WDS 0.79% $27.71 woodside energy group ltd

rest of articleIt came as Woodside, which supplies 20 per cent...

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    It came as Woodside, which supplies 20 per cent of the east coast domestic market from its Bass Strait fields, confirmed it has suspended a process to sell 50 petajoules of gas over 2024 and 2025, which had attracted more than 20 buyers.

    Shell’s Australian business has also put on hold a similar gas sales process for east coast domestic customers for 2023 and 2024, while other producers have also suspended gas marketing and sales negotiations amid the huge uncertainty about the regulatory rules that will apply.

    A Shell spokeswoman said that pausing the expressions of interest process for gas “was not an option we wanted to take. However, QGC needs to consider whether the design of the current EOI will meet the new regulatory requirements, including the 2023 price cap and the proposed mandatory code.”

    Woodside has suspended all other domestic marketing activities in addition to the formal process it was running “due to the uncertainty created by the government’s proposed legislation”, a spokeswoman said.

    Gas contracting ‘shrivels up’

    Another senior industry source said marketing and sales negotiations had also been halted at their company this week, as senior executives grapple to understand the potential impact of the proposed new rules, revealed by Treasury only late on Friday.


    But Friends of the Earth accused the gas “cartel” of producers of attempting to “blackmail” Australians by holding off on domestic supply, further escalating tensions over the issue.

    Industry sources say senior company executives are focused this week on submissions to government on the proposals, given the extremely rushed period allowed for consultation, with the first set of submissions on the price cap due later on Tuesday.

    “The damage has already started: nearly all gas contracting has shrivelled up in the last few days,” Credit Suisse energy analyst Saul Kavonic said.

    “Previously agreed funding for new supply developments has already been pulled. No-one in the market has any idea how to plan for the months ahead, let alone agree on a contract.”

    Offshore gas production in Victoria’s Otway Basin has been thrown into doubt.

    There are rumours that a funding deal to underpin a new Queensland source of gas supply proposed by a junior player in the sector was pulled at the weekend. Industry analysts, meantime, point to a series of proposed domestic gas projects thrown into doubt, including drilling in the offshore Otway and Gippsland basins off Victoria, in the Cooper Basin in South Australia, and several planned developments in onshore Queensland.


    Analysts suggest that an $18.4 billion takeover bid for Origin Energy may be derailed, given the fundamental shift to the gas market landscape envisaged under the proposal.

    The proposed intervention involves caps of $12 a gigajoule on uncontracted gas on the east coast that would last through next year at least, followed by a requirement that gas is then sold on a “reasonable” pricing basis, based on the operating cost plus a margin.

    Industry sources say that given most of next year’s gas has already been contracted, the bigger impact will be on supply for 2024, with huge uncertainty hanging over the volume of gas that will be available for either manufacturers, power generators or retailers.

    Some gas producers, blindsided by the proposal for ongoing regulation of the market, are voicing frustration that APPEA was not more on top of what was coming from government in terms of the proposed ongoing “reasonable” pricing provisions, which they say will damage not just gas volumes available for sale but the broader Australian economy.

    They are also concerned that APPEA’s arguments against the plan are not being made in a way that is getting traction with the Albanese government, which has broadly dismissed the industry’s concerns.

    Resources Minister Madeleine King has accused some producers of thumbing their noses at an agreement signed with the federal government on gas supply for next year by continuing to demand “exorbitant” prices. Treasurer Jim Chalmers has rejected the industry’s warnings and insisted that producers would “continue to do really well” under both the price cap and the reasonable pricing provision.


    Mr Kavonic said Labor’s response shows the government has “not even begun to understand the extent of the problem they have created”.

    Energy rationing expected

    “It’s obviously popular to try to bring lower energy prices, and the government will win political points for taking a tough stand against the unpopular gas industry,” he said.

    “But the popularity of the government position will flip on its head when energy rationing arises.

    “This policy breaks the gas market design that has kept the lights on for decades. Now the burden is on the government to try to make up a new market design on the fly while keeping supply security intact.”

    Ms O’Neill said Woodside was looking at options to increase gas output on the east coast through exploration drilling and LNG import terminals but that the proposed intervention “will make it very difficult for industry to economically invest to increase supply”.

    Woodside remains ready to engage with the government, members of parliament and other stakeholders to address the issues, she said, noting the lack of meaningful consultation with industry so far.


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