Gas producer Beach Energy says the threat of unprecedented government intervention over soaring energy bills could stoke further east-coast price shocks by deterring investments in future projects that will be needed to replace rapidly depleting fields.
Beach Energy, whose biggest shareholder is Kerry Stokes’ Seven Group, said it had spent $1 billion drilling and developing new supplies for local customers over recent years including in Victoria’s Otway Basin, but warned that increasing regulatory uncertainty would threaten to “turn off the tap” when it comes to new investments.
Beach Energy is an onshore/offshore oil and gas producer.
“Unless there is clear and unambiguous support for new domestic gas development and exploration, existing fields will deplete, and the current crisis will only worsen,” Beach Energy managing director Morne Engelbrecht said.
“My message is, rather than name-calling and increased uncertainty, work with us so we can get more gas to our Australian customers faster.”
As surging fossil fuel costs drive up energy prices across Australia’s eastern seaboard, the Albanese government is debating whether to impose unprecedented caps on local gas sales as it prepares to intervene in the market to ease the burden of rising bills.
Federal Industry Minister Ed Husic last week lashed out at giant gas producers, some of which have reported record revenue as the war in Ukraine boosts demand and prices, and accused them of creating a “glut of greed problem”.
The gas industry insists the best way to drive down prices is to increase locally produced supplies closer to the demand centres in Victoria and NSW that need the fuel the most. While Australia is one of the world’s top shippers of liquefied natural gas (LNG), most of it is produced in the nation’s north and is sold on long-term contracts to overseas buyers. The Australian Energy Market Operator (AEMO) has issued a warning about winter gas-supply “scarcity risks” emerging in southern states in the coming years as output from traditional fields, including in Victoria’s Bass Strait, dries up.
Beach Energy, a $3.7 billion company that operates onshore and offshore oil and gas basins and does not presently export LNG, said simpler regulation would spur investment in new sources of domestic supply.
“This would have the dual benefits of bringing down the costs of development and increasing market supply – both putting downward pressure on prices,” Engelbrecht said.
However, large businesses that depend on gas for energy or as an input in a range of industrial processes are pushing back against the gas industry’s claims that new projects are at risk. They argue that a temporary cap on wholesale gas prices would still ensure strong returns, while having only a marginal impact on revenue and profit, which were expected to remain at “eye-wateringly” robust levels for years to come.
The Energy Users Association of Australia (EUAA), whose membership includes manufacturing companies such as Incitec Pivot and BlueScope, has been calling for east-coast gas prices to be capped at $10 a gigajoule amid reports that some buyers are being offered contracts at between $30 and $35 a gigajoule.
“Governments and energy users have every right to be angry at the gas industry,” EUAA chief executive Andrew Richards said. “The gas industry, government, regulators and customers need to sit down together and develop a solution to this mess that works for everyone.”
A new analysis from Adelaide-based energy consultancy EnergyQuest on Monday suggested that imposing a $10-a-gigajoule price cap would remove or delay about 700 petajoules of production – equivalent to more than one year’s east-coast domestic supply – in less than eight years, and would probably rule out Santos’s proposed Narrabri gas field in NSW and projects seeking to develop shipping terminals capable of importing LNG from other parts of Australia or overseas.
“It is understandable that people and businesses are concerned about the spike in energy prices, but it is obviously important to give careful consideration to the long-term effects of different assistance alternatives,” EnergyQuest chief executive Graeme Bethune said.
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