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Twiggy, Santos battle over gas developments

• 12:00AM July 10, 2018

A spat over gas prices has erupted between the Andrew Forrest-backed consortium planning to build Australia’s first import facility and Santos as concerns grow that the domestic producer may be forced to shelve its controversial Narrabri project in gas-starved NSW.
Santos’s long-delayed Narrabri development could be axed if Mr Forrest’s proposed liquefied natural gas import terminal proceeds, under an analysis plotted by Macquarie.
The state government could treat the billionaire’s LNG scheme as a new source of gas supply, leading it to reject Narrabri and dealing a potentially fatal blow to a project already hobbled by community opposition, delayed approvals and reserve downgrades.
Even if the local Narrabri project does proceed, the Australian Industrial Energy consortium claims it will develop gas more cheaply from its own import plant.
“The terminal will be able to source the world’s cheapest LNG at a fraction of the capital required for new local supply,” AIE chief executive James Baulderstone said. “It can also supply almost three times the volume of planned NSW development in a much quicker time period.”
Santos chief executive Kevin Gallagher rejected Macquarie’s theory the NSW government would be tempted to reject the Narrabri project, which has been slated to supply half the state’s gas needs.
“The Narrabri approvals decision is a matter for the independent Planning Commission — it is not a political decision,” Mr Gallagher said in comments made while travelling in Europe.
“It’s really important the assessment process is robust and independent so that, if the project is approved, the community can have confidence the Narrabri gas project will be developed safely and sustainably.”
The Santos chief also vowed Narrabri would be able to beat the price of imported gas, which AIE has previously pitched at a fixed rate of $10 per gigajoule into Sydney.
“The Narrabri gas project will always be a cheaper source of gas than gas from an LNG import terminal,” Mr Gallagher said yesterday. “NSW already imports 95 per cent of its gas from other states and importing more from overseas will not make gas more affordable for the one million households, 33,000 businesses and 300,000 jobs in NSW that depend on reliable and affordable supplies.”
Mr Baulderstone, who previously promoted the Narrabri project when he was one of Santos’s top executives, said it was too early to know the price of gas for the onshore project.
“[Narrabri] needs to be sanctioned first with a capital forecast of over $2 billion before a price is known,” he said.
While Macquarie says the economics of Narrabri stack up commercially even if the import plant proceeds, it argues the approval process would be a tough sell for the government as gas would already be flowing from the $300 million Port Kembla plant under its slated 2020 start date. “We expect the NSW state government could prefer, for political reasons, the installation of an LNG import facility to coal-seam gas development,” Macquarie said. “We expect this could result in the final nail in the coffin for Santos’s stalled Narrabri project.”
Should the Perth mining magnate’s Australian Industrial Energy consortium approve a final investment decision on the project, Macquarie expects to write off the future development of Narrabri from its valuation, which currently contributes 27c a share.
The LNG import plan has received priority development status from the NSW government in a move that could lop six months from the standard 18-month approvals process. AIE plans to make a final investment decision by the end of the year and expects first gas by 2020.
Santos is working its way through the state’s approvals process and is targeting the start of production from Narrabri in financial 2022.
Both projects would be considered on their merits, including a detailed assessment of their economic, social and environmental benefits and impacts for the state, a NSW Department of Planning spokesman said.
“While the government sees the value in any project that may increase the supply and security of gas in NSW, it does not do this at the expense of following the proper process,” the spokesman said.
Despite the tussle between the two projects, large industrial players may still pay a premium for gas. Creating an import terminal will mean NSW users pay between $11 and $12.40 a gigajoule.
Even if Narrabri proceeds, there may not be any relief for buyers with the state effectively opening itself up to international LNG pricing, according to oil and gas analyst Saul Kavonic.
“Industrial buyers looking to buy imported LNG will be subject to LNG market dynamics.”