if the company can resume operations by the end of the year then it can meet its timetable, but conceded delays and potential cost blowouts could occur if the company continues to await regulatory approval.
Further issues could also occur should the Federal Court rule in favour of Mr Munkara and Santos is forced to submit a new environmental plan.
The previous version of the plan, developed after Santos was barred from drilling, took more than a year to establish.
Mr Gallagher said Santos will vigorously defend itself at a hearing scheduled next month, but warned the company has little wriggle room left.
“We had some contingency in the project, but that has largely all gone now,” Mr Gallagher told investors.
The regulatory environment, Mr Gallagher said, will not only define the Barossa project but potential other investments that Santos could make in Australia.
“It will be very difficult for us to take [final investment decision] on projects in Australia.”
Mr Gallagher said the regulatory environment in Alaska and Papua New Guinea, where it is developing two other LNG projects, is far more amenable to further investment.
Santos has the option to progress its Dorado project in WA, but Mr Gallagher said the company’s appetite for that investment would be limited without legislative changes.
Santos is under pressure to spur future growth, with a group of investors in October urging the company to split the business to create a single LNG entity to unlock share growth.
Mr Gallagher told investors he was frustrated with a stagnant share price, and the board would consider all proposals.
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