Origin Energy says intervention on gas ‘unnecessary’

Origin Energy says the planned domestic gas reservation scheme is ‘unnecessary’.

Origin Energy says the planned domestic gas reservation scheme is ‘unnecessary’.

Origin Energy has advised the Morrison government against fresh intervention in the east coast gas sector and warned a planned domestic gas reservation scheme was unnecessary and a move which could kill off investment and lift prices.

Energy producers are on edge the government’s approach, aimed at boosting supply and cutting prices, could backfire and dent future spending should suppliers be obligated to set aside a certain quantity of gas for local users.

The operator of Queensland’s $25bn APLNG gas export project is wary of any new measures given it already holds commitments to supply the east coast market through the Australian Domestic Gas Security Mechanism, which ensures exporters offer uncontracted gas to the domestic market.

“There’s been talk about a reservation policy and look we don’t think it’s necessary,” Origin chief financial officer Lawrie Tremaine told the CFO Live business forum on Thursday. “We think governments should facilitate us to bring new gas supply to the market. That’s a priority. And more assertive intervention by governments runs the risk of having exactly the opposite effect of what‘s intended. They really could kill off investment.”

Resources Minister Keith Pitt began the process of implementing a national gas reservation system on Tuesday, seeking input from state governments, gas companies and energy users before a final decision in June 2021. Western Australia already operates a reservation scheme requiring 15 per cent of gas reserves at LNG export projects to be set aside for use within the state.

Origin echoed warnings from other major producers that new measures may move investment offshore and not lead to any materially lower prices for local manufacturers.

“Investment in our industry tends to be global and capital will shift to the best place,” Mr Tremaine said. “So governments I think are aware if they get that wrong through heavy handed intervention, they can actually shift the investment elsewhere and have a negative price impact. Whereas if we can just bring on gas that‘s available, that would be clearly positive to both supply and price.”

One of Origin’s partners in APLNG, US giant ConocoPhillips, this week cautioned the Morrison government against intervention in Australia’s gas market warning investment could stall should price controls be introduced.

Conoco, which sold its northern Australia oil and gas assets to Santos for $1.9bn including its Darwin LNG stake, said any further intervention by Canberra could raise issues for the US energy major as it weighs up Australian spending compared with other international jurisdictions.

The power giant, Australia’s largest electricity retailer, also called into question a move by the government which gave investors until April 2021 to commit building 1000 megawatts of new power capacity to ensure there was a like-for-like replacement for AGL Energy’s Liddell coal plant, which will close down in the 2022-23 summer.

“The Liddell taskforce and AEMO agreed the gap that comes about due to Liddell exiting is actually pretty small in the order of 150MW and view that gap can be made up with projects already approved or probable. So around the most imminent shutdown we think as an industry we’ve got it covered,” Mr Tremaine said. “And again what we ask for from the government in respect of electricity is an integrated climate and energy policy that gives us the certainty that we‘re required to invest as an industry.”

Prime Minister Scott Morrison threatened the government was prepared to step in and make that investment itself if the market failed to come to the table, prompting tensions to erupt with the country’s biggest energy players.

Origin will deliver its quarterly production report on Friday to investors.