Government strikes deal with exporters to fill gas shortfall

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Major gas companies have agreed to fill the domestic shortfall in Australia’s gas market next year, saving the government from having to enact its export control trigger.

In a move being hailed as a win by the government, Santos, Origin Energy and Shell have agreed to quarantine additional supply from the gas market following a meeting between the companies and the prime minister, Malcolm Turnbull, his deputy, Barnaby Joyce, and the energy minister, Josh Frydenberg.

But the government did not confirm how many additional petajoules were being set aside, with Turnbull only saying another meeting had been scheduled for next time.

“They have given us a guarantee that they will offer to the domestic market the gas that was identified as the expected demand shortfall by Aemo in 2018,” he said. “They stated that they will provide a similar guarantee over two years, that’s their intention, and will respond further in more detail on 2019 when we meet again next week.

“They’ve stated that they will offer first, as a first priority, domestic customers any un-contracted gas in the future as a priority.

“They have also given commitment to provide regular reporting to the ACCC on sales, offers by them to sell gas, and bids to buy gas, from customers they have declined.”

The agreement means the government does not have to pull the trigger, which it began laying the groundwork for earlier this year but became complicated by the citizenship saga that engulfed parliament.

Joyce became the minister responsible for pulling the trigger following the resignation of Matt Canavan from the cabinet. But given Joyce’s eligibility to sit in parliament also came under question, concerns were raised over the validity of him making the decision.

The government said it was waiting for reports it had ordered into the gas situation to return.

Both the Australian Competition and Consumer Commission and the Australian Energy Market Operator warned of a shortfall of up to three times higher than the government first anticipated, which led to the Wednesday’s meeting.

Turnbull described the “very constructive meeting” as “a good outcome” but continued his attack on New South Wales and Victoria for their gas moratorium policies.

“The failure of Victoria and NSW to unlock their onshore gas resources means more gas will have to be shipped south at greater expense,” he said. “It will mean that Victorians and residents of NSW will be paying more.

“An extra $2 a gigajoule, which is around the cost of shipping gas from Queensland, is about 11% on the gas bill of a typical household in Melbourne.

“The failure of the states of Victoria and NSW to get their gas resources, onshore gas resources, developed means residents of NSW and Victoria and businesses in those states are going to continue to pay more for gas than they otherwise would.”

However, Labor warned on Wednesday the major gas companies could hold Turnbull to ransom if he accepted their offer to fill next year’s looming domestic gas shortfall at the right price.

AGL Energy has also delivered another political headache for Turnbull, with its chairman telling shareholders on Wednesday that the sale of the Liddell power plant would be “challenging”, despite the Coalition’s wishes.

The gas executives told Turnbull all the gas needed to avoid the projected shortfall next year could be made available for sale but Australia’s domestic buyers would have to sign contracts for the gas rather than hoping for cheaper prices.

Ian Macfarlane, a former federal resources minister turned Queensland gas lobbyist, said Queensland’s gas exporters would offer to sell it back to Australia’s domestic market for the LNG netback price – under $10 per gigajoule – but domestic buyers had to guarantee they would buy it by signing contracts.

“If people say they need gas, and gas is set aside for them, then they need to take it. That is a normal commercial arrangement,” Macfarlane told the ABC’s radio national program. “If a company says, ‘We need this many petajoules this year’ and Shell … or Santos set that gas aside and don’t export it, and then the company doesn’t take it, obviously the exporters are left in the lurch.

“It’s only fair to say if companies want to take gas, if they need gas, fair enough, sign up, sign the contract … That way the export company knows that it’s not going to be left with a bundle of gas if a domestic customer may have inadvertently overestimated their own demand.”

“What we mean by pulling the trigger is that the prime minister says to the companies ‘2018 is predicted to be the year of gas shortage, we need you to keep some of your gas at home”,” she said. “Without having that sort of bargaining power in this discussion the gas companies can just hold him to ransom.

“I mean, what do they mean when they say they’ve got enough gas to supply the domestic market at the right price?

We’ve already seen wholesale energy prices double under this government. We still have a serious issue here in Australia.”

On Wednesday, the outgoing AGL Energy chairman, Jerry Maycock, created another headache for Turnbull by telling shareholders that the sale of the Liddell coal-fired power station would be “challenging” and the costs of prolonging its life would be “substantial”.

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