by Angela Macdonald-Smith Santos chief executive Kevin Gallagher...

by Angela Macdonald-Smith
Santos chief executive Kevin Gallagher has gone on the attack over federal Labor's pledge to introduce a domestic gas price trigger for slapping curbs on LNG exports, warning that such controls will only force smaller gas producers out of the market and deter investment in new fields.
Mr Gallagher's words came as well-regarded energy analysts pointed to dire consequences for the gas industry in Australia if the government intervenes on prices, and to an escalation of perceived risks by LNG buyers in Asia.
One industry source also noted that the proposed LNG import terminals around the south-east coast, by AGL Energy and three other ventures, would be in "big trouble" under Labor's raft of measures. Importing LNG into the south-east is seen by some asthe only way to avoid a liquidity crunch in gas over the next few years.
Opposition Leader Bill Shorten on Monday outlined a raft of measures a federal Labor government would take to rein in gas prices and save manufacturing jobs, the most radical being a permanent trigger to control LNG exports to be pulled when gas prices are "too high".

Mr Gallagher led widespread LNG industry and investor dismay at that prospect, saying such measures would shut down some investment in new gas supply, reduce competition and push some juniors out of business.


He described assertions from some manufacturers and politicians that Asian customers pay less for Australian gas than local customers – an often-quoted claim that has garnered widespread public and political support for export curbs – as "simply false".
"There is no cheap gas left in Australia – you can't make money at $6 per gigajoule – so instead of getting more supply and lower prices, price controls will further undermine investment in new supply," Mr Gallagher said.
MST Marquee analyst Mark Samter, a well-regarded commentator on the east coast gas crisis, cautioned of grave consequences for international investment in Australia given the risk of retrospective action by government to enforce lower prices.
"One has to seriously question the implications for the whole economy of being too draconian on a gas industry that has already felt huge financial pain in getting to where they are," Mr Samter said, pointing to the $US80 billion-$US90 billion that was "poorly" sunk into the Queensland LNG industry.

Such actions on pricing "even if they are constitutionally viable (which it doesn't appear they are), would only make things profoundly worse in the medium term", he said.
Labor was vague on the specifics of the trigger price, but referred to an outdated figure from a report by the competition watchdog last December that cited a "benchmark" east coast price of $6.55-$9.93 a gigajoule.
It compared that with the $10-$12/GJ that Manufacturing Australia's members are being quoted, several times higher than historical prices of $3.50-$4/GJ.
But Mr Samter pointed out that the "netback" price for LNG at Queensland's gas hub – representing the export price for gas less processing and transport costs to Asia – is now over $13 a gigajoule, translating to over $15/GJ in the southern states, including transportation.

"It is great to quote an old ACCC number from last year, when LNG prices were far lower, but if the same methodology was used to derive the price now it would have broadly doubled," he said.
Credit Suisse analyst Saul Kavonic said LNG export restrictions "would prove a logistical and commercial burden for all involved" and would fail in any case to provide long-term security of supply for industrial users.
He said some gas freed up by restricting LNG exports "would likely be left in the ground rather than made available to local buyers at low prices", a point also made by industry sources.
Macquarie Equities advised clients that AGL's proposed LNG import terminal may suffer "unintended negative consequences" from the measures because the company may not be able to sanction the project until after the next federal election or until the policy is clarified. It described the $50 million-$60 million that AGL has already invested as "at risk".

Still, James Baulderstone, head of the Andrew Forrest-backed LNG import terminal proposed for Port Kembla, said imports would still be competitive, given the comparable "benchmark" price is $12-$13/GJ, not $6.
Both Mr Gallagher and Shell, which owns the QCLNG project in Gladstone, said developing local gas in south-east Australia was the key to reducing prices and repeated calls for state restrictions on onshore gas to be scrapped.
Mr Gallagher was however open about the ALP's proposal for a national interest test on new LNG projects, and said the industry has "nothing to fear" from stronger powers being handed to the ACCC to crack down on anti-competitive behaviour in gas supply.