Over two years we are investing 1.7 billion dollars in our QGC infill project, Project Charlie, which is currently underway, that consists of about three to four hundred more wells. Creating, along the way, about 1600 jobs in construction in this project alone, and more to come in operation.
So…and I’m going to take a deep breath here…and please stay with me…
…we have invested substantial sums of money…
…we have abided to the spirit and the letter of the Heads of Agreement we signed with the Federal Government over the ADGSM…
…the price of gas is pegging back now to more closely reflect LNG netback levels…
…and we have done everything we can for the domestic market.
Yet we observe that several C&I customers who are continuing to agitate for government intervention.
Indeed, the term-sheet that accompanies their supply negotiations these days seems to have an inked-in tactic to use Government pressure to leverage a better deal!
It’s worth taking pause to consider what’s actually occurring commercially in the market.
We have already sold significant volumes to customers in Victoria, South Australia and NSW domestic markets and we continue to do so.
For example, in May, the Shell Energy Australia team executed transactions to meet gas supply requirements for two of the east coast’s largest commercial and industrial gas consumers.
The deals will deliver up to 7.6 petajoules of gas across 2020 and 2021 utilising transport and hedging services provided by Shell Energy Australia to meet domestic gas requirements at a time of tight supply outlook.
And on a short-term basis, just last Friday Shell Energy Australia was approached by a local manufacturer seeking to meet a supply short fall of around 400 terajoules.
A deal was signed on Monday that saw the gas secured for early July. A good example of how a large-scale LNG producer was able to respond quickly to customer requests, ensuring a well-functioning market.
We have competed for other large deals, and while we might not have been successful, we note that multi-year deals with our competitors have been struck.
So even if we have missed out on some contracts, it means competition is giving the customer choice and ensuring we are sharpening our pencil to ensure the market is competitively priced.
It shows that deals are being done.
The market is functioning. Australian Energy Market Operator reports indicate there will be no domestic shortfall.
In fact, there is a case to be made it’s working almost too well in the favour of some manufacturers who still hold legacy contracts for gas supply well below market rates; contracts that have cost us dearly for years.
We didn’t go to Government and ask for them to subsidise us.
It is not our style to approach government to ‘save’ us: we understand the sanctity of contracts but we still find some are out there lobbying against us.
I’m pleased to say that some industry observers have spotted the gamesmanship being played here and called it out.
While I recognise every effort to leverage benefit for one’s own business, it should not be for suppliers in one industry to cross-subsidise buyers in another industry.
An alternative procurement strategy could be backward integration – but I don’t get many calls from large C&I customers wanting to invest in upstream projects to participate across the value chain.
I suspect that’s because they know the truth of the matter that the ‘risk-versus-return’ profile of coal seam gas, and capital intensity set against price and production volatility, may not be to their liking.
That’s okay because we see it as our core business – but don’t ask for subsidies.
We at Shell are doing what we do best: we are striving to maximise the efficiency of our operations.
For example, we are maximising use of QGC infrastructure through infill projects.
New wells continue to be developed.
Shell is grateful of the encouragement it has received from state and federal governments to develop this resource in Queensland.
Though I would say suddenly hiking royalties on resource projects will not help bring down the price of gas or stimulate investment.
Moreover, we require a stable regulatory environment for our multi-decade, multi-billion-dollar investments.
Beyond this, we would look to the mood of the people, as evidenced in the results of the federal election, to encourage other states to lift their bans and moratoria on gas developments.
Because basic economics dictate that the cheapest gas will be the gas developed closest to where it is consumed.
Yet where gas is needed most, in our manufacturing heartlands, state governments have put bans on new gas exploration and development project onshore, fearing voter backlash.
A colleague recently described going for a morning walk in a Melbourne suburb, and how the hiss of gas meters feeding ducted heating units was obvious with each property they passed.
In our coldest mainland capital, where gas reticulation is the highest in the nation and among the highest in the world, gas prices are applying pressure to families.
The task is made all the harder at a time when wages have stagnated and economists warn of headwinds on the horizon.
Yet this is where we find vocal opposition to opening any onshore gas basin in Victoria – conventional or otherwise.
There we see people who oppose the very development that could help reduce their household costs.
And here in New South Wales, where we are constantly reminded that electricity customers look more favourably on renewable generation we see a similar tension.
Wind farms face concerted local opposition, like the proposed 54-turbine Jupiter Wind Farm near Tarago that was withdrawn by the developer last year after it received 400 objections to the NSW Department of Planning and Environment and opposition from two local councils.
It seems to me society only really functions properly when we recognise our mutual obligations.
Business has an obligation to propose developments that align with the aspirations and needs of the community.
Communities have an obligation to consider the effect of their objections beyond their immediate footprint.
And governments have an obligation to resolve impasses when consensus or compromise can’t be reached.
For companies developing resource projects, maintaining a social licence to operate is imperative.
We don’t take this for granted.
We ensure the community, especially the ones in the vicinity of our operations, benefit directly from our presence.
We offer highly skilled, well-paid jobs with a career structure in areas of Australia that traditionally struggle to find meaningful futures for local people, especially young and Indigenous people.
We offer training opportunities, apprenticeships, traineeships, full and part-time employment and contracting opportunities.
We sponsor local social and sporting clubs.
We promote science education in regional Australia through partnerships with science organisations and educators.
We offer opportunities for local content in our projects through contracting and procurement.
Our presence is a catalyst for a vibrant town life in the regions. The effects are real.
It’s typical to see the customers at the tables of local bakeries, cafes, restaurants, hotels and motels wearing proudly the uniforms of our company and contractors.