Victorian LNG import scheme riles states

A Victoria-led plan to underwrite LNG imports faces a test at the next energy ministers’ meeting as states worry about households being saddled with extra costs.

Victoria may be the first state to import LNG amid a domestic gas supply crunch on the nation’s east coast

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The Victorian government-led push for the commonwealth to underwrite importing LNG into Australia faces a challenge from states including South Australia over concerns about energy users being slugged with extra costs as the battle to head off a gas supply shortage heats up.

Victorian Premier Jacinta Allan approved Viva Energy’s proposed LNG import terminal in Geelong last week, marking a significant pivot from the state’s traditionally hardline stance on gas.

The Viva go-ahead was also spruiked as a new gas supply project in line to receive government support, part of a push by Victorian Energy Minister Lily D’Ambrosio for federal and state authorities to solve looming shortages by underwriting LNG volumes into Victoria and NSW.

Victorian Premier Jacinta Allan. Picture: Alan Barber

However, the move has put South Australia and Queensland on edge about the prospect of ­offering underwriting assistance for a different state’s supply issues.

Their chief concerns hinge on the cost of such support ultimately meaning households are slugged an extra financial hit for energy at a time when electricity bills are jumping by up to 9 per cent from July 1.

Long-held frustrations that Victoria and NSW have failed to open up their own gas deposits to deliver new supplies into the market have also re-emerged.

Santos chief executive Kevin Gallagher last week launched a blistering critique of Victoria’s energy policy, likening the state’s attitude towards investment to that of North Korea and warning its approach was indicative of why major projects are going offshore.

The issue of underwriting LNG and developing a strategic reserve is expected to be thrashed out at the next Energy and Climate Change Ministerial Council meeting in July. An initial airing at the March forum saw ministers agree any expanded powers would direct the Australian Energy Market Operator to be technology and solution agnostic.

Unanimous support is required for any such underwriting proposal to progress and the Victorian-led proposal is expected to face an in-depth examination and discussion from all stakeholders, given concerns in the market.

A Victorian government spokeswoman told The Australian: “We’re working with other states and the commonwealth government on new powers for AEMO to address gas supply shortfalls across all the south­eastern states, including South Australia – part of this work includes making sure potential costs are allocated fairly.”

South Australian Energy Minister Tom Koutsantonis said he had not seen any details of any ­underwriting plan by AEMO and said the framework was yet to be approved by energy ministers.

“I’d also point out there is much cheaper gas in the ground in Victoria but a bipartisan ban has made it unattainable,” Mr Koutsantonis said on Sunday.

A spokeswoman for Queensland Treasurer and Energy Minister David Janetzki said: “We will be reviewing the announcement and considering any implications carefully.”

Despite Labor’s landslide electoral victory, gas remains a point of tension between government and industry amid ongoing worries over supply shortages and fears among producers they face a fresh set of interventionist measures to deliver extra volumes to the east coast market.

Federal Climate Change and Energy Minister Chris Bowen on Sunday ruled out retrospectively altering LNG supply contracts to establish an east coast gas reservation after the Coalition proposed the controversial measure in the lead-up to the May election.

“We have a very clear matter of principle that we don’t agree with sovereign risk. We don’t agree with retrospective policy actions. I think that is uncontroversial, that is good governance,” Mr Bowen told the ABC.

Last week, Resources Minister Madeleine King told the gas industry to curb its attacks on government policy and engage in a constructive dialogue with the re-elected Albanese government after three years of warring over regulatory interventions.

Under the underwriting blueprint, AEMO would act as an anchor buyer of LNG likely from the two most ­advanced projects: Andrew Forrest’s Squadron Energy plant in Port Kembla, NSW, and Viva ­Energy’s Geelong facility.

The iron ore billionaire’s Port Kembla facility will now not be ready to receive gas until at least mid-2027.

Viva is now expected to take a final investment decision in late 2025 on the Geelong project against a backdrop of intensifying concern within government ranks about the economic and political consequences of inaction.

Southern states have deferred investment in the gas space for almost a decade. Victoria wrote a ban on fracking into the state’s constitution in 2018, while Santos’s $3.6bn Narrabri project was recently given the go-ahead by the National Native Title Tribunal after years of legal challenge.