Future Target, page-13

Santos CEO Kevin Gallagher urges rethink on NT gas reservation



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• by
• Angela Macdonald-Smith
• Simon Evans

Santos chief executive Kevin Gallagher has broken ranks with most of his peers, suggesting the oil and gas industry opens up to the possibility of gas reservation in the Northern Territory as it explores more radical avenues to win broader public support.
Mr Gallagher told the APPEA oil and gas conference in Adelaide that while a blanket reservation policy would make the development of the NT's vast shale gas resources unprofitable, industry should be willing to discuss with governments, gas users, unions and communities about "sensible ways" to reserve gas for the NT market.
But industry body APPEA is against any gas reservation and reinforced that view on Tuesday. "We don't see domestic gas reservation as necessary or helpful," an APPEA spokesman said.
The NT reservation suggestion was among several put forward by gas business chiefs in Adelaide as they struggle to win back a social licence to operate from a public disgruntled by years of energy price hikes, a squeeze in east coast gas, and doubts around the environmental impact from onshore drilling and fracking. Billions of dollars of write-downs on expensive new LNG production plants have also raised concern about investor support for future investments in the industry.

However, Mr Gallagher received support from Woodside Petroleum chief executive Peter Coleman, who said it was about time east coast producers put more emphasis on supplying local customers.


"I was pleased that some others in industry are now stepping up and acknowledging the role that their companies need to play within the industry in settling some of the domestic gas issues on the east coast," Mr Coleman said.
Mr Coleman said that Woodside had been clear that as it worked towards the development of its Scarborough gas field off the WA cost, its "licence to export" comes from its commitment to supplying domestic gas, rather than vice versa.
"It's not the other way round, and anybody who thinks that way is quite foolish if they think opposite to that."
Strong opposition
Woodside recently signed an initial deal to supply gas from Scarborough to Perdaman Group for a proposed urea plant on the Burrup Peninsula, while most gas would be exported as LNG through the Pluto plant. Mr Coleman said there is "nothing wrong" with gas reservation although he pointed to the risks that smaller gas producers are squeezed out of opportunities. WA has operated a 15 per cent gas reservation system for years.
"I think the policy has achieved its objectives in Western Australia," he said.
But the views of both Mr Gallagher and Mr Coleman were quickly dismissed by the Northern Territory Chief Minister Michael Gunner, who is vehemently opposed to any form of gas reservation in the Top End, which has just opened up potentially vast gas resources to development.
A spokesman for Mr Gunner said on Tuesday the NT wanted a free market to operate because it would encourage more investment.

Any domestic gas reservation policy would be a deterrent to exploration. "It adds red tape that we don't see as necessary," the spokesman said. "Anyone looking to explore here may see it as added red tape."
The NT has excess gas to sell, and wanted to do that unimpeded.
Mr Gallagher said that while some will see his suggestion on gas reservation as "a retreat" by the industry, he viewed it as "a necessary step on the journey we need to take to rebuild trust in our industry as part of a longer-term strategy to better engage with the Australian community".
Federal Resources Minister Matthew Canavan welcomed Mr Gallagher's suggestion but said it was "something that state and territory governments would have to consider".

"Reservation policies typically... are forward looking, they are looking at requirements on future projects future opportunities, they are not necessarily directly dealing with the issue before Australians right now, which has been getting adequate supplies of gas right now," he said.
Welcome input

But the Senator said he welcomed input from Santos and the broader industry about "the particular options we might look to for the future beyond getting through this particularly challenging time at the moment".
"It's really important that the industry, that Santos and all the players, join us on a journey to commit to guaranteeing energy and job security for Australians," the minister said.
But Mr Gallagher said he had never been an opponent of gas reservation, saying there was no evidence that Western Australia's gas reservation had stifled investment.
"As an industry we've got to stop resisting," he said, noting the industry is "losing the PR battle" because it hasn't communicated the benefits to local communities and the public.
"The people of Australia are telling us they want to see the benefits from our gas."
Mr Gallagher's comments were specifically directed at the emerging NT gas industry, where the government recently lifted a moratorium on fracking despite widespread community opposition. Santos has potentially vast shale gas resources in the McArthur Basin in the NT's north-west that it may struggle to develop without public support.
The NT explorers, which also include Origin Energy, want to develop their gas to feed the east coast market, with the potential that some molecules would also find their way into LNG export plants in Gladstone.
Mr Gallagher said industry needed to engage with government and the public over the issues affecting sentiment around the sector.
"If we refuse to engage in a discussion about national interest tests and domestic gas reservation policies, we might find ourselves squabbling over the spoils of defeat," Mr Gallagher said.