Gas price spat erupts as Shell Australia chair Zoe Yujnovich chastises customers
Shell’s Zoe Yujnovich has fired new shots in the war between gas producers and users, ripping into customers.
Tensions between energy producers and big industrial users over the east coast’s dysfunctional gas market have erupted, with industry giant Shell accusing manufacturers of referencing federal government intervention in contract negotiations in a bid to lower prices.
The blame game between suppliers and buyers of gas on the eastern seaboard has been simmering with high prices and a supply shortfall leading the competition regulator to warn industry will be forced to shut down operations if the situation persists.
Shell, one of Australia’s largest gas producers, said large manufacturers are including the idea of government intervention in their gas tenders to try to elicit cheaper gas deals.
“We observe that several commercial and industrial customers continue to agitate for government intervention,” Shell Australia chair Zoe Yujnovich told the Credit Suisse Australian Energy conference in Sydney on Wednesday without naming any companies.
“Indeed, the term-sheet that accompanies their supply negotiations these days seems to have an inked-in tactic to use government pressure to leverage a better deal.”
The nation’s top producers, including Shell and Santos, are mounting a fightback after being battered for several years by their customers and governments with prices soaring to about three times historic levels due to tight supply and Queensland LNG exports.
ACCC chairman Rod Sims has called for producers to consider cutting favourable deals for manufacturers to ensure their livelihoods, while big users like Qenos have called for Resources Minister Matt Canavan to trigger emergency government mechanisms to free up Queensland gas otherwise destined for export.
Some large gas users are still enjoying legacy gas prices below market rates. But despite that extra cost, Shell says it had not called for an equivalent bailout from the government.
“There is a case to be made it’s working almost too well in the favour of those commercial and industrial customers who still hold legacy contracts for gas supply well below market rates, contracts that have cost us dearly for years,” Ms Yujnovich said.
“Yet it is not our style to approach government to save us. We understand the sanctity of contracts but we still find some are out there lobbying against us. So I’m pleased that some industry observers have spotted the gamesmanship being played here and called it out.”
Gas producers should not be called on to cross-subsidise buyers in another industry, Shell said.
“I don’t get many calls from large commercial and industrial customers wanting to invest in upstream projects to participate across the value chain. I suspect that’s because they know the truth of the matter that the risk-versus-return profile of coal seam gas and capital intensity set against price and production volatility may not be to their liking.
Queensland LNG export projects led by Shell, Santos and Origin Energy have so far avoided the Australian Domestic Gas Security Mechanism being triggered after agreeing to provide reasonably priced gas to fill any short-term shortages.
Santos chief Kevin Gallagher said the government must avoid embracing interventionist policy.
“There is no history that tells us that government intervention works,” Mr Gallagher told the conference. “You will just get the same outcome that you always get when governments intervene in free markets: eventually you’ll pay the price for it, and that will be jobs, it will be higher gas prices it will be less gas to market.”