AGL AGL Energy Limited

   By Robb M. Stewart 
 

MELBOURNE, Australia--Australia needs to lift barriers to increased natural-gas production to avert a looming domestic supply crisis along the east coast, warned Prime Minister Malcolm Turnbull.

Pointing the finger at exploration restrictions imposed by his state counterparts and a rapid embrace of variable power supply from wind and solar sources, Mr. Turnbull said Thursday the country's manufacturers had lost an international advantage that had been underpinned by affordable and reliable energy. That was putting investment at risk and costing jobs, he said.

His comments, made at a business conference in Sydney, add to a national debate about energy security as manufacturers complain of rising power costs and difficulties lining up long-term supply contracts even as exports of gas to Asia continue to ramp up.

The reliability of the energy system was thrown into question last September after wild winds knocked out power lines in South Australia and led to a state-wide blackout. In February, eastern New South Wales urged individuals and businesses to reduce power use to avoid blackouts as supply in the state was stretched by a heat wave.

Mr. Turnbull said he was very concerned by a report released Thursday by the operator of the country's gas and electricity markets that projected a shortfall in gas-power electricity generation in the southeast states from 2019 if no action is taken.

He said he would urgently call the chief executives of east-coast gas companies together to discuss their plans on addressing the threat to their customers. He also again called on states to lift restrictions on exploration.

"We need to have more gas and more gas, which will deliver more opportunities for industry, for households and for energy generation," he said. "We are facing an energy crisis in Australia, because of this restriction on gas."

Australia has vast gas resources, including methane trapped deep in seams of coal that energy companies including Royal Dutch Shell PLC (RDSA.LN), ConocoPhillips (COP) and others in tropical Queensland are tapping to feed massive plants that chill it and export it to markets in Asia aboard tanker ships. Those liquefied natural gas facilities, and others to the north and west of the country, have drawn close to US$200 billion in investment and have positioned Australia to vault ahead of Qatar as the world's top LNG exporter within a few years.

However, the slump in global crude-oil prices forced energy companies to pull back on exploration and defer or cancel new developments the last few years. And several states have imposed moratoriums on hydraulic fracturing, or fracking, including southeastern Victoria which this month permanently banned unconventional gas exploration and extended a halt on conventional onshore development to mid-2020.

The Australian Energy Market Operator report echoed similar warnings from regulators and industry groups, and warned of shortfalls as early as next summer that would breach its reliability standard if production wasn't lifted.

Andrew Smith, chairman of Shell's Australian operations including one of the LNG projects on Curtis Island on the shore of Queensland, said that to continue to meet energy demand companies had to turn to unconventional sources such as coal-seam gas, which often are more challenging to develop. "That's even if your state government permits you to explore for it in the first place," he said.

LNG producers have said they can play a role by swinging gas supplies back to the domestic market rather than selling uncontracted volumes in the Asian spot market, where LNG prices remain subdued.

Frank Calabria, chief executive of Origin Energy Ltd. (ORG.AU), an energy retailer and partner in another Curtis Island project, said the company would continue to explore opportunities to ensure supplies to customers. Rival utility AGL Energy Ltd. (AGL.AU), which is looking at the possibility of building an LNG import terminal in eastern Australia to boost its access to gas supplies, declined to comment on Mr. Turnbull's speech.

Still, Victoria Premier Daniel Andrews dismissed Mr. Turnbull's comments as "cheap politics" and a said mature policy debate was needed.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

March 09, 2017 02:42 ET (07:42 GMT)

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