Viva advances Geelong LNG terminal talks as gas shortage looms

Fuel supplier Viva Energy is pitching its plan to build Victoria’s first gas import terminal in Geelong as the cheapest short-term solution to the state’s looming gas crisis because it would avoid the heavy cost of overhauling a major pipeline.

As gas production from BHP and ExxonMobil’s 50-year-old Bass Strait fields rapidly dries up without enough new supplies to replace it, the Australian Energy Market Operator is warning the nation’s southern states are in danger of facing gas shortages in coming years, prompting fears of price rises.

Mining magnate Andrew “Twiggy” Forrest’s Squadron Energy is developing a shipping terminal to begin importing liquefied natural gas (LNG) into Port Kembla in Wollongong to address the shortfall, which authorities say will help alleviate the pressure in Victoria.

However, gas market participants increasingly expect Viva Energy’s proposed terminal at the site of its Geelong oil refinery will also be required amid concerns about a $70 million upgrade to reverse the one-directional pipeline between NSW and Victoria leading to heavy tariffs for Victorian buyers.

Viva chief business development officer Lachlan Pfeiffer said the company was now in talks with the state’s major gas retailers and had growing confidence in future use of the import terminal to move forward with the project.

“Reversing the Eastern Gas Pipeline is a major upgrade, and that cost needs to be recovered from customers through tariffs,” Mr Pfeiffer said.

“It isn’t necessary, and those costs can be avoided through the development of a local Victorian supply terminal.”

Piping gas from Port Kembla into Victoria could cost an extra $1 a gigajoule, according to an analysis by Graeme Bethune of energy consultancy EnergyQuest, meaning it could be nearly 15 per cent more expensive.

Viva believes Squadron Energy’s Port Kembla project and the Geelong terminal would both be required to fill south-eastern Australia’s impending shortage of gas – a fuel commonly used in cooking, heating, power generation and as a raw material for industrial processes.

But for Victoria, it considers the Geelong refinery the optimal location for LNG imports because of its proximity to industrial and commercial demand centres in western Melbourne, its ability to connect to the state’s transmission system at Lara and the fact its gas would not incur the additional tariffs.

“This will relieve the supply pressure, and provide the cheapest alternative gas supply, with minimal future regret in infrastructure investment,” Mr Pfeiffer said.

While Australia is one of the world’s top shippers of LNG, most is produced in the nation’s north, far away from demand centres in the south, and is sold on long-term contracts to overseas buyers. The danger of gas shortages and price rises unless more supply comes to the market has sparked fears for manufacturing companies that may be unable to cope.

Energy authorities earlier this year pushed back their forecasts of gas shortfalls from 2023 to 2026 on the basis that the Port Kembla LNG terminal proceeded according to schedule.

Conservation groups, including Environment Victoria, say 2026 provides ample time for the state government to develop a strategy focused on reducing gas demand, such as switching appliances from gas to electric and prohibiting new residential gas connections, rather than lifting supply.

Still, shortages could emerge from 2023 if Port Kembla was delayed, or if a demand spike due to a one-in-20-year cold snap led to greater strain on supply, the market operator warned.

Viva is aiming to give financial go-ahead to the project next year and bring new gas supply to the market by 2024.

Squadron, meanwhile, is targeting first gas from Port Kembla as early as 2023.

Last week, the Port Kembla project received a boost as the NSW government awarded “critical” infrastructure status to a gas-hydrogen power plant the company intends to build at the same site.

Credit Suisse analyst Saul Kavonic, however, said the failure of buyers to sign up to LNG supply agreements so far raised questions about the import terminal’s economics.

“It would be hard to turn back now … but clearly the commercial side has not progressed as hoped, with off-takers remaining elusive for the time being, and some of them opting to secure gas more cheaply via pipeline from Queensland,” he said.

“Potential off-takers could push for haircuts on any toll whilst competing projects such as Viva’s may emerge as more competitive.”

Extracted from The Sydney Morning Herald

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