The US-based oil and gas major said it had been engaging with customers to gauge their interest in committing to longer-term supply to help underpin the significant investment in the proposed new terminal, but customers were unwilling to strike lengthy commitments.
Gas prices of $10 and above really is the ‘death zone’ for a lot of manufacturers.
Energy Users Association CEO Andrew Richards
“There was insufficient interest from potential customers,” a company spokesman said.
“At this stage, we have not received sufficient market interest to advance an LNG import project, however, we will continue to assess the market and work with customers to meet their supply needs.”
Potential customers have been deterred from locking themselves into long-term contracts with ExxonMobil in part due to the federal government powers to restrict gas exports, which could lower prices.
The Australian Domestic Gas Security Mechanism, introduced by the Turnbull government in 2017, could force gas exporters to divert supplies to the domestic market if there was a shortage forecast for the following year. It has not yet been triggered.
Graeme Bethune, of energy consultancy EnergyQuest, said energy consumers were signing shorter-term supply deals due to broad uncertainty “hanging over the market”.
“You’ve got industrial customers particularly hanging off, hoping for a silver bullet to be delivered,” he said.
“Customers have only been contracting for relatively short periods – the typical seems to be two or three years as opposed to 10 years – because of uncertainty about where prices might go and what the federal government might do or not do.”
Representatives for large energy users, including manufacturers, said the industry was becoming increasingly worried about the looming lack of supply. According to the national energy market operator, gas demand is set to outstrip supply in southern and south-eastern Australia from 2023.
“We are quite fearful, as large gas users, that in the next three to five years there won’t be sufficient gas for everybody,” Energy Users Association of Australia chief executive Andrew Richards said.
“We certainly need to see more gas flowing into the southern states, whether that’s through more import terminals or whether it’s through additional gas pipelines bringing gas down from Queensland and the Northern Territory.”
Mr Richards said some manufacturers struggling with high gas prices were reluctant to enter into 10-year gas contracts because they did not know if they would be able to remain in business that long.
“Do they enter into this long-term deal if they only have three or five years left? Some manufacturers simply don’t know,” he said.
“Gas prices of $10 and above really is the ‘death zone’ for a lot of manufacturers.”
Chemical giant Dow announced the shutdown of its plant in Melbourne’s Altona in May, citing high gas prices as a major driver. Sydney-based RemaPak collapsed into administration in January saying its its gas costs had rocketed from $4 to $16 a gigajoule.
Other possible LNG terminals include AGL’s proposed $250 million floating terminal at Victoria’s Crib Point, which is progressing through state approvals, and a terminal at Port Kembla in New South Wales by a consortium backed by Andrew ‘Twiggy’ Forrest’s Squadron Energy and Japan’s JERA.
According to EnergyQuest’s analysis, the development of two gas import terminals will be critical to meet forecast demand, with Port Kembla and Crib Point the most likely to proceed. AGL’s plans have faced strong community and political opposition, including from prominent federal Liberal MP Greg Hunt.
“On our numbers, we believe there is certainly a need for two projects,” Dr Bethune said.
The Australian Petroleum Production and Exploration Association said it continued to oppose the “unnecessary, unscientific” ban on conventional onshore gas exploration in Victoria, which is due to be reviewed next year.
“The fact remains that the gas closest to market will always be the cheapest gas to deliver,” APPEA chief executive Andrew McConville said. “
“We urge the [Victorian] government to let the restrictions expire.”
ExxonMobil’s proposed import terminal would likely have been located with its gas plant at Longford.
Business reporter for The Age and Sydney Morning Herald.