Santos boss Kevin Gallagher says he’s not in the business of subsidising inefficient gas users
Santos managing director Kevin Gallagher has a clear message for Australian industry - get more efficient, just like Santos did.
Santos managing director Kevin Gallagher says Australian domestic gas is already cheaper than in Asia, and his company and other Queensland gas producers should not have to subsidise inefficient businesses that haven’t cut their cloth.
In the wake of an extension to an agreement with the federal government under which the major LNG exporters have committed to offering uncontracted gas to domestic users at fair market rates until 2023, Mr Gallagher came out swinging.
Critics, including some large industry players and the Australian Workers Union, have argued that gas prices for Asian customers are cheaper, and want a domestic gas price mandated by the government.
But Mr Gallagher, while announcing a record quarter of production for the Adelaide energy company, said the price argument was “completely untrue”, and sheeted the responsibility for profit margins back to the gas users themselves.
“The fact is Australia already enjoys lower gas prices than Asia,’’ he said.
“It is completely untrue that domestic customers pay more than customers in Asia for Australian gas. The way to lock in an energy advantage is to establish industry close to gas supply sources or develop gas close to industry.
“But Queensland gas producers should not be required to subsidise companies that refuse to address their own inefficient cost structures — or worse — simply want higher margins.’’
Mr Gallagher said Santos was “in peril” five years ago.
He responded by aggressively attacking the company’s cost base, which involved more than 1000 job cuts.
Mr Gallagher has said many times in the past two years that the strategy is to be sustainable through the whole commodity price cycle — and other companies should take a similar approach.
“We have completely turned Santos around so it is sustainable throughout the oil price cycle and in good shape for the future,’’ he said.
“Australian industry that has been sheltered from exposure to international prices now needs to do the same — not demand government protection. Without the large scale of the three Gladstone LNG export projects, Queensland’s enormous coal-seam gas resources would never have been developed in the first place.’’
Mr Gallagher said export or price controls would simply end up cutting revenues to state and federal governments and cost jobs.
The extension of the domestic gas agreement was announced by Prime Minister Scott Morrison on Wednesday. It commits the large east coast LNG exporters, including Santos’s part-owned Gladstone LNG joint venture (GLNG), to offer uncontracted gas to the domestic market first.
On the production front, Santos reported that it had hit the top end of upgraded guidance given just last month, delivering record annual production of 89 million barrels of oil equivalent, up 18 per cent on 2019.
Annual sales revenue was $US3.4bn ($4.4bn), down 16 per cent on the previous year.
Quarterly production was up 1 per cent on the prior quarter, coming in at 25.4mmboe, outstripping Woodside’s 24.9mmboe.
Guidance for the current calendar year is for production of 84-91mmboe and sales of 98-105mmboe. Mr Gallagher said the company had delivered strong free cash flow of $US725m.
Santos shares closed down slightly at $7.39.