Curtis Island project under fire as gas exports revealed

MORE than half of the gas exported overseas by Santos's GLNG project at Curtis Island is bought from third parties that could otherwise supply the heavily-stretched domestic market, the gas giant has revealed.

Santos's first quarter results released on Thursday this week show that Gladstone LNG (GLNG) bought 59% of the gas it exported.

More than half of Santos' GLNG venture's international exports were filled with third party gas, its first quarter report revealed.
More than half of Santos' GLNG venture's international exports were filled with third party gas, its first quarter report revealed.

The information was released a day after Wednesday's showdown between Santos chief executive Kevin Gallagher and Prime Minister Malcolm Turnbull over the looming gas shortage.

Of the 83.2 petajoules of gas exported from the GLNG venture, 49PJ was sourced from third parties and the remaining 34.2PJ from its own gas fields.

Santos, which is the only company out of the owners of the three Curtis Island LNG projects that hasn't committed to supplying more gas to the domestic market, is now under heavy public and government scrutiny.

In his only media interview this week, with Sky News Business, Mr Gallagher said GLNG did not have any extra gas to supply the east coast.

Santos chief executive Kevin Gallagher.
Santos chief executive Kevin Gallagher.

The owners of the three Curtis Island LNG plants have been told to be "net contributors" to the domestic market.

Origin's APLNG and Shell's QCLNG agreed, while Santos put the advice "on notice".

And it's unlikely that's going to change soon.

"The idea of a net contributor is a fake construct designed to put a spotlight on the operating model of GLNG," Mr Gallagher told Sky News Business.

"(At GLNG) we don't have any spare gas; we are producing below the capacity of a project with sanctioned gas so we are already producing significantly less."

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Mr Gallagher and Santos argue the GLNG venture was approved, by the government and shareholders, with the knowledge they would need third party gas to fill export contracts.

Now the buying and selling behaviours in the gas sector at GLNG, APLNG and QCLNG will be scrutinised further, with the Australian Competition and Consumer Commission stepping in.

As part of one of the Federal Government's initiatives the ACCC will use its inquiry powers, including its ability to compulsory acquire information, to delve into the now controversial gas market.

Chairman of the Australian Competition and Consumer Commission, Rod Sims.
Chairman of the Australian Competition and Consumer Commission, Rod Sims. AAP Image/Dean Lewins

Over three years it will release reports every six months on its findings, with the first due in October.

"The inquiry will examine how gas suppliers will make more gas available to Australian industry and other domestic gas users, and the effect this has on overall market dynamics," ACCC chairman Rod Sims said. "Importantly, the inquiry will help verify progress in changes in domestic gas supply and monitor commitments made by gas suppliers to the government to make more gas available and also ensure gas is delivered at times of peak electricity demand."

The Australian Energy Market Operator forecasts a gas shortage across the nation by summer 2018-19, but some industry groups dispute this.

Following Wednesday's meeting, new forecasts prepared by Australian Petroleum Production and Exploration Association are being investigated by Australian Energy Market Operator.

Domestic gas prices have more than doubled, with some buyers reporting price hikes from $6 per gigajoule pre-2016 to $16-22 per gigajoule this February, according to Australian Industry Group.

Mr Gallagher says there is "plenty of gas on the east coast", the problem is developing it.

"Had we been able to develop the Narrabri project as we intended to back in 2010-11 there would be no gas shortage on the east coast today," he said.

The site is expecting further pressure from gas prices this year, with forecasts for 2017 at US$34 per barrel, down from US$47 this time last year.