East Coast Gas Thematic

Origin Energy has decided to not exercise an exclusive agreement to underwrite an LNG import terminal after determining it was unable to bear the risk as large gas users are unwilling to sign multi-year agreements.

It’s a decision which threatens to exacerbate a looming gas shortfall on the nation’s eastern seaboard.

Origin last year signed a preliminary agreement to potentially underwrite development of Venice Energy’sLNG import terminal in South Australia, which would have given it exclusive use of the Outer Harbor LNG import terminal near Port Adelaide for 10 years.

But sources familiar with the matter told The Australian that Origin won’t exercise its option after struggling to get large users to sign multi-year contracts.

Sources said Origin could yet return to the development and its exclusive agreement runs until the end of the month. But the company felt it could not bear the risk of the market dynamics changing or further government intervention. A spokeswoman for Origin declined to comment.

The decision is a blow to Venice Energy, which appeared on course to deliver an LNG import terminal. Venice Energy also declined to comment.

Venice Energy’s LNG import facility has been dubbed a “tolling” infrastructure project. Under the scheme, users would pay Venice Energy to use its facilities – negating the difficult task of other LNG import terminals aligning gas supply agreements with end-user demand, which has inhibited other developments.

The decision, which could still be reversed if major industrial clients reach supply agreements, would mean Australia’s eastern seaboard would become almost reliant on new developments materialising or would have to source through Andrew Forrest’s own LNG import terminal – something which users have so far shunned.

Analysts have said Australia’s energy industry and manufacturing sectors would be significantly curtailed in the event of a gas shortfall. Australia is expected to face a material shortfall in supplies across Australia’s eastern seaboard from 2028 as traditional sources run dry.

ExxonMobil – one of Australia’s largest producers of domestic gas –last year said its Gippsland Basin joint venture, which supplies more than 70per cent of southeast Australia’s domestic gas demand, was rapidly dwindling.

ExxonMobil said the number of producing wells had shrunk from 122 in2010 to 68, and would drop to 36 by the winter of 2024.

The structural deficit leaves the eastern seaboard facing anuncertain future. New developments have been curtailed in NSW and Victoria,while new pipelines would be needed to unlock potential supplies in theNorthern Territory, and this could be prohibitively expensive and would requiresignificant local support.

If unable to bring new gas wells online, Australia’s east coast might have to import supplies – a boon to Mr Forrest’s own Port Kembla development, which Squadron Energy said is nearing completion.

Mr Forrest has developed the Port Kembla LNG import terminal despite having no contracted users outside of Squadron Energy, which plans to use gas to firm its renewable energy generation assets.

Gas is a critical fuel source for Australia’s manufacturing sector which is unable to readily switch to renewable energy, and it is expected to play a vital role in the country’s energy transition.

Gas is used as a so-called peaker. Gas electricity generators are typically fired up in short intervals, supplying power during periods of high demand or when there is insignificant renewable generation due to adverse weather.

Without gas, Australia’s wholesale electricity price would likely spike during high demand periods or so-called renewable energy droughts, which would eventually lead to higher prices for households.