Article by Angela Macdonald-Smith courtesy of the Australian Financial Review.
A $1 billion gas project that had attracted interest from customers wanting more than five times the volume of gas initially on offer is on hold after its owners, including billionaire Gina Rinehart, declared the government’s intervention in the gas market made it “impossible” to sign up to new gas sales contracts.
The stalling of Senex Energy’s $1 billion Atlas gas project in Queensland is the most serious sign yet of the fallout from the Albanese government’s stricter-than-expected controls over east coast gas to try to rein in energy prices for struggling manufacturers and households.
Senex CEO Ian Davies says it is “prudent” to review all gas investments after the federal government’s intervention.
It comes as chief executives across the industry, including Santos’ Kevin Gallagher and Woodside Energy’s Meg O’Neill, have blasted the Labor government’s move to impose ongoing controls on prices. The criticism has been dismissed by the government, as Industry Minister Ed Husic rejected warnings of reduced investment as “shallow” and “not believable”.
Senex Energy chief executive Ian Davies said that after the passing of the gas measures last week, it was “prudent” to review all investments and not possible to sign up new gas sales contracts despite plenty of interest in the gas.
“This legislation has the potential to choke gas supply into the east coast market and put at risk the essential role that natural gas will play in the energy transition to enable reliable electricity supply for homes and businesses,” Mr Davies said.
The Atlas project, which Senex announced only in August, would have increased the company’s annual production to about 60 petajoules a year and created “hundreds” of jobs, said the company, majority owned by South Korean steel giant Posco, in partnership with Ms Rinehart’s Hancock Prospecting.
The government’s gas measures, rushed through both houses of parliament last Thursday, impose a $12 a gigajoule cap on uncontracted gas on the east coast for at least next year and then require gas to be sold under “reasonable” pricing on an ongoing basis.
Although the conditions have been welcomed by manufacturers and consumer groups, they have stunned gas producers, who insist they must be adequately compensated for the swathes of capital they put at risk to underpin exploration and development.
Senex said the new laws “could arbitrarily dictate investment returns for gas producers” and put at risk its $1 billion Atlas project.
Stuart Johnston, CEO of Hancock Energy, which owns 49.9 per cent of Senex, pointed to possible “catastrophic consequences” as a result of the new rules, lasting for years. He highlighted the “chilling message” the legislation sends to valuable trading partners in Korea and Japan that have made heavy investments in Australian energy to help secure their own energy supplies.
“Our friends and allies in Korea and Japan have also relied on Australian energy for decades and are very concerned that we in Australia are turning our backs on them and affecting their industries and their people,” Mr Johnston said.
Confirming Posco’s concern, the conservative Korean company said the cost and risk equation associated with its investment in Senex, of which it acquired 50.1 per cent early this year, had now changed significantly.
“We invested in Senex because we saw value in the Australian market and understood the country to be one of the lowest risk places to invest in energy,” said Senex chairman Jhoon Soo Jho, who is also executive vice president of Posco’s international arm.
“Because these changes have been brought on so rapidly, we now believe our investments are under question until we see the outcome of consultations and the final form of the mandatory code of conduct and new laws.”
