25
Aug

Viva Energy says it is keeping options open to become a gas importer if it builds an LNG terminal at Geelong

Viva Energy boss Scott Wyatt says the company is leaving the door open to becoming a gas importer in its own right as it considers the commercial model for an LNG import terminal in Victoria, as Viva pushes ahead with the design of the plant.

Mr Wyatt told analysts Viva was still on track to make a final investment decision on an LNG import terminal at its Geelong energy campus by next year, if it receives environmental approvals for the facility.

He said AGL’s decision to abandon plans for a rival terminal at Crib Point in May had boosted the case for Viva’s plans, as had a recent assessment by the Australian Competition and Consumer Commission that the east coast gas market faced a supply shortfall within a year.

The ambition is to take that final investment decision next year, and potentially have gas on stream by early 2024 – and we‘ve got good support from our partners and a lot of interest in the project as it’s now the leading project in the state. So we’re very, very positive about the project and it’s advancing extremely well,” Mr Wyatt said during the group’s interim earnings call.

Mr Wyatt said Viva was still considering what commercial model would allow it to maximise returns from the import terminal, which is estimated to cost about $250m to $300m.

He said Viva was most likely to see the terminal as an infrastructure play, but the energy major – which also operates an oil refinery at the site – was also considering options to become a gas importer and wholesaler in its own right.

“I think first and foremost it‘s a facility there to facilitate bringing gas into Victoria, and we expect to have existing participants in the gas market being involved in the terminal – and that would provide probably the sort of foundation business for the facility,” he said.

“I think that there‘s an option for us, as Viva, to participate more directly in the gas markets, but that’s an option that we haven’t landed on yet. It could be a mixture of those sort of two models, I think, but fundamentally the majority of the earnings for the facility will come from other users of the facility.”

The ACCC said last week a shortfall in the east coast gas market was looking “increasingly likely”, flagging a substantial 6 petajoule shortage in the southern states next year, after Victoria spot gas prices hit five year highs in July.

Mr Wyatt’s comments came as Viva Energy delivered its half-year financial results, saying its retail business staged a strong recovery in the first half of the year as motorists returned to the roads following pandemic lockdowns, although the company warned current lockdowns would impact its business in the current half.

Viva’s net profit jumped more than fourfold to $111.9m for the six months to June 30 from $24.4m last year on the back of an 8.2 per cent rise in revenue to $7.22bn.

Mr Wyatt said the company’s refining business returned to profitability after a difficult period in 2020, with its retail business delivering a strong performance to boost its bottom line.

“Performance was driven by continued strength of our retail business, recovery within the commercial business, strong cost management, and improved refining conditions,” he said.

Its interim underlying earnings more than doubled to $256.3m from $124.6m last year.

Mr Wyatt said fuel volumes sold through Viva’s retail business were up 23 per cent on the first half of 2020, although EBITDA from the division was down marginally to $116.7 as last year’s rapidly falling oil prices helped the company to stronger margins in the period.

Returns from commercial fuel sales improved on the previous year, however, with the division returning improved underlying earnings of $105.9m, up $15.2m from last year.

And Viva’s Geelong refinery returned to profit in the half after receiving a $40.6m boost from the federal government’s refining subsidy program, booking underlying earnings of $43.8m.

“The long-term Fuel Security Package from the federal government provides critical support for the business during periods of low refining margins, recognises the contribution refineries make to the nation’s energy security through the introduction of mandatory stockholding obligation on imports, and materially contributes to the investment necessary to meet new fuel specifications,” Mr Wyatt said.

“Collectively, these measures significantly improve the outlook for the refining business and provide a solid foundation on which to develop the range of projects we plan for our Energy Hub at Geelong.”

Viva shares were up 1.4 per cent to $1.99 on the ASX on Tuesday afternoon.

Extracted from The Australian