New gas developments will need government underwriting to...

New gas developments will need government underwriting to proceed,

Queensland gas pioneer Richard Cottee says, as he confirmed expansion plans of two junior gas developers are being reconsidered after the government moved to cap prices.

“If the bureaucrats think they know far more than market forces then the command economy will have to step in to compensate,” Mr Cottee told AFR Weekend.

Richard Cottee has joined the chorus of gas industry condemnation of the government’s intervention.

“The reasonable price provision is a gigantic own goal. It’s $12 a gigajoule today, but how is the industry to know that it won’t be $10 next year? The government must provide certainty, said Mr Cottee.

Labor this week legislated a cap on uncontracted gas at $12 a gigajoule for a year, established a mandatory code of conduct to force gas to be sold at “a reasonable price”, and committed $1.5 billion to power bill discounts – a policy suite slammed by the fossil fuel industry as a drastic overreach.

Escalating the row, Santos’ chief executive Kevin Gallagher said the government will need to guarantee fiscal terms for new projects – including Narrabri in NSW – a stance that Mr Cottee echoed when he confirmed long-term expansion plans for both junior miners are unlikely to proceed due the “reasonable price” provision.

In a sign that warning is coming to fruition, State Energy and Elixir Energy, both of which Mr Cottee chairs, said in letters to Treasury that they are now re-evaluating expansion plans.

“[State Energy] has invested approximately $44 million of third-party investment capital in its activities to date.“We have fast tracked exploration and brought forward pipeline development work to accelerate supply. For the last four months we have been developing a project, unprecedented in Australia,” Mr Cottee wrote in the letter to Treasury and seen by AFR Weekend.

“Intervention has put the project at risk, and we are now re-evaluating our previous investment decision and reviewing orders we have made for essential long lead time capital items.

”Mr Cottee said State Energy will likely proceed with immediate plans to develop gas but longer terms plans to build pipelines to hasten delivery of supplies were unlikely now to proceed.

The reconsideration by State Energy and Elixir Energy will be seized on by opponents to the gas legislation who claim energy security is at risk.

Mr Cottee’s comments came as the market fallout from the government intervention escalates.The gas industry has been a vocal critic of the caps, insisting they do little to improve the root cause of the soaring prices that have stoked concerns about the viability of manufacturers and the impact on households.

Mineral Resources boss Chris Ellison, who launched a takeover bid for Norwest Energy on Friday, said the WA had been “incredibly well run” compared to the eastern states through a long-standing domestic gas reservation regime and policies that allowed companies like MinRes to “put drill rods into the ground”.“We can go out and explore and make sure that we’ve got sufficient energy supply going forward,” he said of the situation in WA. “I think that they (the eastern states) need to recognise that gas is a transition fuel.

It’s not the enemy, it’s our friend.“And the only way that we’re going to quickly exit coal-fired power stations is by a known reliable energy source.

The only one known at the moment is gas. I mean, we’d all love to be able to use hydrogen but the indications everyone’s getting is that hydrogen is more than a decade away.

”Credit Suisse analyst Saul Kavonic is one of several predicting the intervention will lead to gas shortages and power blackouts as investment dries up.“Brace for Bowen blackouts,” Mr Kavonic said.Gas producers have vowed there will be no let up in their campaign against the intervention, with work on the mandatory code of conduct that will include the reasonable price provision expected to be a major source of friction.Major LNG exporters,

Woodside Energy and Shell have since cancelled talks over future sales agreements. Minister for Industry Ed Husic has said these companies are “threatening the national interests” in the wake of legislation they don’t like.Major gas producers, however, dismiss the government’s criticism - insisting they are concerned about looming shortfalls in supply.

A Woodside spokeswoman said: “We do not believe the legislation will address falling domestic gas supply and the increasingly critical role of gas in providing dispatchable power to facilitate the energy transition.“This, along with other domestic market factors not addressed by the legislation, is driving higher energy prices for households in eastern Australia.”