Oz Watchdog Calls for Lower East Coast Gas Prices: Update

(Updates with comments by ex-minister Ferguson)

High gas prices in the Australian east coast markets pose threat to manufacturers and can force them to relocate or shut down, Australian Competition and Consumer Commission (ACCC) chair Rod Sims said in a speech to the Australian Domestic Gas Outlook conference in Sydney March 5.

“Gas suppliers would be well advised to consider what they can do to provide immediate price relief to the manufacturing sector,” Sims told the conference. “We must all remember that, when the LNG projects in Queensland were being commissioned, the suppliers promised that this crisis wouldn’t happen.”

The three LNG exports projects – ConocoPhillips-Origin Energy Australia Pacific LNG (APLNG), Shell’s Queensland Curtis LNG and the Santos-led Gladstone LNG – on Australia's east coast are all in Queensland. All three rely on coalbed methane (CBM) from the Bowen and Surat Basins. 

Sims said producers must accelerate investment in gas exploration and development, and governments must, in turn, allow access to gas resources and encourage development of gas infrastructure. In fact, lack of sufficient gas is also having an impact on the east coast export projects.  A recent report by consultancy EnergyQuest said that Australia’s east coast LNG projects face significant headwinds owing to a gas supply shortage. 

“To avert the current crisis, these actions were required a number of years ago,” Sims said. “What is puzzling is why we are not seeing more investment in new gas supplies now.”

The watchdog would be closely monitoring decisions made by gas producers to develop their reserves and resources, he said. 

Governments must also actively monitor gas producers’ compliance with their licence requirements, Sims said, and ensure large gas producers do not withhold gas from development and production to suit their own commercial priorities.

The ACCC’s gas inquiry, which commenced in April 2017, highlighted that in the first half of 2017 domestic gas users were paying more for gas produced in Australia than overseas buyers. Gas prices reduced and stabilised after an initial agreement between the federal government and gas producers in late 2017.

However, current wholesale gas prices remain two to three times higher than historical prices, he said.

During the course of its gas inquiry, the ACCC had worked to promote transparency, monitor progress of reforms and report on the operation of the gas market.

“Market participants in the east coast have less access to information on key demand and supply fundamentals than their counterparts in New Zealand, the US and the European Union,” Sims said.

Ex-minister Ferguson calls for more supply

Addressing the same event, former Australian energy minister Martin Ferguson said that the exports from Queensland were not the real problem: what was needed was more supplies in states that have applied moratoria on production, he said, rather than LNG import terminals, which would raise prices, not dampen them. Gas in the east was becoming more, not less expensive to produce and shipping it south would not solve the problem.

Ferguson was energy minister when the Queensland coalbed methane-based LNG projects got underway.

The switch in supply from south to north to increasingly north to south adds costs – the Australian Competition and Consumer Commission estimates that shipping Queensland gas to Melbourne adds $2 to $4/Gj, he said.

“New South Wales and Victoria have chosen to abdicate their responsibilities – they offer no solution to the mounting pressures on customers in their states. Both governments prefer to out-source their states’ gas needs to other states,” he said.

The local reservation plan to ensure gas demands at home took priority is also dangerous, he said. “The Australian Domestic Gas Security Mechanism (AGDSM) was introduced as a short-term measure with a sunset clause of 2023. The threat of restricting LNG exports was intended to force LNG projects to divert more gas into the east coast market. But it did not stimulate production in the southern markets where the risk of a shortfall lies.

“Unfortunately, the federal opposition has doubled down on export controls, announcing that it intends to make the ADGSM permanent and to effectively use export controls to set price caps in the market. This is a dangerous path for a country which relies on continuing international investment to develop its resources – it would be especially dangerous if it led to contracts being overturned."