Yesterday’s announcement of a $100 million natural gas supply deal between Santos and a new zinc mine is a big win for Queensland jobs, the environment and royalties to Government.
It is also another very positive sign that the gas industry is continuing to fulfil its pledge to satisfy domestic demand for gas as well as its export commitments.
The 9-petajoule 4-year deal signals a likely green light for a return to production for the New Century zinc mine, which has been a big employer in Mt Isa, as a world top-10 producer. A mine restart means more jobs, a boost to the region and more royalties for the Queensland Government to spend on roads, schools and hospitals.
East Coast gas producers are going out of their way to demonstrate their ability and willingness to satisfy the tight market for gas. Yesterday’s Santos announcement is another demonstration that producers are getting the job done – to the benefit of the nation and domestic gas customers.
However, there is one slightly darker aspect to the current situation. Without access to new gas resources, the industry will find it increasingly difficult to be able to sign deals such as that announced by Santos yesterday.
In its announcement of the Santos supply deal, New Century identified securing enough gas at an economic price to be one of the key risks on the road to a project restart. It was essential for the company to secure a gas-fired solution to its power needs, “as opposed to more expensive on-site diesel generation”.
So, the gas-supply deal turns out to be a big won for the environment as well as for jobs and Government royalties. Diesel power is among the worst in terms of carbon emissions. Natural gas is the best non-renewable source.
The economic and environmental positives in the New Century announcement were noted by Santos and the broader industry.
Queensland industry representative Rhys Turner said the agreement was further evidence of the industry’s strong commitment to provide competitively-priced gas to the domestic market.
“The announcement shows that Queensland’s gas industry is producing enough gas to meet its export commitments and supply the domestic market.”
As we have noted previously, Queensland is essentially carrying the day for southern states in a tight East Coast gas market where the two biggest consumers, NSW and Victoria are producing very little onshore gas.
Mr Turner noted the added cost this imposed on southern gas customers:
“The failure of New South Wales and Victoria to develop their own gas supply means customers in those states are paying a premium for their gas. The Australian Competition and Consumer Commission says transport costs can add 25 per cent to the price southern customers pay for Queensland gas.”
As the International Energy Agency warned yesterday, removing the illogical state blockers to developing resources is essential if Australia is to deliver secure and affordable energy.
A Santos statement said the New Century deal was a boon for regional Queensland and a demonstration of natural gas as the most appropriate energy choice when reliability of supply is essential. It went on:
“The use of gas to generate electricity for the mine is not only the best economic outcome, it is the best environmental solution to deliver the high reliability required.
It will also be in the lowest cost quartile globally, demonstrating the competitiveness of both Australian industry and Australian gas.”
The last statement is a message to activists at The Australia Institute who have claimed that Queensland’s coal-seam gas is globally non-competitive and should be left in the ground.
The kicker from Santos aligns with the IEA and APPEA messages:
“Access to new and existing supply sources in Queensland as well as new sources in NSW and the NT is critically important to enable us to continue to deliver competitive gas for Australian industry on the east coast as mature fields decline.”
Further to the point on the industry doing its bit to meet domestic demand, Santos said that when added to deals announced last year, the New Century commitment would take total company contribution to 2018 East Coast demand to about 70 petajoules, which is 11 per cent of the ACCC’s total expected demand.