Woodside, Shell raise alarm on Albanese government’s gas intervention
Woodside Energy has issued a fresh warning over energy intervention, while Shell has frozen a deal to supply gas for east coast users.
Woodside Energy and Shell have suspended talks with buyers to supply new gas into Australia’s east coast, blaming the Albanese government’s intervention into energy markets and warning the move could lead to shortages and gas rationing.
Woodside, which supplies 20 per cent of east coast domestic demand from Victoria’s Bass Strait, followed Shell’s dramatic move to freeze sales to customers by also pausing its own process to supply into the market.
Woodside had canvassed commercial and industrial customers to buy 50 petajoules of gas over 2024 and 2025 but said the process had now been suspended.
“Due to the uncertainty created by the government’s proposed legislation, Woodside has now suspended that process and paused all other domestic gas marketing activities while we seek to understand the implications of this intervention,” Woodside said in a statement.
“That offer was heavily oversubscribed with more than 20 buyers nominating a price they were comfortable to pay.”
The national cabinet’s sweeping market intervention has caused shock among energy producers with a combination of price caps on gas and coal and a new code of conduct that could result in a requirement for gas to be permanently sold at a reasonable price.
Shell, operator of the QCLNG gas export plant in Queensland, said a tender process offering 50 petajoules of gas to buyers in 2023 and 2024 has been put on hold by its QGC business as it assesses the fallout from Labor‘s proposal to permanently control prices.
“QGC confirms that the expression of interest process underway to offer additional gas to domestic customers in 2023 and 2024 is temporarily paused while we assess the impact of the proposed reforms on our gas marketing plans,” a Shell spokeswoman said.
“Pausing the EOI process was not an option we wanted to take, however, QGC needs to consider whether the design of the current EOI will meet the new regulatory requirements, including the 2023 price cap and the proposed mandatory Code. An update will be provided in due course.”
Credit Suisse analyst Saul Kavonic said “the damage” had already started.
“Nearly all gas contracting has shrivelled up in the last few days. Previously agreed funding for new supply developments has already been pulled. No-one in the market has any idea how to plan for the months ahead, let alone agree on a contract,” Mr Kavonic said.
Woodside chief executive Meg O’Neill called for a meeting with Labor to find an alternative solution to the proposed policies ahead of parliament meeting on Thursday to push through the legislation.
“Woodside calls on the Federal Government to reconsider this unprecedented intervention and bring energy companies, retailers, manufacturers, and infrastructure owners together to properly engage on a solution,“ Ms O‘Neill said.
“No one wants to see energy shortages and gas rationing. We must develop a comprehensive, longer-term solution that addresses gas supply and reliability, the overall energy mix and infrastructure, without undermining the market-based economy,” she said.
The government has maintained it has the right and was duty-bound to directly intervene in the energy market to force companies to sell their resources at lower prices.
However, analysts say the Prime Minister had “declared war” on the industry and the move would lead to energy shortages and job losses.
“The Prime Minister last Friday correctly acknowledged that Australia has not invested enough in its own energy security. And yet the unprecedented market intervention announced risks driving investment out of the system,“ Ms O’Neill said.
“The policy will not address falling domestic gas supply and the increasingly critical role of gas in providing dispatchable power. These are the primary factors that are driving higher energy prices in the east coast gas market, rather than solely the impact of the tragic war in Ukraine.”
Labor plans to cap domestic wholesale gas prices at $12 per gigajoule during 2023, while the price of thermal coal would also be capped in the east coast market at $125 a tonne.
The Australian Aluminium Council said the move to cap prices was the correct call by the government.
“Currently the pendulum has swung too far in favour of exports, to the detriment of domestic consumers,” the Council’s chief executive Marghanita Johnson said in its submission to the government.
Big aluminium producers which have sought to recontract for gas in the last twelve months have seen prices increase up to 300 per cent compared to prices seen only a year ago, the Council said.
“This is not sustainable when energy typically accounts for 30-40 per cent of the industries’ cost base and therefore is a key determinant of their competitiveness. Without price relief, unsustainable will become unviable.”
In the short term, the earnings of major producers are not expected to take a major hit because most sell their gas and coal under long-term contracts, and are therefore sheltered from the temporary 12-month caps which will be in effect in 2023.
However, the threat of an extension, and the risk of cuts to exploration and growth programs, made investors nervous on Monday, prompting a major sell-off in Origin Energy. Origin regained some ground, closing up 1.25 per cent to $7.28.
There are fears the government’s intervention could scupper a $18.4bn takeover bid for Origin from Brookfield and US investment giant EIG Partners.
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