Santos' Gas Cartel Strangles Australia's East Coast Market

Australia's east coast gas market has been plagued by tensions due to the country's reliance on exports, particularly from Santos' Gladstone LNG (GLNG) project. Saul Kavonic, head of energy research at MST Financial, attributes this tension to the once-in-a-generation investment boom that opened up the country's east coast gas market to exports.

Kavonic notes that during this period, three giant plants were built on Queensland's Curtis Island: Asia Pacific LNG (APLNG) operated by Origin Energy, Queensland Curtis LNG (QCLNG) run by Shell, and GLNG managed by Santos. These projects struck huge, long-term deals to supply gas to buyers overseas.

However, only two of the plants had enough gas to meet their overseas commitments and supply domestic customers. The GLNG project, in particular, is 'fundamentally in a tight spot' due to its limited gas reserves, says Kavonic. It can only meet its long-term LNG contracts but has no excess gas to sell to the domestic market.

Santos initially assured the public that its GLNG project would have 'no direct implications for domestic gas prices' and would not divert gas from local markets to export markets. However, investor presentations from 2011 reveal a different story: Santos knew that opening Australia's eastern market to exports would lead to 'permanent upward pressure on gas prices.'

The legacy of this is overbuilt export capacity, with Santos exploiting it most viciously since the collapse of the gas price in 2015. This has driven up energy prices and opened a political vacuum filled with bad ideas and sophistry.