Cheap gas is unrealistic, warns Origin Energy director Mick McCormack
Newly appointed Origin Energy director Mick McCormack has ridiculed a cheap gas target on the east coast as unobtainable.
Newly appointed Origin Energy director Mick McCormack has ridiculed a cheap gas target on the east coast as unobtainable, lashed the prospect of further regulatory intervention in the energy sector and called for bipartisan support for net zero emissions by 2050.
Former Dow boss Andrew Liveris — who advised the government‘s National COVID-19 Co-ordination Commission on how manufacturing could help lift the economy out of the pandemic — initially set a $4 a gigajoule target earlier this year, though more recently suggested a $4-$6 goal. Producers say a price of at least $8 a gigajoule is realistic.
Mr McCormack, the former boss of gas pipeline giant APA, said $4 was an unrealistic goal.
“Some of these prices I’ve heard being kicked around makes me think someone’s been smoking something,” Mr McCormack told The Australian. “It just makes no sense in that you start to talk about $4-$6 gas, that then becomes part of the conversation as though it’s got some serious legs to it. It’s not happening.”
Energy users say they can’t find gas on a contracted basis for less than $8 to $10 a gigajoule, more than double historic levels, which could force some manufacturing facilities into importing products rather than making goods in Australia or even shutting their doors.
Mr McCormack stepped down from APA in 2019 after 15 years in the top job and has picked up several director positions including the Origin board role while also becoming chairman of Northern Territory gas junior Central Petroleum.
A move by both state governments and companies including Origin to achieve net zero emissions by 2050 has also picked up pace this year, although the Morrison government has so far held off committing to the same target.
Achieving bipartisan support on emissions cuts was essential for Australia to decarbonise the economy, he said.
“We‘ve got ourselves in a bit of a mess in the energy industry at the moment. Everyone wants to move to a cleaner energy future — even in the bush where I am, everyone does — but we need to have a bipartisan approach. The debate is just so polarised,” Mr McCormack said.
“Where we are as an industry is you have a government that’s refraining from putting a target out there of zero emissions by 2050 for obvious reasons.
“But you have an industrial landscape that’s slowly but surely starting to put targets on by 2050. One company after another is heading towards that direction.
“And the issue for companies like Origin is they have to make investments to get on that transition path. And you’re making investments against some policy uncertainty. So it’s take a deep breath territory.”
After a year on the sidelines, the outspoken executive said he was wary of creeping government intervention in the energy sector at both federal and state level.
“The federal government is pushing their agenda and various states are needing to push their agenda, and then business and the private sector are needing to make investment decisions to make money for their shareholders. Then you have Snowy Hydro, which is government-owned, going ahead, which will impact the market, so it is pretty messy,” Mr McCormack said. “Navigating a path through that is a challenge, but also an exciting thing for me to help Origin form its views.”
A draft heads of agreement sent to Queensland’s three LNG producers has included reference to a pricing mechanism following sustained pressure from Australia’s big manufacturers for cuts to their gas costs.
The Morrison government has also given companies until April to commit to building 1000MW of new power capacity to ensure there was a like-for-like replacement for AGL Energy’s Liddell coal plant, while energy producers and users have also raised fears over a plan by the NSW government to underwrite investment in renewable and storage generation, saying the move would distort market signals.
A Grattan Institute report largely rejected the Morrison government’s plan for a gas-led economic recovery, saying it will fail to lower prices or stimulate manufacturing jobs.
Grattan calculates Australia’s major gas-reliant manufacturers employ just 10,000 people and account for 0.1 per cent of the national economy, at odds with Mr Liveris’ estimates of 700,000 jobs in the energy-intensive gas-based industries.
Mr McCormack said the government needed to be upfront about their intentions with subsidising the manufacturing industry.
“I can see where the government is coming from but … the government is saying we are going to have private sector companies subsidise some small component of manufacturing. Again, if you want to do that, let‘s be upfront and open about it.”
Origin in October reaffirmed its 2021 earnings guidance for its energy markets division and retained its Australia Pacific LNG production target from its Queensland export facility.
Earnings from its core energy markets division would decline by up to 21 per cent or $309m to a range of $1.15bn to $1.3bn in the 2021 financial year, from $1.459bn in 2020.
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