INTERVIEW: Venice Energy in talks for offtake agreements as Australia LNG project nears FID

Venice Energy is engaging with major domestic utilities for "take or pay" offtake agreements as it gets closer to reaching a Final Investment Decision on its Outer Harbor LNG Project in Adelaide, Australia, a company executive told S&P Global Commodity Insights in an interview.

"The project is proceeding with the aim to have it fully operational by 2026 for a period of at least 10 years," Venice Energy Director Business Development Robin Coombe said May 15 on the sidelines of the APPEA 2023 conference in Adelaide, adding that construction at the project is expected to begin in October after the anticipated end-August FID.

The facility will have a capacity of 110 PJ/year, Coombe said.

The advancement of this project comes at a time when domestic energy security is a pertinent theme for Australia and the government has undertaken several gas intervention measures to ensure stable local supplies.

Venice Energy's project is centered around securing an adequate supply of LNG to fill the projected shortfall in domestic supply on the East Coast gas market including South Australia, Coombe said.

The project comprises two new berths, cryogenic piping, LNG loading arms and other infrastructure in the Outer Harbor at Port Adelaide, he said.

The development of this project will help meet the gas supply requirements of both South Australia and Victoria, particularly in the peak winter season, Coombe said, noting that Venice Energy's planned terminal can receive LNG from the Northwest Shelf region, Gladstone terminals and other international LNG sources.

"To enable our project, the SEA Gas pipeline is investigating compression enhancements to make it a bidirectional to supply firm gas to Victoria," Coombe said.

In July 2021, Venice Energy has also signed an agreement with Greece's GasLog for the supply of a Floating Storage Regasification Unit, or FSRU, for the project.

The 145,000-cu m FSRU is an open cycle unit. "It will be one of the first ships to use shore-based power to run the regasification process saving at least 27,000t of CO2 and 50,000t of NO2 per annum," he said.

"Upon completion of construction, Venice will have exclusive use for the FSRU berth at Port Flinders and then we have priority access for the LNG carrier berth...We are aiming for a 10-year fixed term with options for extension," Coombe said.

Venice Energy is also in the process of attracting finance and is speaking to investors both pre and post-FID to take the project forward, Coombe said.

As Venice Energy is developing the project based on a "take or pay" infrastructure-based model to get a minimum return to provide that regasification service, it is not taking a commodity risk, Coombe shared.

"That is up to the utility companies that use our facilities. They recognize the value in having energy security through LNG supplies," he said.

As per last week's announcement Venice Energy has put in place an SPV "Venice Regas" as the JV and delivery entity for the project, Coombe said.

"Detailed discussion with Marubeni and others on partnering in Venice Regas are continuing in support of the planned FID date," he said, noting that Venice Regas is to also undertake a formal market sounding for a JV partner over the next two months.

The company has also been approached by at least one party for developing LNG bunkering facilities at Flinders port to service cruise ships and container vessels, he said.

"The Outer Harbor project continues to be the company's core focus...However, we could look at similar or related opportunities in the future and pursue them," Coombe added.

Gas vital part of energy mix

Gas will continue to play a vital role to meet Australia's energy security as it is the cleanest fossil fuel, Coombe said.

"Our LNG import project is a means to supply gas where it is needed and overcome supply deficiencies caused by declining gas fields and seasonal pipeline constraints," Coombe said.

Its need is also underpinned by Australia's move to shut down coal-fired power plants. Along with those retirements, gas-fired power is and will continue to be an important means to fill the gap, he noted.

The 1.5 GW Liddell coal-fired power plant has been shut down in April.

The 2.9-GW Eraring coal-fired power station is set to retire in 2025 unless the government funds an extension creating an even larger gap in southeast power supply with an additional 11.5 GW of coal-fired capacity expected to retire between 2026 and 2033 — resulting in a total 50% reduction in coal capacity from current levels, S&P Global said in a note on April 24.

Meanwhile, the role of gas is also changing from just delivering gas from one point to the other to a gas storage solution to cater to the volatility in energy demand with the rise of renewables, Coombe said.

"And that is where LNG projects are the perfect solution. An FSRU can store 3 or more petajoules of gas per cargo. So, gas can be injected into the market as and when needed," he added.