A bid by aspiring LNG importer Viva Energy to secure access to a congested pipeline west of Melbourne threatens to slash the value of the country’s biggest gas storage plant, owned by Queensland Investment Corporation.
The proposal made to the energy market operator has created significant divisions between Viva and other producers and users of the infrastructure who say consumers will bear the brunt through higher gas prices.
Viva has told the energy market operator that unless it gets full access to the line, it may not proceed with its planned LNG import terminal at Geelong, potentially locking in damaging gas shortages and higher prices for homes and businesses in the state.
But suppliers and infrastructure owners west of Geelong say the import plan will distort the market and harm the ability to source that they claim would be lower cost and lower emissions local gas. They say the pipeline delivering gas into Melbourne already at full capacity when demand is at its highest.
In particular, the value of QIC-owned Lochard Energy’s Iona storage plant near Port Campbell, a critical piece of infrastructure needed to meet spiking gas demand in winter, would be cut if its access to the grid is reduced, said Josh Stabler, managing director of adviser Energy Edge.
QIC bought the plant from EnergyAustralia for $1.8 billion in 2015.
Lochard Energy chief executive Tim Jessens said the import plan would constrain domestic supplies into Melbourne.
“New supply sources should be assessed against the objectives of energy security, affordability and a lower carbon future,” Jessens said, adding that regulators should “consider the assessment of any single development in the context of whole of energy system benefits and implications”.
APA Group, which owns Victoria’s gas transmission system, and has long opposed imports, said it was clear Viva’s proposal could result in higher cost, higher emissions LNG being prioritised over Australian gas.
“APA strongly believes that any LNG import terminal should compete on equal footing with other supply sources,” said Darren Rogers, group executive, energy solutions at APA. “Our focus must be on prioritising the lowest cost gas for consumers and business.”
But Viva argues the priority should be on preventing shortages and that the LNG terminal will provide the biggest benefit to consumers by increasing the availability of gas to key markets including Melbourne.
“Fixing the gas crisis and securing supply for the lowest cost is what we should all be trying to achieve,” said Lachlan Pfeiffer, Viva’s chief strategy officer, of the company’s plans. “It should not be about protecting incumbent commercial positions in assets that won’t solve the problem, and ultimately risks shorting the Victorian market for gas.”
Yet buyers of gas are also worried. EnergyAustralia, the country’s third-biggest retailer of electricity and gas, said it had reservations about Viva’s plan, even though it supports more supply in the state.
“We would be concerned about preferential access without addressing supply restrictions and believe pipeline capacity needs to be resolved as part of the LNG terminal proposal,” a spokeswoman said.
The stoush is the latest example of how bottlenecks in the gas grid are contributing to Victoria’s growing crisis in the supply of a fossil fuel on which it is still heavily dependent for manufacturing and household use, despite its electrification strategy.
Victoria faces the threat of gas shortages on peak-demand winter days as early as 2028 amid declining Bass Strait supplies and limited pipeline capacity from Queensland, causing it to turn to LNG imports.
But the possibility of importing LNG – as both Viva and fuels storage player Vopak want to do west of Melbourne as well as Andrew Forrest’s Squadron Energy in NSW – has caused consternation among gas suppliers who say it will distort the market and harm access to Australian gas that is lower cost and involves fewer carbon emissions.
Viva, better known as the owner of the Shell network of petrol stations, is aiming to give the final go-ahead to build its Geelong terminal in the December quarter after winning planning approval from the Allan Labor government in May. It has yet to sign contracts with customers to buy LNG, but AGL Energy and Origin Energy have said they see a need for imports later this decade and are looking at LNG as a future option for supply.
The import plan still requires underwriting support from the energy market operator, something that is being urgently sought by Victoria but is opposed by Queensland and South Australia, which have done much more to develop their own gas resources.
Viva told the Australian Energy Market Operator in its proposal dated July 7 that its plan would lift the volume of gas available westwards of Melbourne, effectively increasing the capacity of the pipeline by more than 45 per cent.
The increase arises because of how close to Melbourne the gas would be injected into the grid – at Lara, 50 kilometres away – requiring no additional pipeline upgrades. In contrast, Iona storage and Beach Energy and Amplitude Energy’s Otway Basin fields lie about 200 kilometres from Melbourne, requiring extra investment in compression to boost flows into the city.
Viva wants a new system set up at the Lara injection point, using so-called capacity certificates that give rights to participants to access the pipeline. However, capacity on the pipeline is already covered by existing rights.
“If this change does not proceed, Viva considers there is a risk that the [import terminal] project will not proceed and consequently either the Victorian [wholesale gas market] will have a gas supply shortfall, higher gas prices, and inefficient and unnecessary gas infrastructure investment or all or some combination of these outcomes,” the company told AEMO.
Viva said the alternative ways to expand gas transportation capacity in the absence of LNG imports, as outlined in Victoria’s gas planning report, could cost between $500 million and $1 billion. It said the projects could not be delivered by 2029 to avert the expected shortfall by that time.
Energy Edge’s Stabler said that if Viva were able to secure preferential access, “then the peak day capacity constraint would be worn by Iona, Otway and other upstream incumbents”.
“As the value of storage is primarily dictated by the effectiveness of peak deliverability, this would heavily impact the value of Lochard’s Iona gas storage facility,” he said. “Understandability, Lochard would be concerned with this proposal.”
Snowy Hydro, which last year signed a 25-year deal with Lochard to access storage at Iona, declined to comment, as did Beach and Amplitude.
Extracted in full from: https://www.afr.com/companies/energy/victoria-s-gas-giants-fight-over-access-to-key-pipeline-into-melbourne-20250710-p5mdyx
