Santos diverts export gas to shore up Australian supply

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Santos has pledged to divert gas from its Gladstone LNG plant slated for export to the domestic market as it's trying to avert government restrictions on its exports.

Energy giant Santos has pledged to divert gas slated for export into Australia's east coast market over the next two years, seeking to avert government-imposed restrictions on gas exports to solve local shortages.

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The 30 petajoules of gas diverted from its Queensland-based Gladstone LNG plant would be sold to east coast customers, including power companies, and would be enough to power 330,000 homes over the two-year period, Santos CEO Kevin Gallagher said in a statement to the sharemarket.

"Over the last few months, Santos has been working constructively with the federal government and our [Gladstone LNG] partners to supply additional gas to the east coast domestic market," he said.

The move comes as the federal government is considering intervention in the gas market to increase supply, including restricting the amount of gas that companies such as Santos can export.

Australia's second-largest independent oil and gas producer has been accused of contributing to the tight gas supply situation in the domestic market, given its reliance on third-party supplies to fill up export shipments at Gladstone.

According to an Australian Competition and Consumer Commission inquiry into the gas market last year, the domestic east coast market generates demand of about 700 petajoules a year.

Australia is on track to become the world's biggest LNG exporter by 2019, hurting supplies in the domestic market and driving up gas and power prices.

To help ease soaring energy prices, the government has put in place a controversial measure to curb LNG exports from the east coast if it deems there is likely to be a shortfall of domestic gas supply in any year. A decision for 2018 is expected this month.

The policy has been slammed by large energy companies, including Santos, as government interference in the sector.

The export controls would have a particular impact on the $80 billion Gladstone project as it is the only local plant that is not deemed a "net contributor" to the domestic market.

Thursday's announcement follows Santos' deals to deliver up to 72 petajoules of gas over four years into the south-eastern market through a swap agreement and the sale of 15 petajoules to the Pelican Point Power Station in South Australia.

Rising energy prices and gas shortages have been a major theme of last month's corporate reporting season, with several chief executives expressing concern about energy costs and frustration at a lack of gas supply.

Orica chief executive Alberto Calderon described the gas situation as "ridiculous" and at a "crisis point" while Bluescope's Paul O'Malley also reiterated concerns about a lack of supply.

Shares in Santos, which last month reported an underlying profit of $US156 million for the six months to June 30, rose as much as 1 per cent in early trade on Thursday before closing flat at $3.90.

???BusinessDay, with Reuters

The story Santos diverts export gas to shore up Australian supply first appeared on The Sydney Morning Herald.

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