Australia’s energy future may hinge on Santos’ Narrabri gas project decision

SYDNEY (Bloomberg) --A key battle over the future of fossil fuels and climate change will soon be decided in a sleepy corner of Australia.

After a decade-long struggle pitting a mix of farmers, grandmothers and activists against oil producers and local and federal governments, a panel will decide by early next month whether to greenlight a A$3.6 billion ($2.6 billion) natural gas project.

The resolution will arrive amid growing global opposition to all fossil fuels over their contribution to climate change, and as traditional producers such as BP Plc pivot toward green power. As both a major exporter of energy and a victim of the devastation of a warming planet, Australia’s path forward may illustrate how communities weigh the economic benefits of gas against environmental damage.

Santos Ltd. says its Narrabri project, about 500 kilometers (311 miles) northwest of Sydney, is essential for the country to move from coal-fired power toward a cleaner network based on wind and solar. Opponents say the transition should happen without major new gas projects.

“It’s wrong to suggest that projects such as Narrabri are some sort of short-term bridge,” said Simon Corbell, chief executive officer at renewables-focused consulting firm Energy Estate. “It’s not a short-term bridge, it’s a long-lived investment that exposes us to significant environment and climate risk.”

Narrabri has the potential to supply enough gas to meet half of demand in New South Wales, Australia’s most populous state, and will help kickstart the nation’s economic recovery from Covid-19, according to Adelaide-based Santos. Gas is the “perfect partner” for renewables, providing the reliability needed to back up the variable nature of solar and wind power, it says.

Santos Chief Executive Officer Kevin Gallagher argued at a community hearing on the project last month that a number of proposed liquefied natural gas import terminals could not compete on price with locally sourced gas. Businesses in New South Wales also pay as much as A$4 per gigajoule ($2.70 per million British thermal unit) more for their gas than counterparts in Queensland due to transportation costs and pipeline tariffs, he said.

Perdaman Group has signed a preliminary agreement to take gas from Narrabri for a proposed ammonium nitrate plant nearby. Santos expects more industrial customers to follow, attracted by the prospect of a new inland rail link to east coast ports and urban centers.

Energy Estate’s Corbell said that the history of Australia’s gas market demonstrated that low prices could not be guaranteed over the long term. An overbuild of LNG export capacity in Queensland in the past decade is widely blamed for lifting domestic prices, as traditional supply from the Bass Strait fields off the south coast taper off.

“Price volatility will continue at a time when there are more stable clean, zero-emissions alternatives. We need to be focused on those alternatives,” Corbell said.

Prime Minister Scott Morrison’s government has called for a “gas-led” economic Covid-19 recovery and a task force on helping the manufacturing industry will recommend subsidies for gas infrastructure, the Sydney Morning Herald and Age newspapers reported last week.