Shell Agrees Gas Supply Deals in Australia

   By Robb M. Stewart 
 

MELBOURNE, Australia--Under pressure to ensure industry in Australia isn't hit with a shortfall of natural gas, Royal Dutch Shell PLC (RDSA) said it had agreed short-term sales deals with a power supplier and a maker of explosives.

The energy company is reducing exports of gas from its QGC operation in tropical Queensland in order to supply additional gas to the domestic market this year, said Zoe Yujnovich, the recently appointed chairwoman of Shell's Australian business.

The supply contracts add to sales agreements signed with power generators and retailers, and bring total domestic sales from QGC to about 11% of east-coast demand for 2017, Ms. Yujnovich said.

The company said it would supply about 8 petajoules of gas to Engie SA's (ENGI.FR) Pelican Point power plant in South Australia state for five months over the peak winter period, and had agreed an 18-month deal to supply gas from Queensland's Surat Basin fields to Orica Ltd.'s (ORI.AU) Yarwun explosives and cyanide operation.

"Shell's business on the east coast has reacted to the gas market," she said.

Amid warnings of a looming gas shortage in the southeast and volatile power prices, Prime Minister Malcolm Turnbull last month extracted a commitment from energy companies to supply enough gas to meet local demand during peak periods and to work toward increasing supplies longer term. At a meeting in Canberra with company executives, the prime minister held out the prospect of regulating exports or other measures if the industry wasn't able to ensure adequate supply.

Days earlier, a report from the operator of the country's gas and electricity markets projected a shortfall in gas-power electricity generation in southeast states from as early as next summer if no action was taken.

Shell's new supply deals come on the heels of an agreement last week by Origin Energy Ltd. (ORG.AU) to supply gas to Engie's Pelican Point plant over three years from July, and in return buy electricity from the plant to supply to its own customers.

Worries about power supplies came to a head late last year when South Australia was hit by several blackouts, including a statewide outage after a violent storm that left many homes and businesses without power for several days. The prospect of further blackouts prompted Tesla Inc.'s Elon Musk to offer--initially via Twitter and later during a phone calls with political leaders including Mr. Turnbull-- his company's energy-storage technology as a solution to the state's energy troubles.

Industry groups have for several years warned of rising prices and risks to supply as major gas-export plants ramp up production of liquefied natural gas. Three massive LNG plants on Curtis Island in northeastern Queensland, operated by Shell, Origin and Santos Ltd. (STO.AU), respectively, are tapping methane buried in inland seams of coal and converting it to LNG for export to Asia.

The Shell and Origin-led ventures gave a commitment to Mr. Turnbull to being net domestic gas suppliers and the third operation said it would take the matter on notice.

Write to Robb M. Stewart at [e-mail]

(END) Dow Jones Newswires

April 06, 2017 01:57 ET (05:57 GMT)

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