Conoco warns on gas price intervention
Energy giant ConocoPhillips, one of Australia’s big LNG exporters, has cautioned the Morrison government against intervention in Australia’s gas market.
Energy giant ConocoPhillips, one of Australia’s big LNG exporters, has cautioned the Morrison government against intervention in Australia’s gas market, warning that investment could stall should price controls be introduced.
With Scott Morrison on Tuesday set to start the process of implementing a controversial domestic gas reservation scheme, Conoco said it was wary of any government demands on east coast gas pricing other than agreeing for it to be on “market terms”.
“The big issue that has come up when I was in Australia is obviously the real question of ‘are they going to change the wording on pricing?’,” Conoco president Asia-Pacific Warwick King told The Australian.
“I would be reluctant to see any broader intervention in terms of specific wording, particularly around pricing.
“We believe certainly through the rhetoric I read that there is wording being proposed that could change. I would be very worried as an investor if it’s broader than on reasonable market terms or words to that effect.”
The industry is on edge after the federal government said it was preparing to “strengthen price commitments” as it looks to negotiate a new heads of agreement with Queensland gas exporters including Conoco to ensure sufficient affordable supplies are available.
Conoco is a partner in the $25bn APLNG gas export project in Queensland with Origin Energy and China’s Sinopec.
Conoco, which sold its northern Australia oil and gas assets to Santos for $1.9bn including its Darwin LNG stake, said any further intervention by Canberra could raise issues for the US energy major as it weighs up spending compared with other international jurisdictions.
“The more we see some kind of intervention, it’s just another hurdle I have to overcome as I try and persuade (the board) why Conoco should give me the marginal dollar over somewhere else in the world,” said Mr King, who was speaking before the domestic gas reservation plan was unveiled.
Resources Minister Keith Pitt said consultation on a new heads of agreement with the three Queensland exporters including QCLNG was due to start shortly ahead of its expiry next month.
The agreement works by ensuring LNG exporters offer uncontracted gas to the domestic market in the event of a shortfall, allowing local users volumes of gas before they get shipped offshore to Asian buyers.
Australia’s first ever national gas reservation scheme, sparked by concerns from big energy users that a renewed outbreak of tight supply could increase prices, could also heighten fears over an investment strike by the nation’s producers.
The Morrison government will seek to ease fears on Tuesday by saying any shake-up of the market would apply only to prospective projects and take into account COVID-19 investment pressures.
Much of the angst between the government, producers and users centres around gas price expectations. Stoking the fire has been government adviser Andrew Liveris, who has publicly targeted gas at $4 a gigajoule for the domestic market, despite suppliers rejecting those levels as unrealistic given the cost of exploration, production and transport.
The government has yet to detail how it will strengthen price commitments from big producers like Conoco amid frustration from large gas users including Qenos, Orica and Incitec Pivot over the disparity between low prices on the spot market and higher contracted prices.
Mr Pitt said LNG netback prices, the local equivalent of an LNG price, would serve as a reference point for domestic gas prices.
Conoco said a thriving manufacturing sector was vital, but so too were realistic expectations around price, which can quickly change depending on underlying dynamics in the broader Asian LNG market, which consumes the bulk of Australia’s gas exports and acts as a defacto price guide.
“We’ve always wanted a thriving manufacturing sector. Absolutely. A lot of our customer is that base and we have some good long-term customers and we have a strong relationship with a lot of them,” Mr King said.
“The worry comes when conversations all come down to one issue, which has been price. And price is a difficult conversation in that I hear people muddle wholesale with retail. I see US dollars mixed with Aussie dollars.
“So I do think some of what has been put on there by some people has sometimes been confusing.”
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