Origin in talks for gas deal from Andrew Forrest’s terminal
Origin Energy is in advanced talks to become the anchor customer for Andrew Forrest’s ambitious NSW gas import terminal.
Power giant Origin Energy is in advanced talks to become the anchor customer for Andrew Forrest’s ambitious NSW gas import terminal, putting the mining billionaire on track to operate Australia’s first such facility.
The country’s biggest electricity retailer, which part-owns one of Australia’s largest LNG export plants, was understood to be in the final stages of tying up a deal that would see it become the biggest buyer of gas from the project, sources said.
The contract, which remains in negotiations, would allow the Port Kembla facility to cover the bulk of its supply and underpin the $250m investment needed to bring a huge new source of gas to the east coast market by late 2022.
Origin has long been expected to be a gas buyer from the plant and has stepped up its commitment with talks accelerating after Squadron Energy, owned by Mr Forrest’s Tattarang, bought out the two Japanese owners of the plant in October.
That corporate move was seen as freeing up a number of drawn out discussions including contract talks, paving the way for Mr Forrest to emerge as the first LNG importer in Australia only a few years after the nation toppled Qatar to become the world’s biggest LNG exporter.
Australia’s east coast gas market has been crimped in the last few years due to Queensland LNG exports, onshore development restrictions, falling Bass Strait production and the increasing cost of bringing new domestic supplies to market.
Five import plants have been proposed in Australia with two in NSW — the Port Kembla facility and a South Korean-sponsored development in Newcastle — while in Victoria AGL Energy is battling planning delays for its Crib Point scheme in the Mornington Peninsula, with Viva Energy’s Geelong hub accelerating plans to sign off on its venture. Venice Energy also has plans for a South Australian project. Australia’s southern states urgently require new sources of gas to fill a looming supply shortfall as production from offshore Victoria dries up.
Origin, the operator of Queensland’s $25bn APLNG gas export project, hinted at its ambition to sign a gas offtake deal at its investor day last week, noting it was talking to a number of suppliers including LNG import terminals.
“We are also looking and working very hard on additional supply options and we’re talking directly to producers in LNG import terminals. We’re making real progress there as well,” Origin’s executive general manager for supply and operations Greg Jarvis said at the investor day.
“We are deep in discussions with long-term supply post-2023. We’re talking to all the producers and the LNG import terminals. And again, we’ve made real progress there and we’re hopeful of an outcome in the new year.”
EnergyAustralia, one of Australia’s big three power retailers, reached a preliminary agreement worth $500m with the Port Kembla plant to buy 15 petajoules of gas from January 1, 2021 but remains the only confirmed buyer to date.
The NSW import plant would supply 100 petajoules of gas annually, equivalent to 75 per cent of the state’s demand.
The momentum behind the project may also put it in front of the rival Narrabri coal-seam gas development being pursued by Santos, which only expects to produce 29PJ of gas by 2025 under a phased development timeline outlined at its own investor day on Tuesday.
The Port Kembla plant and Santos have traded barbs over which can supply the cheapest gas for users on the east coast.
Santos has consistently argued Narrabri will provide the most affordable option than any LNG import schemes and could even provide supplies to industrial customers first given the delays among import plants in progressing their facilities.
However, the latest timelines suggest the Port Kembla import plant is in pole position to win that race, with Narrabri now undertaking a two-year appraisal scheme before it makes a final investment decision in the first half of 2023.
NSW Premier Gladys Berejklian has indicated the state will tap LNG imports if Narrabri fails to be approved to meet a federal government deal to supply an extra 70 PJ of gas into the east coast domestic market.
Forecasts from gas producers show several gas fields could end production from mid-2023 to mid-2024, prompting the Morrison government to consider a raft of new measures including a national gas reservation scheme to ensure enough supplies for local users.
Offshore production from the Bass Strait is set to decline from 2023 while output from the Cooper Basin will fall away from 2026, raising concerns for users in Victoria, NSW, South Australia and Tasmania. Even if Santos’s Narrabri coal seam gas project in NSW proceeds, it will fail to offset declines from the two major gas sources.
If they shutter supply sooner, southern states could face supply gaps in peak daylight hours as early as 2023 during winter, when average consumer demand is three times more than in summer.
Origin said it is progressing talks with gas suppliers.
“Origin continues to progress negotiations with a number of different suppliers around possible future gas supply,” an Origin spokeswoman said.
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