Don’t pull gas trigger, Origin warns
Power giant Origin Energy has warned the federal government against expanding its gas export trigger.
Power giant Origin Energy has warned the federal government against expanding its gas export trigger over fears the “extreme intervention” may jeopardise lucrative LNG contracts and further diminish Australia’s investment reputation.
Amid government moves to reintroduce its “big-stick” electricity market legislation in parliament this week, Origin criticised a plan to tweak the Australian Domestic Gas Security Mechanism as part of new policies to improve the east coast gas market and called for the mechanism to be culled from 2023.
“The ADGSM or any similar mechanism is an extreme form of intervention that should only be temporary,” Origin said in its submission to the government review. The ADGSM could lead to “an increased likelihood for moral hazard to the extent prospective buyers choose not to enter into contracts in anticipation of the mechanism being triggered”.
It also risked a “further diminishing of Australia’s investment reputation and an increase in the perception of sovereign risk and discouragement of future gas development due to a perception of increased regulatory risk”, Origin said.
The controversial reset of the gas industry was negotiated by Centre Alliance Senator Rex Patrick in exchange for supporting the government’s tax cuts. In addition to changes to the gas trigger it includes a long-term proposal to replicate Western Australia’s gas reservation in the eastern states along with pipeline reforms.
The ADGSM can direct Queensland LNG exporters to divert supplies to the local market if a shortfall is forecast for the following year. It has been overseen by Resources Minister Matt Canavan as a response to tight domestic supplies on the east coast but has not yet been triggered since it was introduced in July 2017. Critics including big industrial users argue the mechanism has done little to ease high local gas prices but major LNG producers like Origin — which owns a 37.5 per cent stake in the $25bn Australia Pacific project in Queensland — say gas is flowing to local manufacturers and government intervention only serves to heighten policy uncertainty.
Australia’s biggest electricity generator, AGL Energy, said a strengthened ADGSM was not the best response to alleviate pressures in the market, with more domestic gas production and even its own LNG import scheme in Victoria among potential solutions.
“We would caution against adjustments to the mechanism that may raise longer-term risks or disincentivise further investment in new supply,” AGL said in its submission. “We are encouraged by recent actions of LNG producers and project partners to offer greater volumes of gas into the domestic market. Potential measures to regulate exports, including the ADGSM, must be carefully considered to avoid reducing incentives for upstream participants to discover, develop and commercialise new gas reserves.”
However, big gas users rubbished sovereign risk warnings made by major LNG producers and said the gas mechanism had failed to work.
“The introduction of the ADGSM has had no discernible impact on the domestic gas market from the perspective of C&I users,” the Australian Chamber of Commerce said in its submission. “There is no indication that the ADGSM is having a negative impact on Australia’s international competitiveness, investment reputation or international reputation for quality and reliability.”
The Australian Food and Grocery Council, which represents companies accounting for $73bn of the nation’s international trade, said its members faced cutting facilities and job losses as a result of high domestic gas prices.
“Higher gas prices risk a contraction in manufacturing industry activity,” the AFGC said. “The majority of Australian food and grocery manufacturers are located in southeastern states with high gas pricing, hence making them internationally uncompetitive and placing additional pressure on brand owners to close additional local manufacturing sites.”
The ADGSM review — which has been undertaken by the Department of Industry, Innovation and Science — is due to be completed by the end of September.
Queensland LNG projects led by Origin, Santos and Shell have in the past few years avoided export restrictions under the ADGSM after agreeing to provide reasonably priced gas to fill any short-term shortages.
Labor had also pledged prior to the federal election to introduce a separate gas export price trigger that would curb supplies of LNG exports, raising fears among producers about the risk of retrospective moves, which could disrupt Australia’s second-biggest export earner.
Energy industry body APPEA said the industry had contributed to domestic markets and intervention should be avoided. “APPEA notes the high value that customers place on reliability and security of LNG supply,” APPEA said in its submission. “The ADGSM can be seen as undermining that reliability.”