Reforming Australia’s Domestic Gas Security Mechanism: guidelines

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23 February 2023

Consultation Hub
Department of Industry, Science and Resources
CANBERRA ACT 2601

Reforming Australia’s Domestic Gas Security Mechanism: guidelines

Cooper Energy Limited (ASX: COE) (“Cooper Energy”) welcomes the opportunity to provide its feedback to the Department of Industry, Science and Resources on the proposed reforms to the Australian Domestic Gas Security Mechanism (“ADGSM”) that will commence on 1 April
2023.

Please note that this submission does not address Cooper Energy’s feedback on the Federal
Government’s gas policy intervention announcements in December 2022. We provided that feedback in our separate submission to the Department of Treasury, dated 7 February 2023.

About Cooper Energy

Cooper Energy is an ASX listed company, 95% owned by Australians. For the last ten years we have focussed on exploring, developing and producing gas supplies for South-east
Australian customers. We employ over 120 people – soon to increase to 150 people – all of them in Australia and many in regional Australia. We are certified net zero by Climate Active.
We are the first and only gas producer thus far in Australia to be so certified.

Cooper Energy currently supplies approximately 6% of South-east Australian 1 gas demand, with plans to invest to increase this contribution to 15% by 2030, subject to acceptable regulatory arrangements.

Over the past seven years Cooper Energy has invested over one billion dollars to build a business around two gas supply hubs which are ideally located close to the main South-east
Australian market. This twin-hub business includes:

• producing gas fields in the Gippsland and Otway basins (offshore Victoria); and
• onshore gas processing plants located at Orbost and at Port Campbell, both in regional
Victoria.

1
Comprising Victoria, New South Wales, South Australia, the Australian Capital Territory and Tasmania.

Cooper Energy Limited | ABN 93 096 170 295
2

The Cooper Energy approach is to pursue win/win solutions and long-term relationships with partners and key stakeholders – including State and Federal Governments, our customers, the communities in which we operate, other producers, our service providers and our financiers – while keeping jobs and revenue here in Australia. At Cooper Energy our actions are guided at all times by the Cooper Energy Values.

The importance of increased investment in Gippsland and Otway basins

The current outlook for domestic gas supply remains uncertain. Recent investment in gas exploration and development has fallen short of the level required to offset the decline in existing gas production. The ACCC’s conclusions in its Gas Inquiry January 2023 Interim
Report, released on 27 January 2023 (the “January Report”), relevantly included the following:

“The shortfall projected for the southern states in 2023 is likely to persist over the
longer term, with projected shortfalls in the period from 2024 to 2034. The magnitude of
the shortfall in the southern states will increase over time.”
“To avoid shortfalls in the longer term, additional gas supply will be needed from many
new developments across many basins, in addition to one or more LNG import
terminals.”
The optimal outcome, that achieves the most competitive future gas prices and guarantees energy security for South-east Australia, is to develop as much gas supply as possible from sources closest to the largest domestic demand regions i.e. Victoria and New South Wales.
This will result in the least possible volume of LNG imported; considered to be the highest cost marginal source of supply.

The Government’s 2021 National Gas Infrastructure Plan identified that the remaining offshore conventional reserves and resources in the Gippsland and Otway basins “represent the lowest cost source of gas supply for south-east Australia”. This is because those reserves and resources:

• are located closest to where the gas is needed; and
• use existing physical infrastructure, resulting in lower costs and accelerated commercialisation timeframes.

Independent analysis by Wood Mackenzie projects that over 5.5 Tcf of commercial reserves remain in the Gippsland and Otway basins, equivalent to over a decade of Southern states gas demand2.

In short, the Gippsland and Otway basins have two distinct advantages:

• they can deliver cost competitive and timely supply; and
• their future supply potential is also very significant.

The development of cost competitive local supply will result in the most competitive gas prices, lower emissions to support net zero targets being met, improved energy security, more local jobs, retention of Australian manufacturing and higher economic contributions from taxes, royalties and local spending.

2
Comprising Victoria, New South Wales and South Australia.
3

Growing gas supply from the Otway Basin

Cooper Energy is currently close to completing Front End Engineering Design (“FEED”) for the potential investment of up to $750 million in the Otway Basin, to develop up to 30 PJ per annum of new gas supply – known as the Otway Phase 3 Development (“OP3D”).

Prior to the Federal Government’s gas policy intervention announcements in December 2022, the timing for OP3D final investment decision (“FID”) was targeted by mid-2023, with gas production to commence in 2025. However – as with all major resources projects – this project cannot proceed without conducive regulatory and policy settings. Therefore, we have been forced to defer FID and place the project under review.

Without the OP3D project, the Cooper Energy-operated Athena Gas Plant near Port Campbell will most likely cease production within a short time frame, with a resulting loss of employment, loss of the significant economic benefits that accrue from the plant into the local economy, and the loss of regional gas processing capacity and future gas supply growth opportunities.

In addition to OP3D, Cooper Energy has high-graded four offshore conventional gas prospects with a total future production potential of approximately 470 PJ 3, requiring an indicative investment of $1.2 billion into exploration and development. The chance of technical success for each prospect assessed is greater than 65% and each offshore well costs upwards of $100 million. Successful development of one or more prospects would allow for OP3D gas production rates to be significantly increased and sustained.

Growing gas supply from the Gippsland Basin

Over the past five years Cooper Energy has acquired several exploration permits and undertaken extensive geoscience studies in the offshore Gippsland Basin. In addition to the array of exploration prospects, the Company has 2C discovered resources in the Gippsland
Basin today of 121 PJ of natural gas at the Manta gas field.

We have been planning a significant exploration campaign in the basin which, if successful, will deliver further new supply from 2028 of over 20 PJ per annum from the Manta gas field alone. Three high-graded offshore conventional gas prospects have also been identified with a total future production potential of approximately 860 PJ and a technical chance of success of at least 25%.

Cooper Energy is uniquely positioned with a clear focus on discovered reserves and identified low risk resources, owned infrastructure, distinct capabilities, relationships and the other key enablers required to continue to make a meaningful contribution to growing domestic gas supply for South-east Australia in the near term. This is where and when it is most needed, from gas supplies close to key demand centres, while maintaining our net zero accreditation.

Reforms to the ADGSM

Cooper Energy acknowledges the current challenges facing the Eastern Australia energy market. We support the proposed reforms to the ADGSM to ensure sufficient gas supply is made available to the domestic market on the premise that the ADGSM remains a short-term solution, there is no detriment to the LNG export industry and there are no negative impacts for Australian and foreign investors in that industry.

3
Representing the gross mean recoverable resource for Elanora, Isabella, Heera and Pecten East. Refer to Cooper Energy ASX announcement dated 9 February 2022.
4

Greater allocation of capital to South-east Australia exploration and development opportunities will increase the volume and improve the speed at which we, and other producers, can bring new competitive gas supply to market.

To encourage new competitive supply, and maximise the economic value for Australia, Cooper
Energy recommends the following in respect of the proposed reforms to the ADGSM:

1) The ADGSM is amended so that when determining an Allowable Volume permission, the
Minister must have regard to the level of investment made by the LNG project or its
participants in new domestic gas supply i.e. if LNG project participants make a
commitment to funding the development of new domestic gas supply, such commitment
has the effect of increasing the Allowable Volume permission, all other things being
equal.
2) An industry led solution is developed to overcome barriers to accelerate development of
new domestic gas supply. This could involve participation from industry participants to
develop a voluntary gas supply plan, and cooperative solutions to address barriers to
development of new gas supply (i.e. a commercial funding framework).

These recommendations would:

• incentivise investment in new domestic gas supply as the optimal long-term solution to
ensure the most competitive gas prices for South-east Australia;
• maximise the economic value for Australia;
• limit the need for application of actual export controls under the ADGSM; and
• preserve the opportunity for imported LNG to meet high demand periods.

Cooper Energy appreciates the opportunities we have had to engage with the Government thus far and welcome further discussions as soon as can be arranged.

Yours sincerely
Cooper Energy Limited

David Maxwell
Managing Director & CEO