Plan to underwrite LNG imports faces political, business test

A plan to underwrite LNG imports faces stiff political and business tests in coming days, as gas shortages loom for the east coast.

Victorian Minister for Energy and Resources Lily D’Ambrosio has led the charge for federal underwriting of LNG imports in Australia

A Victorian government-led push for the commonwealth to underwrite importing LNG into Australia for the first time will be presented to federal and state ­energy ministers on Friday in a major intervention aimed at fixing looming gas shortfalls on the east coast.

With steep gas declines from Victoria’s ageing Bass Strait, supply shortages are set to hit from this winter, with industrial users in Victoria and the southern states most exposed. In response, Vic­toria Energy Minister Lily D’Ambrosio has led a push for federal and state authorities to unite on solving the problem by underwriting LNG volumes into Victoria and NSW.

Should the plan win support at a meeting of the Energy and Climate Change Ministerial Council on Friday, a move to hand enhanced powers to the Australian Energy Market Operator would likely gain traction.

Under the 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, which is awaiting a decision in April from the Allan Labor government.

Fears over gas shortages and the threat of high energy prices have landed on the eve of a federal election, with Labor’s handling of a broader cost-of-living crisis seen as a critical issue for voters.

The proposed gas measure could see AEMO act as both a supplier and buyer from an LNG import plant, loosely following its existing role in Victoria that allows it to tap into APA Group’s Dandenong LNG facility to avoid gas shortfalls.

Advisers from the Department of Climate Change, Energy, Environment and Water’s gas and liquid fuels team have held talks with industry and will offer a set of recommendations to ministers. Dr Forrest’s privately owned Squadron Energy said its Port Kembla energy terminal could be ready by the winter of 2026, noting it had made that offer to government, and said AEMO could play a vital role in aiding the market. “AEMO could buy and release gas strategically to prevent winter peak shortfalls, and protect households and businesses from price spikes,” Squadron chief executive Rob Wheals said.

While the move has been pitched as offering a practical solution to head off fears of a gas crisis, several major hurdles may still emerge.

The initial scheme to consider a fresh fix for the gas industry was met with consensus approval from ministers at a December 6 meeting. However, it’s understood both South Australia and Queensland are concerned at the prospect of a new market intervention after years of both Victoria and NSW locking up gas through a series of moratoriums.

The industry itself is also on edge given a series of previous government moves, including price caps and threats of “big stick” interventions, which some claim have damaged investor confidence in the market and failed to meet their original objectives.

Despite the brewing political and business tensions around the move, Ms D’Ambrosio said it was in the national interest to pursue the plan. “This is a national issue that’s impacting Australia’s long-term energy security,” she said on Sunday. “That’s why we’re working with AEMO, the commonwealth and other states on a national response to supply risk and continue to push for a ­domestic gas reserve – because Australian gas should go to Australians first.”

Federal Energy Minister Chris Bowen said Australian households and businesses deserved Australian gas at fair prices. “Every energy minister in the country agreed to explore ­additional powers for AEMO to manage gas supply risks,” a spokesman for Mr Bowen said.

“The work to determine what powers would be appropriate to do so remains ongoing.”

Viva Energy said support for securing gas supply, including through import terminals, was positive, but remained cautious on how a government response might potentially damage any investment from the private sector.

“Any regulatory intervention needs to be carefully planned and consulted on, so as not to distort projects or market outcomes, or – even worse – to delay commercial projects due to the risk of regulatory intervention,” Viva Energy chief strategy officer Lachlan ­Pfeiffer said. “We believe our project in Geelong can be delivered on a commercial basis, and any regulatory changes should not ­impede that.”

Squadron added its Port Kembla terminal could hand NSW and Victoria “access to cheaper global LNG in winter by securing lower-cost gas during northern hemisphere summers, while also providing an alternative to expensive new pipelines by transporting gas from other parts of Australia, or new gas fields that will emit for decades to come”.

While a string of LNG import projects have for years been ­mooted in Australia – one of the world’s largest LNG exporters – industrial users and utilities have been reluctant to commit as foundation customers. MST Marquee head of energy research Saul Kavonic said it was worried about handing AEMO powers to effectively underpin an LNG import terminal. “We think such a government-backed development may ultimately prove negative for the market and taxpayers as it could lead to government subsidising domestic supply,” Mr ­Kavonic told clients.

In 2021, then Victorian premier Daniel Andrews killed a similar proposal to Viva Energy’s scheme from AGL Energy. The government said its rejection was driven by concerns the import terminal would damage internationally recognised wetlands.

Both Viva and Squadron’s task is complicated by an alternative plan outlined by Australia’s largest gas pipeline operator and owner, APA Group, which said it could spend nearly $2bn to transport supplies from new sources at a much lower cost than LNG terminals can do.

Originally published as Plan to underwrite LNG imports faces political, business test