Pipeline access dispute threatens Viva Energy’s LNG terminal plan in Victoria

Viva Energy has threatened to abandon its vital Victorian gas terminal unless it gains access to a crucial pipeline, risking the state's energy security.

An artist’s impression of how the Viva Energy gas terminal in Corio could look, with the refinery in the foreground.

Viva Energy has warned it could walk away from its proposed liquefied natural gas import terminal in Victoria unless it secures access to a key gas pipeline, adding to worries about how Australia’s most gas-dependent state will avoid a looming energy shortfall.

The proposed terminal — approved this year by the Victorian government — is viewed as a critical part of the state’s strategy to shore up future gas supplies.

But before Viva can proceed with construction it needs access to the South West Pipeline, one of the country’s most important gas arteries, owned by infrastructure company APA Group.

The pipeline currently operates at near full capacity, and existing users, particularly Beach Energy and Lochard Energy, which owns the Iona storage facility, have raised concerns.

Both have warned that accommodating new gas imports would crowd out supply from domestic sources — including Beach’s shipments from the Cooper Basin, which are sold to major retailers such as Origin Energy.

In comments that will raise alarm within the state Labor government, Viva chief strategy officer Lachlan Pfeiffer said the economic viability of the project hinged on securing access.

“If this change does not proceed, Viva Energy considers there is a risk that the (Viva Energy Gas Terminal) project will not proceed and consequently the Victorian Declared Wholesale Gas Market will be at risk of a gas supply shortfall, higher gas prices, and inefficient and unnecessary gas infrastructure investment, or all or some combination of these outcomes.” Mr Pfeiffer said.

Victoria’s South West Pipeline

A meeting of market participants is expected next month as the Victorian government takes a more active role in brokering a solution. Government officials are increasingly concerned about the prospect of a supply shortfall and its potential impact on manufacturing and household energy bills.

Beach Energy — majority-owned by billionaire Kerry Stokes — has vowed to oppose any move that could displace its gas from the pipeline.

Viva argues that introducing gas from its proposed terminal would increase overall supply without requiring immediate investment in new pipeline infrastructure. Mr Pfeiffer added that the current reliance on stored gas at the Iona facility was unsustainable, as production from the Bass Strait continues to decline.

“The Iona storage facility is currently serving an important role in storing and managing Victoria’s supplies,” he said. “But it is not large enough to solve this shortage challenge in the back end of this decade and beyond.

“The shortages are too big, the storage is simply not large enough, and it does not bring new supply to the market.

“So, we need new solutions, and we need them urgently.”

Victoria faces one of the most acute gas supply crunches in the country, with demand from industry and households heavily reliant on the fuel. The state has also been at the forefront of Australia’s energy transition, setting ambitious renewable energy goals and previously rejecting LNG import proposals on environmental grounds. The approval of Viva’s project marked a shift in policy — but that shift now appears at risk.

A potential fix would involve APA expanding the capacity of the South West Pipeline to accommodate new flows. But that would require a significant capital outlay, and approval from the Australian Energy Regulator, which allows infrastructure companies such as APA to recover costs from households and manufacturers.

Industry sources said APA could struggle to secure permission as demand for the extra capacity could be short-lived.

Gas production on Australia’s east coast is expected to decline over the coming decade, meaning the pipeline could become underused after just a few years.

APA has been critical of the need to import LNG. Its group executive for energy solutions, Darren Rogers, said any infrastructure investment must protect existing customers and ensure consumers were not paying more for imported gas.

“APA has continued to invest in the South West Pipeline to increase capacity and address potential gas supply shortfalls,” he said. “We will continue to work with the AER and all market participants to discuss future expansion to ensure capacity continues to support energy security in Victoria.”

But he cautioned that imported LNG was likely to be more expensive than domestic supply.

“Reliance on imported LNG would be more expensive than Australian gas, impacting consumers and the competitiveness of our manufacturing sectors and pushing electricity prices higher.”

APA has long argued that additional gas could be sourced from the Bass Strait, historically the backbone of east coast supply. That view has been buoyed by ExxonMobil’s announcement this year that it had discovered more gas in the region. Woodside Energy, which recently assumed operatorship of the Longford facility, now has the option of developing that new supply independently.

Still, it is unclear whether Woodside would commit to a fresh drilling campaign. Without it, industry officials say, LNG imports may become the only viable solution.

The Australian Energy Market Operator could look for a compromise in the dispute over the South West Pipeline, including the potential repurposing of an existing pipeline currently used to transport crude oil. But sources familiar with Viva’s plans say the pipeline lacks the capacity to serve as a substitute for the South West Pipeline, and there is no certainty that technical assessments will deem it suitable for gas transmission.

Originally published as Pipeline access dispute threatens Viva Energy’s LNG terminal plan in Victoria