‘Money where our mouth is’: Matt Kay’s Beach Energy hunting for gas amid fears of south-east shortfall
Matt Kay spends much of his time focused on a fast-approaching problem: south-eastern Australia is running out of gas.
“It’s not a matter of if it’s going to happen, it’s when,” says Kay, the chief executive of oil and gas producer Beach Energy. “It consumes my thinking on a daily basis, and it has for the last five years.”
For decades, BHP and ExxonMobil’s enormous gas rigs rising out of the Bass Strait have comfortably supplied nearly half of eastern Australia’s needs, keeping the fuel flowing reliably and affordably for cooking and heating, as a source of energy or to fuel manufacturing.
But those days now look numbered. The mature gas fields of the south are rapidly drying up. And energy authorities are sounding the alarm: homes and businesses in Victoria, New South Wales and South Australia could face winter gas shortfalls sometime between 2023 and 2026 unless more supply is urgently brought to market.
It might seem bizarre that Australia – with its abundant natural resources and mantle as the world’s biggest shipper of liquefied natural gas (LNG) – could possibly be facing a shortfall of supply. But most LNG is produced in the nation’s north, far away from the big demand centres in Melbourne and Sydney, and is contracted to overseas buyers.
Meanwhile, down south, years of restrictive government policies against onshore drilling have meant the depleting fields in the Gippsland and Otway basins have not been sufficiently replaced with new sources of supply.
In the hunt for more gas, few companies are doing as much heavy lifting as Beach, a producer headquartered in Adelaide and a key domestic supplier.
“We are putting our money where our mouth is,” says Kay. “We are a circa $4 billion market-capitalisation company and we are investing $1 billion in the east coast side of the business alone to get more gas into the system.”
With the only active drill rig currently in Victoria, Beach has recently landed two important discoveries in the Otway Basin: the near-shore Enterprise-1 gas field, and the Artisan-1 field 30 kilometres off the coast.
The company, which counts media mogul Kerry Stokes’ Seven Group, as its biggest shareholder, has a target of refilling its 205 terajoule-a-day Otway Gas Plant near Port Campbell by the 2023 financial year ahead of the emerging supply deficit.
But Australia’s oil and gas producers are warning it will be impossible to boost locally sourced supply in time and on the scale needed to fill the southern shortfall. Increasingly, it appears that developing shipping terminals to import cargoes of LNG into the southern states will have to be part of the solution. Billionaire Andrew “Twiggy” Forrest’s private company Squadron Energy has the most advanced proposal for an LNG terminal – at Port Kembla near Wollongong – and is aiming to begin imports by 2023.
Kay, a proud Australian, finds this situation embarrassing when it comes up in his discussions with international investors.
“Unfortunately, I think it’s an admission of failure – a failure of the system to have to get to this point,” he says. “People scratch their heads, ‘How can this possibly be, in such a resources-rich country?’
“But that’s where we are.”
Although the looming supply crunch means gas will be in hot demand in the near term, what lies ahead longer term as the world decarbonises is less certain.
The COVID-19 crisis, which sapped fuel demand and gutted oil and gas prices, has also accelerated assumptions from energy majors BP and Shell about the pace of the world’s shift away from carbon-intensive fossil fuels such as coal, oil and gas in favour of cleaner sources, raising suggestions that challenging years could become more commonplace.
Big investors, too, are increasingly questioning the role of gas in a decarbonising world, concerned about its emissions footprint and worried that new fossil fuel operations risk becoming stranded assets under the Paris agreement’s goals to slow global warming.
Yet the Morrison government and producers including Beach insist gas has a key role to play as the necessary “transition fuel” in the shift to a greener power grid. Gas, they say, burns with fewer greenhouse gas emissions than coal, but is still capable of dispatching on-demand energy to support wind and solar generators during periods when their weather conditions are unfavourable.
“Clearly we’ve got a transition period happening over the next 20-30 years from a sustainability perspective,” says Kay. “The future for Beach is being a great supporter of that transition to renewables and a lower-carbon future. It’s something we think about every day and are working on.”