High Gas Prices Impacting Oz East Coast Businesses: ACCC

High gas prices remain a critical issue for domestic gas users and could see more businesses move or close in the east coast, according to the Gas Inquiry 2017‑20 Interim Report released by the Australian Competition and Consumer Commission (ACCC) May 30.

The report shows that most commercial and industrial Australian gas users will pay more than $9/gigajoules (GJ) for gas this year, and some more than $11/GJ.

Speaking at the Australian Petroleum Production & Exploration Association (Appea) conference May 30, ACCC chair Rod Sims said the fact wholesale gas prices remain so high means many Australian manufacturers are struggling to compete internationally.

“Commercial and industrial gas users have been telling us for some time that at those gas prices, their operations are not sustainable in the medium to longer term,” Sims said.

“Businesses that rely heavily on gas are increasingly likely to relocate from the east coast or wind up their operations.”

The ACCC’s report notes that, after increasing over the course of 2018, expected LNG netback prices have fallen significantly over the past six months. An LNG netback price is a measure of an export parity price that a gas supplier would expect to receive for exports.

“We expect that those same suppliers have revised their prices down this year to reflect these latest expectations as quickly as they escalated them last year,” Sims said. "So far we are not seeing this."

The interim report notes the Australian Energy Market Operator’s launch in March of a capacity-trading platform to allow unused pipeline capacity to be traded or acquired through auctions. Initial data obtained by the ACCC suggests some market participants are making use of this new auction platform and transporting material quantities of gas from Queensland to New South Wales and Victoria.

However, Sims emphasised that the level of future domestic prices in the southern states would depend on supply in the southern states.

“I urge producers to carry out the investment in gas production they planned,” Sims said. “Also, as I have done for some time now, I urge state governments to play their role in providing access to gas resources by adopting policies that consider and manage the risks of individual gas development projects, rather than implementing blanket moratoria and regulatory restrictions.”

Actions taken by the oil and gas industry: Appea

Commenting on the ACCC report, oil and gas industry body Appea said the Gas Market Inquiry 2017-2020 report confirms the actions taken by the oil and gas industry to bring more gas into the domestic market will ensure domestic gas supply until at least 2023.

Appea CEO Andrew McConville said the ACCC report showed the industry has increased substantially the flow of gas to the east coast domestic market and this will continue into the future.

“The ACCC finds that prices have eased since early 2017, with most price offers now in the range of $9‑11/GJ. Producers – particularly LNG producers – have made significant volumes of additional gas available to the local market,” McConville said.

In the past two and a half years, there have been significant announcements from Arrow Energy, Shell Australia, Senex, Cooper Energy, Strike Energy, GLNG, Australia Pacific LNG, Origin Energy and Santos to bring on new supply in various parts of eastern Australia.

“This means the industry continues to meet in full the commitments provided to the Australian Government in 2017 and reaffirmed in 2018,” McConville said. “The report also restated the ACCC’s concern that customers in New South Wales and Victoria will continue to pay more for gas because of state government restrictions on developing local gas resources.”

State governments need to play their role in providing access to gas resources by adopting policies that consider and manage the risks of individual gas development projects, rather than implementing blanket moratoria and regulatory restrictions, he said.

“The real answer to getting gas prices down is to support safe and responsible development of resources,” McConville said. “Working together to make this happen should be the focus of government and industry – to support all Australian businesses that rely on sustainable gas supply.”