Long Term Future of Santos, page-402

Govt. policies causing supply shortfalls- energy cos, to pull out?

AFR A. Macdonald 8.2.23 said

"One of Australia’s biggest gas investors has told the Albanese government that its proposed new rules forpricing gas on the east coastwill scare away the very investment in new fields that the competition watchdog says is essential to avoid shortfalls.

US major ConocoPhillips, which has invested more than $20 billion in Australian gas projects, said the intervention by Canberra to require “reasonable” prices for gas after temporary price caps expire would trigger “considerable negative consequences” that would only worsen supply shortages and price pressures.

The tight east coast gas market has triggered proposals to import LNG. Bloomberg

“This market intervention will be a significant issue in the decisions of ConocoPhillips, as to whether to allocate further capital to investments in Australia and other global enterprises/investors with options competing for capital allocation globally,” it said in a submission to government about the proposed ongoing rules for pricing gas.

Conoco is the biggest shareholder in Origin Energy’s Australia Pacific LNG venture in Queensland with 47.5 per cent. It is also poised to embark on a new exploration program off the Victorian cost with local partner 3D Oil that would supply gas for the south-east domestic market, but this could be at risk depending on the severity of the new rules.

It noted APLNG spends more than $2 billion a year to develop gas resources and remains a “net contributor” to the east coast gas market, meaning it supplies more gas to the domestic market than it extracts, excluding the acreage dedicated to the export project.

Conoco, the first large east coast gas producer to release its submission, raised several questions about the proposal to reform pricing on domestic gas to a “cost-plus” model, including how a “reasonable” rate of return would be calculated and how large initial investments in projects would be treated.

It also takes aim at the “inconsistent” application of the code across the gas supply chain, and argues that the flaws in the proposal and the damage to the market and consumers will be compounded if the price cap is not also applied to retailers.

It said there was nothing to stop retailers purchasing gas at regulated prices through the code then on-selling it at higher prices, with no regard to their cost of supply.

The peak oil and gas industry body APPEA said a mandatory code of conduct would undermine the case for new investment and would create a supply crunch – the opposite of what the Australian Competition and Consumer Commission wanted as it warned of potential gas shortages by 2027.

“These are the worst possible reforms at the worst possible time for Australia’s cleaner energy future,” APPEA chief executive Samantha McCulloch said.

“As with the introduction of the temporary price cap – when markets froze and investment was spooked – the proposed mandatory code risks causing maximum disruption with minimal benefits to Australians.”

APPEA said the market should be allowed to work given the unintended consequences of permanent price controls. It said any arbitration process needed to be flexible rather than a binding framework locking in parties.

‘Customers to suffer’

One of the country’s biggest retailers, EnergyAustralia however agreed that the code should not extend to retailers, pointing to “strong” competition in that sector and heavy existing regulation.

But it also voiced concern about the “reasonable pricing” proposal. The company warned that setting it too low would discourage new investment, and pointed toSenex Energy’s $1 billion Atlas gas expansion in Queensland being stalled in Decemberbecause of the intervention.

“Addressing supply is needed to alleviate the root cause of high prices for consumers...".

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