Santos has bought the Hunter Gas Pipeline as it seeks to develop a new $1.2bn route for its long- stalled Narrabri project in NSW amid intensifying pressure from Labor for big producers to supply more affordable gas into the east coast market.
The gas giant had been weighing up two rival pipelines to transport supplies from Narrabri, with the Hunter pipeline in competition with APA Group’s Western Slopes for the deal.
Buying the 833km pipeline would see the creation of a second route to southern markets for Queensland gas, flowing from Wallumbilla down to Newcastle in NSW and near the Narrabri facility, which remains subject to a final investment decision by Santos after field appraisal work finishes.
Santos said buying the pipeline would allow it to work with infrastructure owners to deliver gas to east coast domestic markets “in the shortest time frame possible” with hydrogen blending also an option in the long term.
“At a time when the ACCC is forecasting domestic gas shortfalls, our Narrabri project, which is 100 per cent committed to the domestic market, will inject new supply into southern domestic markets and put downward pressure on gas prices for New South Wales businesses, manufacturers and families,” Santos midstream and clean fuels president Brett Woods said.
“It will make more gas available to cover peak demand periods, especially in circumstances where gas power generators are called on unexpectedly to replace wind, solar and coal outages, as we have seen this winter.” Gas shortages in Victoria this winter have threatened to plunge the nation’s electricity market into a fresh crisis, after the power grid operator warned that the system would be fragile for weeks.
The competition watchdog has also cautioned that LNG exporters – including Santos which runs the GLNG gas export plant in Queensland – have been put on notice to plug a 56 petajoules shortfall or face sweeping regulatory intervention.
The Hunter Gas Pipeline was part-owned by Garbis Simonian, boss of the failed east coast retailer Weston Energy, whose collapse in May added to a crisis in the national electricity market.
Construction of the pipeline, which already has planning approval, is expected to start in early 2024, indicating gas from Narrabri by 2026 according to Macquarie, noting Santos will seek to bring in a developer on the pipeline or infrastructure owner to shoulder the cost. “Having a large connected pipeline through the basin should open up further gas development opportunities throughout the Gunnedah. The transport tariffs are likely to result in a lower delivered gas cost for customers when compared to the alternate proposal,” analysts said.
Narrabri could supply half of NSW’s gas needs but the project has been delayed for years and a final investment decision is expected in 2023 following a 12-18 month appraisal program.
The current single pipeline route – APA Group’s South West Queensland pipeline and the Moomba-Sydney pipeline – are already nearly fully contracted for the 2023 and 2024 winter periods, UBS has said. However, other sources said there had been unused capacity available to move additional gas south from Queensland every day so far this winter. The move also appears to have sidelined a 460km pipeline proposed by APA, known as Western Slopes, which would have connected Narrabri to network via the Moomba-Sydney pipeline.