Government’s gas market intervention creates uncertainty for proposed Geelong gas terminal

The fate of Viva Energy’s proposed Geelong gas terminal will rest with how the federal government’s currently unknown future gas market interventions sit with major importers.

Viva Energy chief executive Scott Wyatt. Picture: James Croucher

Viva Energy’s proposed gas import terminal at Geelong is “in limbo” until the federal government lays out its plans for long term intervention in the market, one analyst says, with chief executive Scott Wyatt saying its ultimate fate rests with customers looking to bring gas into Australia.

Viva, which reported a full year net profit of $596.6m on Tuesday, up 211 per cent, is currently waiting on environmental approvals from the Victorian Government for the Geelong import terminal project, with a decision originally expected late last year.

However Mr Wyatt said the federal government’s moves to intervene in the gas market meant its potential customers would need to reassess their business plans once the new rules were laid out.

Viva intends to be the owner of the infrastructure, generating revenue from customers seeking to import gas into the Australian market through its terminal.

The government’s emergency 12 month gas price cap of $12 per gigajoule which extends until December this year, and plans currently being formulated for longer-term interventions, mean a final investment decision (FID) on Geelong is on the backburner for the moment.

Mr Wyatt said customers would need to take into account the impact of whatever results from the government’s current consideration of longer term intervention in the gas market.

“That’s going to be part of their consideration around how does this terminal meet their physical needs to supply gas into Victoria and what sort of price risk comes with the current gas market interventions,’’ he said.

“I think we’ll understand that a bit more once we’ve got approval from the Victorian Government, to sit down and have those conversations with the customers with a project which then is ready to move forward.

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“In order to take FID, we need both regulatory approval and support from a couple of key customers to underwrite the project.’’

Mr Wyatt said the outlook would become more certain through the course of this year.

The Australian Competition & Consumer Commission said recently if a decision was made to proceed with the Geelong terminal, it could be importing gas by winter 2025, “around 12 months later than previously expected’’, however Mr Wyatt on Tuesday declined to put a timeline against the FID process given the market uncertainty and the current lack of a regulatory approval.

South Korean company EPIK recently shelved its plans for a gas import terminal at Newcastle in NSW and the ACCC has warned gas shortages on Australia’s east coast remain possible this year.

On the financial front, Viva delivered “outstanding’’ results, Mr Wyatt said, with sales volumes up 9 per cent to 14.3 million litres of fuel and EBITDA for the full year coming in a $1.08bn, up 122 per cent on 2021.

Mr Wyatt said the inherent diversity of the business across retail and commercial fuel sales, refining and consumer, “served us extremely well this year”.

“Both retail and commercial delivered exceptional sales and earnings growth and our refining business benefited from a very strong refining margin environment driven by recovering global demand, reduced refining capacity from closures and outages, and supply chain disruptions caused by the devastating war in Ukraine,’’ Mr Wyatt said.

The retail division delivered EBITDA of $249.6m, up 33 per cent, with fuel sales volumes up 7 per cent.

Viva will bed down its $300m acquisition of the Coles Express business in the second quarter of this year, and Mr Wyatt said the company is positioning itself for further growth in its non-fuel revenues.

“Acquiring the Coles Express business was kind of the first step in pursuing that particular strategy,’’ Mr Wyatt said.

“Bringing together our fuels business and their convenience business to create one single operating platform and then from there, to look at the opportunities to invest in and expand the network.’’

The commercial division increased EBITDA by 54 per cent to $335.3m on a 9 per cent increase in volumes, driven by the recovery in aviation and strong wholesale and agricultural demand.

Refining earnings were up more than five-fold to $517.9m.

“The Geelong refining argin averaged $US17.1 per barrel over the year, compared to $US$7.1 per barrel in 2021,’’ the company said.

“Globally, refining margins increased sharply in the second quarter and remained elevated for the remainder of the year as a result of high global demand, reduced refining capacity, and the broader impact of sanctions on the purchase of Russian oil.’’

On the outlook, Viva said it expected refining margins to remain above historical averages.

“Margins will likely be driven by the impact of sanctions on Russian oil and refined products, Chinese demand and export strategies, and more broadly global demand for oil,’’ it said.

“Fuel demand to remain robust in retail despite changes in mobility and working modes. Site expansion will continue through the extension of the Liberty Convenience network.’’

RBC Capital Markets said in a note to clients that the financial result was a “miss against RBC and consensus forecasts at both the net profit after tax and group EBITDA level’’.

“Viva’s 2023 outlook is positive and driven by rising fuel demand generated from continued strength in economic activity and recovery in travel,’’ RBC said.

“The completion of the Coles Express transaction has potential to enhance retail returns. In addition, refining margins have held up well in January ... but margins also remain volatile and vulnerable to disruptions to traditional supply chains and the pace of recovery in China and its product export volumes.

“The Geelong Energy Hub LNG import terminal continues to delay FID as it awaits (the) outcome of the Environmental Effects Statement approval process, and we think it has now gone into limbo until there is clarity over new federal regulation of gas markets.’’

UBS said the quality of Viva’s underlying earnings had improved and “we see potential for further capital management’’.

Viva will pay a final dividend of 13.3c per share, up from 3.2c for the previous corresponding period.

Viva shares were 3.5 per cent lower at $2.92 in afternoon trade on Tuesday.