Santos, APLNG query Malcolm Turnbull’s gas export controls

Industry hits back at new gas export restrictions, while Bill Shorten says they’ll be “hot air’’ without companies’ support.

The gas industry has hit back at Malcolm Turnbull’s “alarming” plan to curb LNG exports if there is a domestic shortage, saying it is unlikely to ease prices or supply and could actually make the problem worse.

As Santos shares were hit hard on uncertainty over how the plan would work, Bill Shorten said the Prime Minister’s “extravagant” pledge to manufacturers that gas prices will halve in the wake of tough new export controls would be “hot air” unless companies backed the claim.

Mr Shorten said Labor was “up for making sure the gas companies prioritise Australians’ needs first” but wanted confirmation they had signed up to the market intervention.

“If Mr Turnbull’s promised Australians that gas prices will halve, I want to hear that promise from the gas companies,” Mr Shorten said.

“Without the gas companies confirming that, what Mr Turnbull is saying is just words, just hot air. I want the gas companies, who have caused a lot of this problem because they have prioritised exporting Australian gas overseas rather than looking after Australians at home, I want these same gas companies to put their hand up and say ‘Yep, gas prices are going to halve, Malcolm Turnbull is right and that from 1 July this new system comes into place’.”

Mr Turnbull said 65,000 jobs reliant on gas were at risk until action was taken, as the government announced new powers that would allow Resources Minister Matt Canavan to block exports unless there are adequate supplies to meet Australia’s needs.

“It will ensure that the price of gas in Australia is at levels comparable to that in the international market because it is a global commodity,” Mr Turnbull told ABC radio.

“But what we’ve seen is because of these anticipated shortfalls, gas suppliers have been proposing contract prices which are really way too high. They are as much as four or five times the price per gigajoule, which is the metric, that are being offered in the United States.

“It’ll be cheaper than the prices that are being offered now, people are being offered prices of $20 a gigajoule, it should be around half that or less.”

Visiting a manufuacturing plant in Brisbane, Mr Turnbull later sought to clarify his comment that gas prices would halve, suggesting if the market was “adequately” supplied then wholesale customers would not be paying $20 a gigajoules.

“This is not saying that all gas prices will be halved as a result of these changes,” he said.

“When the market is in balance, when it is adequately supplied, wholesale prices should be not materially different from the export prices. They certainly should not be materially higher ... That is one of the ways in which you will be able to see whether the market is in balance.”

Mr Canavan said he would write to LNG exporters today with details of the government’s proposed mechanism and ask for their feedback, kicking off weeks of consultations with the sector.

The government plans to have draft legislation prepared by June, which Mr Canavan said would include a sunset clause, with an aim to have it passed into law by July 1.

“That mechanism would only be activated in the event that there is an identified shortfall in the market, based on advice from the ACCC or AEMO (Australian Energy Market Operator),” he said.

“We would only seek under our proposal to rectify the shortfall from those producers that are drawing down from the domestic market, that are taking more out than they are producing themselves.

“As the Prime Minister outlined, the long term need for Australia is to develop our gas resources, otherwise we will be slaves to the world markets and what happens overseas. That is what we have to focus on doing long term. This is meant to be a temporary and targeted measure to sustain jobs here in Australia.”

‘Not likely to impact price or supply’

The biggest Queensland gas exporter, the Australia Pacific LNG project, run by Origin Energy and ConocoPhillips, has criticised the extra regulation, saying it is not likely to have an impact on price or supply.

Industry group the Australian Petroleum Production and Exploration Association says the move was “almost unprecedented” and risked worsening the situation.

APLNG chief Warwick King said the nation’s energy market challenges could only be resolved by engaging with all of the sector, not just Queensland LNG exporters

“APLNG does not support additional regulation such as export permits, as these sorts of interventions will not increase supply or decrease price in the near or long term,” Mr King said.

“COAG’s vision for establishing a liquid wholesale gas market that provides market signals for investment and supply can provide the platform for affordable sufficient gas supply to Australia’s east coast.

ASX giant Santos says will seek clarification on the new export restrictions.

Santos and its partners in the $US18.5 billion ($24.7bn) Gladstone liquefied natural gas project are shaping as the biggest casualties of the plan, with investors deserting Santos shares in morning trade.

“Santos will seek clarification of how the new policy will work in practice in order to understand from government the terms on which it is proposing to introduce this mechanism and how proposals that have been put to government to address the domestic market situation are being considered,” the company said.

“Santos will work collaboratively with government and its joint venture partners to ensure an outcome in the best interests of its shareholders.”

For now, it doesn’t appear in the best interest of shareholders as the group’s shares tumbled 5.5 per cent to $3.45 by 10.50am (AEST).

The Adelaide-based Santos has long been accused of being a major contributor to the tight gas supply situation in eastern Australia due to the reliance of its Gladstone LNG project on third-party suppliers.

Malcolm Turnbull

While LNG exporters have contractual obligations they must meet, Mr Turnbull said the new disallowable regulation to control exports was “not a threat” but a reality. He pointed out the government had a right to protect local industry from gas shortages under Australia’s free-trade agreements.

“They will not be able to export gas if that has the consequence of reducing the availability of gas for the Australian market,” Mr Turnbull said.

“This is a national interest matter, it is a short-term solution to a longer-term problem. The longer-term challenge that we face is we are not producing enough gas on the east coast — that is because of bans on gas exploration and development in Victoria above all and to a lesser extent in NSW.”

The “Australia-first approach” follows Mr Turnbull’s announcement last week that he would abolish 457 visas for foreign workers and replace them with a new program with no pathway to citizenship.

The government has also moved to “strengthen” the citizenship test by placing “Australian values at the heart” of the processes and requirements.