Fuel supplier Viva Energy says it needs clarity about the extent of the Albanese government’s long-term energy market intervention before it can make a final call on building Victoria’s first shipping terminal capable of importing liquefied gas in Corio Bay.
Viva Energy, owner of the Geelong oil refinery and Australia’s Shell and Liberty petrol stations, is awaiting environmental approval for its plan to extend a pier at the refinery site and park a floating vessel that could receive cargoes of super-chilled liquefied natural gas (LNG) and turn it back into vapour for Victorian homes and businesses.
Viva buys crude oil from all over the world and turns it into petrol at the refinery in Geelong. Credit:
However, Viva chief executive Scott Wyatt on Tuesday said the government’s intervention in the east-coast gas market to tame soaring energy bills had added another degree of uncertainty that could stall the company’s ability to make a final investment decision.
“We see it as an important project, but the environment is a bit uncertain in terms of government intervention,” Wyatt said.
“Price caps … are one of the areas it is important to get clarity on.”
In December, the Albanese government introduced emergency laws in December capping the price of domestic gas at $12 a gigajoule for 12 months. It has also told the industry it intends to introduce a mandatory code of conduct that will contain a longer-term requirement that future gas contracts are struck at prices that reflect production costs plus a margin allowing for a “reasonable” rate of return.
It is not yet known whether the government’s long-term price controls will apply to gas sold via an LNG import terminal or just supplies that are sold by gas producers.
“That’s one of the areas it is important to get clarity on, and it’s a consideration that our customers of the terminal will ultimately need to take,” Wyatt said.
The comments come as ASX-listed Viva reported a profit of $596 million for 2022, up 211 per cent from a year earlier. The profit result was 6 per cent lower than most analysts’ had forecast, but the company’s full-year dividends of 27¢ a share were higher than expected.
“[The] result missed market expectations across the board on higher operational expenditure,” Barrenjoey head of energy Dale Koenders said.
Fuel prices and margins rose sharply during the year as Western nations imposed rolling sanctions on Russian fuels to starve Moscow of revenue it needed to fund the war, at the same time as demand increased due to economies re-emerging from pandemic lockdowns.
Profit margins from processing crude oil into transport fuels at the Geelong refinery surged across the year to more than $US17 ($24.67) a barrel, up from $US7 a barrel in 2021.
Wyatt on Tuesday described the results as “outstanding” and a demonstration of Viva Energy’s ability to perform strongly through periods of enormous market volatility and disruption, while maintaining supplies to customers.
“All parts of the company performed extremely well in financial year 2022,” he said.
Viva had previously intended to make a final investment decision on the LNG project last year with an aim to start imports by the winter of 2024. The company on Tuesday said the timeline now depended on the outcome of Victoria’s Environmental Effects Statement (ESS) approval process and “clarity over new federal regulation of gas markets”.
The project is also facing strong resistance from environmentalists and some community members, who argue it is too close to residential areas and schools, and fear it will set back Australia’s climate ambitions by entrenching the use of planet-heating fossil fuels.
While Australia is a major producer of gas, massive amounts are locked in to contracts to be sold to overseas buyers, or are in faraway parts of the country where it is either too expensive or physically impossible to supply demand centres in the south that need the fuel the most. Offshore gas fields in Bass Strait, which once supplied up to half of east-coast gas demand, are now in rapid decline, and authorities including the Australian Energy Market Operator (AEMO) have issued repeated warnings about supply shortfalls in coming years.
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