Woodside calls on Victoria to open up gas, LNG imports

Woodside Energy has called for Victoria to develop its own sources of gas and back a mooted LNG import terminal at Geelong to help ease a supply crunch.

Woodside’s Pluto LNG Plant.

The country’s largest oil and gas producer, Woodside Energy, has called for Victoria to develop its own sources of gas and back a mooted LNG import terminal at Geelong to help ease a supply crunch which has put the state on edge for the rest of winter.

Victorian Energy Minister Lily D’Ambrosio on Wednesday called for the market operator to be given enforcement powers to ensure enough gas is available for domestic users as a supply crunch intensifies across eastern states.

Woodside now has exposure to the east coast through Victoria’s offshore Bass Strait fields after its BHP merger deal.

After unveiling a big jump in second quarter revenues and reversing a decision to sell part of its big Senegal oil project, the LNG producer said the gas-short state needed to look within at its own roadblocks and consider gas imports to bridge a supply gap.

“There are gas development opportunities in Victoria that have been impeded from progressing,” Woodside chief executive Meg O’Neill told The Australian. “The reality is the regulatory framework has impeded investors from progressing new gas developments on the east coast. It’s been very difficult.”

Critics of the Victorian government point to a set of bans on onshore gas exploration in the state that have limited supply.

“In terms of solutions, longer-term additional development would be helpful. Shorter-term, things like LNG imports may be useful and we’ve continued to work with Viva on the opportunity they’re progressing to try to bring LNG in through the Geelong facility.”

A supply crunch continues in the southern state with the Australian Energy Market Operator warning of ongoing high demand.

The operator activated its emergency gas supply guarantee mechanism on Tuesday for just the second time.

“Cold temperatures and the higher-than-average reliance on gas-powered electricity generation continue to drive gas demand in Victoria, and more broadly across the national electricity market,” AEMO said in a statement. “Steps taken by AEMO with industry are helping conditions as intended, despite high gas demand, with current electricity supply sufficient to meet forecast demand.”

Woodside chief executive Meg O’Neill. Picture: Colin Murty

Storage levels at Victoria’s underground gas storage plant, Iona, have dropped to a record low and forced AEMO on Monday to put an official system security threat in place until the end of September.

Woodside Petroleum last year hatched a plan to supply the east coast markets with LNG from Western Australia. The memorandum of understanding would result in Woodside shipping LNG from WA to Viva Energy’s­ ­planned import terminal in Victoria’s Geelong. Queensland LNG producers – led by Santos, Shell and Origin Energy – are all major domestic suppliers to ­Australia’s eastern states in addition to selling gas offshore to buyers in Asia.

However, the spotlight has again fallen on whether new restrictions should be enacted to ensure enough supply is available locally as the Albanese government reviews the gas export trigger and a potential domestic reservation scheme.

With a beefed-up balance sheet after the BHP deal, Woodside said it would now retain its stake at 82 per cent in Sangomar.

“We were looking for two things: we wanted the right partner at the right price. And that means at a price that is value-accretive to Woodside shareholders. We’ve had extensive discussions with a number of potential partners and we’ve not been able to meet those criteria,” Ms O’Neill said. Revenue rose to $US3.4bn for the three months to June 30, up 44 per cent on the first quarter, while production soared 60 per cent to 33.8 million barrels of oil equivalent. The company’s average realised price more than doubled to $US95/boe from $US46/boe a year earlier.

It expects to produce between 145mmboe and 153mmboe for the 2022 financial year and spend between $US4.3bn and $US4.8bn, with $US400m-$US500m on exploration.

Woodside completed its merger with BHP’s petroleum arm on June 1, catapulting the company into the top 10 oil and gas producers in the world, with assets spread through Australia, the Gulf of Mexico and Trinidad.

It also flagged an issue with its Mad Dog phase 2 project in the Gulf of Mexico, noting a problem with two of the production flexible joints was detected during testing.

The problem was being assessed and an update on any delay to the project starting-up in 2022 would be provided at a later date, Woodside said.

Its first big decision as a unified company will be whether to give the go-ahead on its Trion oil discovery in the Gulf of Mexico, with Woodside targeting a potential final investment decision in 2023.

Separately, Santos revenues were flat for the second quarter of 2022 as production fell due to field declines and maintenance, offsetting the benefit of ongoing high energy prices. The South Australian producer recorded revenue of $US1.88bn ($2.73bn) for the three months to June 30, flat on the prior quarter, and well below a $US2.05bn estimate from RBC.

Woodside shares fell 4.4 per cent to $31.14 with Santos down 1.9 per cent to $7.25.