Gas giants keep supply talks on hold
Woodside Energy and Shell have kept a suspension on offering new supplies in place a month after first pausing them.
Two of the east coast’s biggest gas producers have kept a suspension on offering new supplies in place – a month after first pausing new offers – following the Albanese government’s intervention into the national energy market.
Woodside Energy and Shell have yet to lift a pause on offering new volumes to big customers for 2024 due to uncertainty over the government’s legislation.
The move follows multiple energy retailers across the eastern seaboard ceasing to take new gas customers and others increasing prices, as they work through the implications of Labor’s price cap.
The standoff may exacerbate fears among some industry players over shortages and rationing as a result of the legislation, with a string of big suppliers pulling back from new offers to customers over the next few years.
Woodside and Shell first suspended talks with buyers to supply new gas into Australia’s east coast on December 13.
Woodside had canvassed commercial and industrial customers to buy 50 petajoules of gas over 2024 and 2025 but froze the process. Sources said the pause has remained in place, with both Woodside and Shell likely to keep the process on ice until further detail from the federal government on a code of conduct is released next month.
Prime Minister Anthony Albanese and Energy Minister Chris Bowen have rejected concerns that a one-year, $12-a-gigajoule cap on gas and $125-a-tonne cap on coal would trigger an investment drain and supply gaps.
Shell, operator of the QCLNG gas export plant in Queensland, said in December a tender process offering 50 petajoules of gas to buyers in 2023 and 2024 had been put on hold by its QGC business as it assessed the fallout from Labor’s proposal to permanently control prices. Shell said its QGC arm continued to supply gas to its customers and make offers to the domestic market.
“We are working constructively with the government through its consultation process, while continuing to assess the impact of the regulatory changes on our gas marketing plans. An update will be provided in due course,” a Shell spokesman said.
Contracts had become more scarce since the policy was introduced, Credit Suisse said.
“Contracts have dried up as producers halt marketing to assess compliance with the policy,” said its analyst, Saul Kavonic. “There were gas deals ready to go that have now not occurred as they were rendered illegal by the policy, leaving some gas buyers reliant on much higher default pricing or spot exposure near term.”
The federal government said it expected the gas price cap to flow through to consumers.
“The Australian Competition and Consumer Commission will continue to closely monitor gas markets to ensure that energy companies are doing the right thing and consumers are paying a fair and reasonable price for Australian gas,” a spokesman for Mr Bowen said.
“The current energy price volatility Australia faces makes the energy transformation even more important. Our transition to renewable energy will reduce emissions, increase our resilience to global price shocks driven by volatile international fuel markets, and put downward pressure on wholesale electricity prices.”
In August, the ACCC warned of a “looming” shortfall in the east coast gas supply, saying domestic supplies could fall short of projected 2023 demand by more than 55 petajoules, which could result in price spikes in the winter – a situation the market intervention was designed to prevent.
Recruitment for more than 370 jobs, new investment and future contracts related to Queensland’s $1bn Atlas expansion project owned by Gina Rinehart – aimed at boosting east coast supplies – will be put on ice until the outcome of the government’s consultation on its price cap rules.
Credit Suisse said both the code of conduct and a heads of agreement with Queensland exporters were critical for 2023.
“Without more supply into the market from the Queensland LNG players, there will be little further contracts made available and spot prices could head closer to netback levels,” Mr Kavonic said. “We expect the government will be attempting to renegotiate the heads of agreement and change the code of conduct to pursue more supply into the market at lower prices, see further contracting over simply relying on spot market exposure and see some flexible capacity made available.”
Two days prior to Christmas, Resources Minister Madeleine King urged gas companies to engage with Labor over concerns surrounding the government’s mandatory code of conduct for the sector rather than “threaten an investment strike”, after revelations $32bn worth of projects were under threat due to the government’s new energy laws.
A heads of agreement agreed in September saw exporters agree to provide an extra 157 petajoules for the domestic market and charge domestic users no higher than international customers.
In the short term, the earnings of major producers are not expected to take a major hit because most sell their gas and coal under long-term contracts.