Santos’s $3.6b gas field approval stokes price hopes for factories

Some of Australia’s top manufacturers say the approval of Santos’s contentious $3.6 billion Narrabri gas field is a key step in the push to avoid a supply crunch and start easing stubbornly high prices in the nation’s south-east.

The New South Wales planning umpire on Wednesday gave “phased approval” of the coal-seam gas development at Narrabri. The verdict clears the last major hurdle for Santos to proceed after facing years of delays and thousands of objections surrounding feared impacts to groundwater, damage to the Pilliga state forest and contribution to global warming.

ASX-listed manufacturers hope the approval of Santos's Narrabri coal-seam gas project will ease a supply crunch.
ASX-listed manufacturers hope the approval of Santos’s Narrabri coal-seam gas project will ease a supply crunch.Credit:James Davies

Large gas users such as manufacturers, which have been struggling under the pressure of tripling gas contract prices in recent years, said increasing supply close to the country’s demand centres in Victoria and NSW was urgently needed.

“This is great news for every manufacturer in NSW,” said Lindsay Partridge, chief executive of ASX-listed brick maker Brickworks, which has signed up to buy gas from Narrabri.


“We are building two factories in NSW to the tune of $200 million and this gives us great confidence to push ahead with them.”

Explosives manufacturer Orica said Narrabri could help deliver much-needed supply and energy security to the east coast. But chief executive Alberto Calderon stressed that the supply increase must translate to sustainable pricing “if Australia’s manufacturing base is to remain competitive”.

While Australia is one of the world’s top exporters of natural gas, most is produced in the nation’s north, far away from demand centres in the south-eastern states, and is sold on long-term contracts to overseas buyers. The Australian Energy Market Operator has warned that Victoria, NSW and South Australia face a gas shortage as early as 2023 as output from offshore reserves in the Bass Strait continues to rapidly decline.

Weston Energy, a gas wholesaler that has committed to buying Narrabri gas, said although COVID-19 has slashed spot-market gas prices in the short term, more local supply would shield businesses from volatility and ensure lower, longer-term contracts.

“More supply means lower prices,” Weston Energy chief Garbis Simonian said. “At the moment, gas prices are low, but that’s because of COVID. They won’t stay low … eventually they will go up. This will stop them from going back up to ridiculous levels.”

Mr Simonian said the Narrabri project would not be the sole solution to the gas squeeze, “but it’s a step in the right direction”.

Wednesday’s planning approval came with 134 conditions surrounding groundwater, salt waste and fugitive methane emissions. Santos accepted the conditions and said it intended to start planning works on existing wells immediately. Opponents of the project, however, have vowed to escalate efforts to stop it going ahead.

“It adds another source of powerful greenhouse gas emissions to our atmosphere at a time when what is urgently needed is rapid and deep reductions in emissions,” David Morris from the Environmental Defenders Office said, adding that the organisation would be meeting clients in coming days to discuss legal avenues to contest the project. Georgina Woods, a co-ordinator of the anti-drilling Lock the Gate Alliance, said the conditions meant Santos was “a long way from the starting gates”.

Narrabri has become a front line in a years-long struggle between the gas sector and Australians worried about the impact of gas drilling on the environment and climate. It was brought into sharper focus as the Morrison government unveiled plans for a “gas-fired” COVID-19 economic recovery.

Supporters of gas promote it as the “transition” fuel required to smooth the path from coal-fired power to more-intermittent wind and solar sources. Critics say it remains a significant source of emissions which must be phased out, not expanded, to avoid the worst effects of global warming.

Santos managing director Kevin Gallagher, who welcomed the planning commission’s verdict, said the Narrabri project had the potential to supply up to half of NSW’s gas demand.

“Santos is excited about the prospect of developing the Narrabri Gas Project, a 100 per cent domestic gas project that can provide the lowest-cost source of gas for NSW customers,” Mr Gallagher said.

“With the commercial and industrial sector currently making up almost 50 per cent of total gas consumption in NSW, reliable and competitively-priced natural gas is essential for a strong NSW economy.”

Analysts described the conditional approval as positive news for Santos following years of public opposition and delays that forced the company to write down the value of the asset to zero in its accounts. “We view this final regulatory decision as a positive outcome for Santos, particularly after the company has struggled with this asset for many years,” said Gordon Ramsay, oil and gas analyst at the Royal Bank of Canada.

Most Viewed in Business

Source: Thanks