Santos Ltd (ASX: STO) announced to the market this morning that it would be redirecting some of its gas to customers in South Australia. This state is currently in the throes of an energy shortage that made national headlines when US company Tesla was hired to build the world's largest battery in the state.
Santos has signed a 15 petajoule (PJ) gas contract to supply gas to the Pelican Point power station in South Australia, starting in January 2018. Pelican Point is being restarted in order to add further supply to the market. Santos' supply contract will be fulfilled with some gas from the Gladstone LNG (GLNG) plant as well as gas from within Santos' own portfolio, and the company expects to announce more domestic supply contracts over the coming months.
This "…shows that we are working with the Turnbull Government to deliver affordable and reliable energy to all Australians, and as a leading domestic gas producer across this country, Santos is best placed to bring energy security to Australian households and businesses," according to Santos CEO Kevin Gallagher.
Santos and other gas producers like AGL Energy Ltd (ASX: AGL) and Origin Energy Ltd (ASX: ORG) have previously come under fire from politicians, investors, and journalists alike for their approach to the Australian gas market. Reportedly, Australian gas could be bought in Japan for prices cheaper than it was available in Victoria. This is due to export contracts that mandate a certain amount of sales going overseas.
What wasn't clear from the announcement was the relative cost or benefit to Santos of selling more gas inside Australia. While the 15PJ contract is not significant on its own, multiple contracts in time may prove meaningful for company earnings.
