Orica and Santos explore a gas supply deal from controversial Narrabri project
Santos has secured its latest foundation customer for the contentious Narrabri gas project, signing Orica to a potential 15-petajoule annual supply deal.
Orica, one of Australia’s biggest industrial gas users, has struck a deal with Santos to secure 15 petajoules of gas each year for a decade from the company’s contentious Narrabri project in northern NSW.
The non-binding memorandum of understanding marks the latest in a string of exploratory agreements Santos has pursued ahead of final regulatory approvals for Narrabri – a project that has become a lightning rod for opponents of coal seam gas.
Supporters argue, however, that the development could offer a solution to looming gas supply shortages on the country’s eastern seaboard.
The early supply deals serve a dual purpose: for Santos, they lock in long-term buyers and bolster the case for Narrabri by showing regulators, investors and the market its commercial viability; for major gas users like Orica, they provide price stability and supply security in a volatile energy market.
Santos chief executive Kevin Gallagher said the agreement underscored the strong market interest in Narrabri.
“There is overwhelming demand for Narrabri gas and Santos is looking to execute foundation contracts as soon as possible to support development once regulatory and native title processes are concluded,” he said.
“Narrabri gas will be a very competitive source of domestic gas supply for the east coast market.”
The deal includes a co-operation agreement between Santos and Orica to explore carbon capture and storage options.
Orica is under intense pressure to reduce its emissions, while Santos is keen to grow its sequestration business.
Narrabri, located in the Pilliga region of NSW, has been the subject of extensive environmental and political debate.
Opponents, including some local farmers, environmental groups, and some regional councils, have voiced concerns about potential impacts on water resources, biodiversity, and agricultural land. Yet proponents argue that the project is vital to meeting the eastern seaboard’s growing energy needs – particularly as older coal and gas infrastructure is retired and domestic demand rises.
The timing of the agreement comes amid heightened scrutiny of Santos, which is itself the target of a conditional $30bn acquisition bid by Abu Dhabi’s state oil and gas company (ADNOC) and its private equity partner.
Observers believe the federal Labor government could potentially make Narrabri a condition of approval for the sale, requiring Santos to progress the gas development to bolster Australia’s energy security.
The ADNOC-led consortium has deep pockets and has vowed to bolster domestic supplies – a promise that Santos as a listed company may struggle to achieve. Santos is close to finishing two major growth projects and is under pressure to increase shareholder returns and reduce capital expenditure. It could still elect to proceed with Narrabri, but Mr Gallagher has repeatedly noted numerous opportunities within its portfolio.
Orica, which relies heavily on natural gas for its industrial processes, has in recent years faced a challenging energy market.
Rising gas prices, supply uncertainty, and periodic shortfalls have forced companies to seek longer-term contracts to manage costs and operational risk. The Narrabri deal, if finalised, would provide a significant portion of Orica’s annual gas requirements, underpinning both its operational stability and viability,
Companies such as Orica are increasingly alarmed by the prospect of an east-coast gas shortfall. Orica cannot switch to renewables to power its processes and soaring gas prices would dent its international competitiveness.
Despite the potential benefits, Narrabri continues to be a contentious project, emblematic of the broader tension between energy security and environmental stewardship in Australia’s energy transition. Critics argue that expanding gas production risks undermining climate commitments and could impose long-term environmental costs that outweigh near-term supply gains.
For Santos and its potential investors, the stakes are high. The Orica deal signals to regulators, the market and prospective buyers that the Narrabri project has a path toward commercial viability.
Securing long-term offtake agreements may be a prerequisite for Santos to move forward, particularly given the company’s ongoing discussions over the $30bn acquisition offer and the federal government’s energy policy priorities. Santos shares closed up 1.3 per cent at $7.76.
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